505
Chapter 41
Corporate Merger, Consolidation,
and Termination
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
B1. A merger involves the legal combination of two or more corporations, only one of
which continues to exist.
B2. The power to merge is conferred by statute.
B3. When a consolidation takes place, the newly formed corporation issues shares or pays
fair consideration to the shareholders of any corporation that ceases to exist.
506 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
B4. The results of a consolidation are different from those of a merger—both companies
remain.
B5. If one corporation owns all of the shares of another corporation, it is referred to as
the target corporation.
B6. The board of directors of each corporation involved must approve a share exchange.
B7. The officers and other employees of each corporation involved must approve a
merger.
B8. Except in a short-form merger, the shareholders of both corporations must approve a
merger or other plan of consolidation.
B9. Shareholder appraisal rights do not usually extend to short-form mergers.
B10. A corporation that is selling all of its assets must obtain approval only from its
shareholders.
B11. Generally, a corporation that purchases the assets of another corporation is not
automatically responsible for the liabilities of the selling corporation.
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B12. A tender offer can be conditioned on the receipt of a specified number of outstanding
shares by a certain date.
B13. A self-tender is a company’s offer to acquire stock from its own shareholders.
B14. Winding up is the process by which corporate assets are valued before a merger or
other plan of consolidation.
B15. Dissolution can be brought about voluntarily by the directors and shareholders of a
corporation.
B16. A target corporation’s attempted takeover of an acquiring corporation is referred to
as the Pac-Man defense.
B17. When a corporation is dissolved voluntarily, the corporation must notify its creditors
of the dissolution.
B18. An attempted takeover can succeed even if it would result in a substantial increase in
the acquiring corporation’s market power.
508 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
B19. In some circumstances, a shareholder may petition a court to have the corporation
dissolved.
B20. When dissolution takes place by voluntary action, the shareholders are responsible for
winding up the affairs of the corporation.
MULTIPLE CHOICE QUESTIONS
B1. Like other corporations, Riveters Construction Company can expand its operations
through
a. a liquidation and distribution of its assets.
b. a purchase of substantially all of the assets of another corporation.
c. articles of dissolution filed voluntarily with the state.
d. the appointment of a receiver to wind up the corporate affairs.
B2. Guaranty Financial Corporation merges with Fraternal Bank Corporation, with
Guaranty absorbing Fraternal. After the merger
a. a different, new entity is the surviving corporation.
b. Guaranty and Fraternal are both surviving corporations.
c. Guaranty is the surviving corporation.
d. Fraternal is the surviving corporation.
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B3. Corn Candy Corporation (CCC) has a right of action against Bio Farms, Inc. CCC merges
with Agri Sweeteners, Inc., with Agri absorbing CCC. After the merger, CCC’s right of
action against Bio Farms can be exercised by
a. CCC.
b. Agri Sweeteners.
c. Bio Farms.
d. no one.
B4. A merger between Grain Mills Corporation and Farm2Fork Distribution Inc. can be
expressed as Grain Mills + Farm2Fork =
a. Farm2Fork.
b. Harvest Dining Corporation.
c. Harvest Dining Corporation + EZ Brewing Company.
d. EZ Brewing Company.
Fact Pattern 41-1B (Questions B5-B7 apply)
Shrimp Boat Company decides to consolidate its operations with Trawlers, Inc., to form
Coastal Fishers Corporation (CFC).
B5. Refer to Fact Pattern 41-1B. Trawlers had rights in certain property. After the
consolidation, CFC acquires the rights
a. automatically.
b. only after completing certain additional statutory procedures.
c. only if Trawlers’ former shareholders expressly approve.
d. only if the acquisition is a specified result of the consolidation.
510 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
B6. Refer to Fact Pattern 41-1B. Trawlers owed money to View Harbor Storage and other
creditors. After the consolidation, CFC must pay
a. all of Trawlers’ debts.
b. half of Trawlers’ debts.
c. none of Trawlers’ debts.
d. only debts that Trawlers incurred after consolidation was proposed.
B7. Refer to Fact Pattern 41-1B. The articles of consolidation differ from Shrimp Boat’s
articles of incorporation. The articles
a. are replaced by Trawlers’ articles of incorporation.
b. are replaced by the articles of consolidation.
c. effectively prevent the consolidation.
d. prevail.
B8. Office Company and Keen Company wish to combine all assets, stock, and personnel
into a new firm to be called OK Corporation. This is
a. a consolidation.
b. a merger.
c. a share exchange.
d. a takeover.
B9. Realty Credit Company and Security Mortgage Corporation plan to consolidate. Most
likely, the articles of consolidation will be filed with
a. the county recording office.
b. the local realtors’ association.
c. the state’s secretary of state.
d. the federal Bureau of Land Management.
CHAPTER 41: CORPORATE MERGER, CONSOLIDATION, & TERMINATION 511
NAT: AACSB Reflective AICPA Legal
B10. Pink Boutique Company and Purple Kiosk Company decide to consolidate. This
corporate combination does not require the approval of
a. Pink and Purple’s directors.
b. Pink and Purple’s officers.
c. Pink’s shareholders.
d. Purple’s shareholders.
B11. Mall Stores Corporation owns 95 percent of the shares of Niche Shoppes Corporation.
Through a certain transaction, Mall Stores combines with Niche Shoppes, but only
Mall Stores continues to exist. This is
a. a consolidation.
b. a share exchange.
c. a short-form merger.
d. a termination.
B12. Nina is a dissenting shareholder of Mediterranean Olive Oil Company whose
management is considering a tender offer by Healthwise Foods, Inc. Nina and
Mediterranean cannot agree on the fair value of the stock. The value will be
determined by
a. a court.
b. Nina.
c. Mediterranean.
d. Healthwise.
512 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
B13. Nadia is a shareholder of Open Air Productions, Inc. Nadia could normally exercise
appraisal rights if Open Air participated in
a. a share exchange.
b. a dissolution.
c. a takeover.
d. a winding up.
B14. Java Corporation wants to purchase all of the assets of Kaffee Corporation. Loki is a
Kaffee shareholder. The approval of Loki and other Kaffee shareholders is necessary
a. in all circumstances.
b. in no circumstances.
c. only if Kaffee will be paid with unauthorized, unissued stock.
d. only if Java assumes Kaffee’s liabilities as part of the deal.
B15. Giant Lift Corporation purchases all of the assets of Heavy Hydraulics Corporation.
With respect to Heavy Hydraulics’s liabilities, Giant Lift is
a. automatically responsible.
b. not responsible under any circumstances.
c. responsible if Heavy Hydraulics is a competitor of Giant Lift.
d. responsible if the sale is actually a merger or consolidation.
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B16. Ruff Games, Inc., wishes to acquire a controlling interest in Sport Toy Company by
buying its stock. A public offer by Ruff Games to Sport Toy shareholders is
a. a buyout notice.
b. a golden parachute.
c. an acquisition call.
d. a tender offer.
B17. Motor Parts Corporation offers to buy the stock of NASCAR Products Corporation
(NPC). NPC’s directors oppose the offer. Orin and other NPC shareholders file a suit,
alleging a breach of the directors’ fiduciary duties. Most likely, the court will
a. apply the business judgment rule to analyze the directors’ acts.
b. dismiss the suit as a non-judicial dispute over “fair value.”
c. evaluate the terms of the deal on the basis of antitrust law.
d. order the shareholders to be paid a “premium” for their stock.
Fact Pattern 41-2B (Questions B18–B20 apply)
Mega Corporation wants to gain control of MiniCo, Inc. The companies negotiate for several
months, without coming to terms. Mega decides to pursue a takeover attempt. MiniCo
decides to resist.
B18. Refer to Fact Pattern 41-2B. MiniCo is
a. an alien corporation.
b. an acquiring corporation.
c. a receiver.
d. a target corporation.
514 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
B19. Refer to Fact Pattern 41-2B. MiniCo issues shares that its shareholders can exchange
for cash if a takeover is successful, intending to make Mega’s takeover attempt too
expensive. This is a
a. crown jewel defense.
b. Pac-Man defense.
c. poison pill defense.
d. white knight defense.
B20. Refer to Fact Pattern 41-2B. MiniCo solicits a merger with NuNation Corporation, a
third party, which makes a better offer to MiniCo’s shareholders. NuNation is a
a. crown jewel.
b. Pac-Man.
c. poison pill.
d. white knight.
ESSAY QUESTIONS
B1. Marble Meats Corporation (MMC) proposes to combine with Natural Farms, Inc., and
asks MMC shareholders to vote on the proposal. Omar, an MMC shareholder, votes
against it, but is outvoted by the other shareholders. Is there an action that Omar can
take to avoid being forced to go along with the transaction? If so, what can he do?
After the combination, Natural Farms ceases to exist. MMC is the surviving firm. What
type of combination is this?
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B2. Brock is a shareholder of Competent Homebuilders Corporation (CHC). For the last few
years, business has not been profitable for CHC. The firm has lost money on its
operations. There has been some profit through sales of company assets, but the
board of directors has refused to declare a dividend. This last year, the firm’s
accountants failed to file federal income tax returns and the board refused to pay the
tax. Brock takes a close look at the firm and protests to the board, in particular over
the failure to declare a dividend, but the board ignores the complaint. Which of these
events, if any, would form a ground for a court to order the dissolution of CHC, on
Brock’s petition? If the court denies the petition, could Brock and the other
shareholders dissolve CHC?
516 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS