Chapter 21 Test bank – Static Key
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.
Allergan’s sale of its generic drug business to Teva Pharmaceutical was an example of a divestiture.
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 expected savings from merging two banks often 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.
It is always more efficient to integrate vertically than to outsource part of one’s business.
13.
By offering to buy shares directly from a target’s 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. That is a good reason for firms to merge.
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 sets 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, its market value is likely to be higher than its stand-alone value.
28.
Management buyouts are generally all-equity financed by the new shareholders.
29.
Cross-border mergers are often motivated by tax considerations.
30.
Tax inversion refers to the fact that mergers often result in extra capital gains taxes for shareholders.
31.
One motive for acquiring a firm is to stop wastage 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 would otherwise have been 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.
their operations.
It is easier for individual investors to diversify their risk by buying shares in different firms than for the firms to combine
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:
54.
An increase in earnings per share may be increased by a merger if the:
55.
The cost of a merger may outweigh the potential gain if the:
56.
Firm B’s 1 million shares of stock currently sell for $12 each, but firm A is preparing a tender offer of $18 per share. Firm A
estimates the NPV of the merger to be $5 million. What percentage of the merger gains will be captured by firm B’s
stockholders?
57.
The cost of a merger equals the:
58.
ABC Corp. has offered 1 million shares having a total market value of $8 million for XYZ. After the merger is announced,
shares in ABC trade for $7 each. If ABC is confident about XYZ’s value, then the cost of the merger:
59.
In the case of a merger that is stock financed, the merger cost may change if the:
60.
The shareholders of firm A have offered 1 million shares valued at $10 each to acquire firm B. After the merger is
announced, stock A trades for $9 per share. Which of the following statements is false?