Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
1. When a firm is taken over, its management is usually replaced.
2. Takeovers are often described as part of a broader market for corporate control.
3. A vertical merger is one between firms at different levels of the production process.
4. Instead of selling part of its operations, companies sometimes spin off a business by
separating it from the parent firm and distributing to its shareholders the stock in the newly
independent company.
5. Pfizer sold its infant nutrition business to Nestlé as part of its strategy to concentrate its
focus on its core activities.
6. Carve-outs and spin-offs both provide shares of the new firm to the divesting firm's
shareholders.
7. If a segment of a business is unrelated to the rest of the firm's activities, that segment is
more likely to be spun off or carved out.
8. Changing management is the only reason that firms make acquisitions.
9. A merger must have the approval of at least 51% of the shareholders of each firm.
10. The big savings from merging two banks would come from consolidating operations and
eliminating redundant costs.
11. A conglomerate merger is defined as the merger of two or more Fortune 500 companies.
12. Many companies are finding it more efficient to vertically integrate than to outsource many
of their activities.
13. By offering to buy shares directly from shareholders, the acquiring firm can bypass the
target firm's management altogether.
14. Vertical integration makes sense when two firms are highly dependent upon each other.
15. Evidence shows that investors will generally pay a premium for diversified firms, thus firms
should merge for this reason.
16. Synergy is equal to the value of a combined firm minus the total value of the firms prior to
merger.
17. Target firms frequently deter potential bidders by devising poison pills, which make the
company unappetizing.
18. Strictly speaking, the purchase of the stock or assets of another firm is an acquisition.
19. A typical poison pill may give existing shareholders the right to buy the company's shares
at half price as soon as a bidder acquires more than 15% of the shares. The bidder is not entitled
to the discount.
20. Firm A's shareholders will be better off with a stock offer than with a cash offer if A makes
too generous of an offer for Firm B.
21. The Williams Act in addition to state laws set forth the rules for tender offers.
22. Economies of vertical integration are one possible source of synergy in mergers.
23. Contrary to logic, firms that enjoy complementary resources in the production process are
rarely good candidates for merger.
24. An economic gain is derived from mergers when two firms are worth more combined than
separate.
25. Amendments to the corporate charter that attempt to circumvent mergers are known as
poison pills.
26. On average, stockholders in target firms earn higher returns from mergers than the
acquiring firm's stockholders.
27. If investors believe a firm may be acquired, they may cause the true market value of the
firm to be overstated by overvaluing the firm's shares.
28. Management buyouts are generally all-equity financed by the new shareholders.
29. Bank of America's shareholders would have been better off if the firm had not acquired
Countrywide Financial in 2007.
30. Duke Energy and Progress Energy anticipated their merger would result in cost savings in
fuel and labor costs.
31. One motive for acquiring a firm is the acquisition of the target firm's cash reserves.
32. The 1980s were a time of little merger activity.
33. In general, shareholders of the target firm benefit from takeovers.
34. Leveraged buyouts are acquisitions where a large fraction of the purchase price is
financed with debt.
35. The value of the target firm's bonds tend to decrease when a leveraged buyout is
announced.
36. The free-cash-flow theory supports the notion that the market gain from an LBO is
basically the present value of the firm's future cash flows that were kept from being wasted.
37. Only the U.S. has antitrust laws that can affect mergers and acquisitions.
38. In a merger the acquiring firm buys only the debt of the target firm.
39. It is easier for individual investors to diversify their risk by buying shares in different firms
than for the firms to combine their operations.
40. In mergers financed by cash, the merger cost is not affected by the size of the merger
gain.
41. When shareholders attempt to garner additional votes in an attempt to oust management,
it is called a:
42. When one firm merges with another, the:
43. A tender offer is one in which the firm's:
44. When an outside group acquires a firm, primarily through the use of borrowed funds, the
acquisition is known as a:
45. When a firm's management takes the firm private with the aid of substantial debt, it is
known as a management:
46. A spinoff is an action in which:
47. If an automobile manufacturer were to acquire one of the firms listed below, which
acquisition would be called a horizontal merger?
48. If Snapper Lawnmowers were to acquire Briggs and Stratton (gasoline-powered engines),
the merger would be classified as a:
49. A conglomerate merger occurs when:
50. Mergers may provide reductions in average production cost as a result of:
51. Which one of the following might you recommend to a firm with excessive free cash
flow?
52. Diversification is often a poor motive for mergers because:
53. One indication that investors expect no synergy from a merger would be that the:
