Chapter 41
Mergers and Takeovers
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, after
which both continue to exist.
B2. Federal law establishes the specific procedures for a share exchange.
B3. A merger, a consolidation, or a share exchange changes the rights and
liabilities of shareholders, the corporation, and the corporation’s creditors.
B4. In a merger, the surviving corporation inherits the disappearing corporation’s
rights.
2 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
B5. The results of a consolidation are the same as those of merger.
B6. In a share exchange, some or all of the shares of one corporation are
exchanged for the shares of another, and both corporations cease to exist.
B7. The officers and other employees of each corporation involved must approve a
merger or share exchange plan
B8. A short-form merger requires the approval of the shareholders of both
corporations.
B9. The shareholder’s appraisal right extends to mergers and consolidations.
B10. The shareholder’s appraisal right does not extend to share exchanges and
sales of substantially all of the corporate assets.
B11. Generally, a corporation that purchases the assets of another corporation is
automatically responsible for the liabilities of the selling corporation.
B12. Certain federal guidelines significantly constrain and often prohibit mergers that
could result from a purchase of assets.
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B13. A target corporation is a corporation being acquired through the purchase of a
substantial number of the voting shares of its stock.
B14. Generally, an offering corporation must notify the Securities and Exchange
Commission and the target corporation’s management at the time a tender
offer is made.
B15. A target corporation’s attempted takeover of an acquiring corporation is
referred to as the poison pill defense.
B16. A board of directors’ response to a takeover attempt must be rational in relation
to the threat posed.
B17. A corporation’s creditors want to be notified when the firm is dissolved so that
they can make a tender offer.
B18. The state cannot dissolve a corporation under any circumstances.
B19. When dissolution takes place by voluntary action, the members of the board of
directors are responsible for winding up the affairs of the corporation.
4 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
B20. When deciding which form of business organization to choose,
businesspersons normally consider only one factor.
MULTIPLE CHOICE QUESTIONS
B1. Like other corporations, Restwell Hotels Inc. can extend its operations through
a. liquidating and distributing its assets.
b. buying the assets of, or a controlling interest in, another corporation.
c. filing articles of dissolution with the state.
d. appointing a receiver to wind up the corporate affairs.
B2. Burst-o’-Flavor Burger Restaurant Corporation merges with Chick-E Chicken
Franchise Corporation, with Burst-o’-Flavor absorbing Chick-E Chicken. After
the merger
a. a different, new entity is the surviving corporation.
b. Burst-o’-Flavor and Chick-E Chick’n are both surviving corporations.
c. Burst-o’-Flavor is the surviving corporation.
d. Chick-E Chicken is the surviving corporation.
B3. A merger between Blended Coffee Corporation and Cowland Creamery Inc.
can be expressed as Blended Coffee + Cowland Creamery =
a. Cowland Creamery.
b. Delite Dairy Corporation.
c. Delite Dairy Corporation + EZ Stir & Sip Inc.
d. EZ Stir & Sip Inc.
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B4. Ground-Up Construction Corporation (CCC) has a right of action against
Heavyquip, Inc. Ground-Up Construction merges with Investors Development,
Inc., with Investors absorbing Ground-Up. After the merger, Ground-Up’s right
of action against Heavyquip can be exercised by
a. Ground-Up.
b. Investors.
c. Heavyquip.
d. no one.
Fact Pattern 41-1B (Questions B5-B7 apply)
DIY Fasteners Company decides to consolidate its operations with Evergrip Studs,
Inc., to form Fit-Rite Bolts & Screws Inc.
B5. Refer to Fact Pattern 41-1B. Evergrip had rights in certain property. After the
consolidation, Fit-Rite acquires the rights
a. automatically.
b. only after completing certain additional statutory procedures.
c. only if Evergrip’s former shareholders expressly approve.
d. only if the acquisition is a specified result of the consolidation.
B6. Refer to Fact Pattern 41-1B. Evergrip owed money to Guaranty Bank and other
creditors. After the consolidation, Fit-Rite must pay
a. all of Evergrip’s debts.
b. half of Evergrip’s debts.
c. none of Evergrip’s debts.
d. only debts that Evergrip 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 Evergrip’s articles of incorporation.
b. are replaced by the articles of consolidation.
6 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
c. effectively prevent the consolidation.
d. prevail.
B8. Best Recording Corporation and CD Production Company wish to combine all
assets, stock, and personnel into a new firm to be called DigiSongs Inc. This is
a. a consolidation.
b. a merger.
c. a share exchange.
d. a takeover.
B9. Garden Supply Company and Home & Lawn Corporation plan to consolidate.
Most likely, the articles of consolidation will be filed with
a. the county recording office.
b. the local retailers’ association.
c. the state’s secretary of state.
d. the U.S. Department of Commerce.
B10. Scuba Adventures Inc. and Tours of the Sea Company decide to consolidate.
This corporate combination does not require the approval of
a. Scuba and Tours directors.
b. Scuba and Tours officers.
c. Scuba shareholders.
d. Tours shareholders.
B11. Online GPS Corporation owns 95 percent of the shares of Pinpoint App Inc.
Through a certain transaction, Online GPS combines with Pinpoint App, but
only Online GPS continues to exist. This is
a. a consolidation.
b. a share exchange.
CHAPTER 41: MERGERS AND TAKEOVERS 7
c. a short-form merger.
d. a termination.
B12. Alana is a dissenting shareholder of Bulls-Eye Arrow Company whose
management is considering a tender offer by Crossbow, Inc. Alana and Bulls-
Eye cannot agree on the fair value of the stock. The value will be determined
by
a. a court.
b. Alana.
c. Bulls-Eye.
d. Crossbow.
B13. Imogen is a shareholder of Jazz Street Studios, Inc. Imogen could normally ex-
ercise appraisal rights if Jazz Street participated in
a. a share exchange.
b. a dissolution.
c. a takeover.
d. a winding up.
B14. Ramon is a shareholder of Quantum Mechanix Corporation. Ramon could
normally exercise appraisal rights if Quantum participated in
a. a consolidation.
b. a dissolution.
c. a liquidation.
d. a winding up.
B15. Bread & Bagels Corporation wants to purchase all of the assets of Coffee &
Tea Inc. Dolly is a Coffee & Tea shareholder. The approval of Dolly and other
Coffee & Tea shareholders is necessary
8 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
a. in all circumstances.
b. in no circumstances.
c. only if Coffee & Tea will be paid with unauthorized, unissued stock.
d. only if Bread & Bagels agrees to assume Coffee & Tea’s liabilities.
B16. Brite Cosmetics Corporation purchases all of the assets of Color-All Lipsticks
Corporation. With respect to Brite Cosmetics’ liabilities, Color-All Lipsticks is
a. automatically responsible.
b. not responsible under any circumstances.
c. responsible if Color-All Lipsticks is a competitor of Bright Cosmetics.
d. responsible if the sale is actually a merger or consolidation.
B17. Ribeye Restaurants Inc. wants to acquire or merge with SteakHouse
Corporation. Ribeye should
a. file a plan of merger with the secretary of state.
b. file an article of merger with SteakHouse.
c. make a tender offer to the SteakHouse shareholders.
d. make a tender offer to the Ribeye shareholders.
Fact Pattern 41-2B (Questions B18–B19 apply)
Popular Movies Corporation wants to gain control of Quality Films, Inc. The
companies negotiate for several months, without coming to terms. Popular Movies
decides to pursue a takeover attempt. Quality Films decides to resist.
B18. Refer to Fact Pattern 41-2B. Quality Films issues shares that its shareholders
can exchange for cash if a takeover is successful, intending to make Popular
Movies’s takeover attempt too expensive. This is a
a. crown jewel defense.
b. Pac-Man defense.
c. poison pill defense.
d. white knight defense.
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B19. Refer to Fact Pattern 41-2B. Quality Films solicits a merger with Real2Reel
Corporation, a third party, which makes a better offer to Quality Films’s share-
holders. Real2Reel is a
a. crown jewel.
b. Pac-Man.
c. poison pill.
d. white knight.
B20. Study Aids Inc. offers to buy the stock of Test Prep Products Corporation. Test
Prep’s directors oppose the offer. Some of the Test Prep 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.
ESSAY QUESTIONS
B1. Natural Food Corporation proposes to combine with Organic Produce, Inc., and
asks Natural Food shareholders to vote on the proposal. Phoebe, a Natural
Food shareholder, votes against it, but is outvoted by the other shareholders. Is
there an action that Phoebe can take to avoid being forced to go along with the
transaction? If so, what can she do? After the combination, Organic Produce
ceases to exist. Natural Food is the surviving firm. What type of combination is
this?
10 TEST BANK B—UNIT EIGHT: BUSINESS ORGANIZATIONS
B2. Alex is a shareholder of Brick & Mortar Retail Corporation. For the last few
years, business has not been profitable for Brick & Mortar. 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. Alex 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 Brick & Mortar, on Alex’s petition? If the court
denies the petition, could Alex and the other shareholders dissolve Brick &
Mortar?
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