Chapter 26
Mergers and Acquisitions
Multiple Choice Questions
1.
Last month, Keyser Design acquired all of the assets and liabilities of Tenor
Machine Works. The combined firm is known as Keyser Design. Tenor
Machine Works no longer exists as a separate entity. This acquisition is
best described as a:
2.
The Cat Box acquired The Dog House. As part of this transaction, both firms
ceased to exist in their prior form and combined to create an all-new entity,
Animal World. Which one of the following terms best describes this
transaction?
3.
The Daily News published an ad today wherein it announced its desire to
purchase shares of a competing newspaper, the Oil Town Gossip. Which
one of the following terms is best described by this announcement?
4.
Some Freight Line Express shareholders are very dissatisfied with the
performance of the firm’s current management team. These shareholders
want to gain control of the board of directors so they can have the power to
oust current management. As a means of gaining control, these
shareholders have select candidates for all of the open positions on the
firm’s board of directors. Since they have insufficient votes to guarantee the
election of these individuals, they are contacting other shareholders and
asking them to vote with them on this important matter. Of course, the
current management team is encouraging shareholders to vote for their
candidates for the board. Which one of the following terms is best
illustrated by this situation?
5.
A group of individual investors is in the process of acquiring all of the
publicly-traded shares of OM Outfitters. Once the shares are acquired, they
will no longer be publicly traded. Which of the following terms applies to
this process?
6.
The current president and vice-presidents of Mountain Top Consulting have
decided to form a private investment group with the sole purpose of
purchasing Mountain Top Consulting. These individuals have found a lender
who will lend them 85 percent of the purchase cost if they pledge their
personal assets as collateral for the loan. The current officers agree to this
arrangement, borrow the funds, and purchase Mountain Top Consulting.
The purchase of this firm is referred to as a:
7.
Johnson Manufacturers and Peabody Enterprises are both manufacturers of
plastic products, such as plastic plates and silverware. These two firms
have decided to work together to find a more efficient way to recycle
rejected products so that any rejected material can be reused. Thus, each
company is going to assign two of its engineers to this project and have
agreed to share any and all costs incurred in this process. This project is an
example of a:
8.
Diet Soda and High Caffeine are two firms that compete in the soft drink
market. These two competitors have decided to invest $10 million to form a
new company, Fruit Tea, which will manufacture flavored teas. This new
firm is defined as a:
9.
Alliance Chemicals recently acquired Swenson Industries in a transaction
that produced a NPV of $1.3 million. This NPV is referred to as:
10.
Roger is a major shareholder in RB Industrial Supply. Currently, Roger is
quite unhappy with the direction the firm is headed and is rumored to be
considering an attempt to take over the firm by soliciting the votes of other
shareholders. To head off this potential attempt, the board of RB Industrial
Supply has decided to offer Roger $35 a share for all the shares he owns in
the firm. The current market value per share is $32. This offer to purchase
Roger’s shares is commonly referred to as:
11.
Which one of the following generally has a flip-in provision that significantly
increases the cost to a shareholder who is attempting to gain control over a
firm?
12.
Melvin was attempting to gain control of Western Wood Products until he
realized that the existing shareholders in the firm had the right to purchase
additional shares at a below-market price given his hostile takeover
attempt. Thus, Melvin decided to forego investing in this firm. What term
applies to the tactic used by Western Wood Products to stave off this
takeover attempt?
13.
Nieger Mills engages in farming, trucking of farm products, and the milling
and retailing of farm grains. The firm has decided to sell its farming
operations to Jasper Farms. This sale is referred to as a(n):
14.
Princeton Enterprises is a diversified company. In addition to its primary
business operations, the firm is also the sole shareholder of a wholly owned
subsidiary. As part of its restructuring plan, Princeton has decided to
implement an IPO offering for shares in the subsidiary. This offering is
equivalent to a 25 percent ownership stake in the subsidiary. What is the
distribution of these shares called?
15.
Family Travel Plans is the sole shareholder in its subsidiary, Traveler’s
Insurance Co. Family Travel Plans has decided to divest itself of its
insurance operations and does so by distributing the shares in the
subsidiary to the shareholders of Family Travel Plans. This distribution of
shares is called a(n):
16.
Blasco Distributors has become a large conglomerate. Its board of directors
recently concluded that the firm has become so large that it has lost its
efficiency. The board further concluded that the firm could be both more
efficient and more profitable if it were divided into three distinct and
separate firms. The board presented this suggested to the firm’s
shareholders and those shareholders voted and agreed to divide the firm.
Dividing this firm into separate entities is referred to as a(n):
17.
Which one of the following statements correctly applies to a legally defined
merger?
18.
Which of the following statements correctly apply to a merger?
I. The titles to individual assets of the acquired firm must be transferred
into the acquiring firm’s name.
II. The merged firm will retain the use of the acquiring company’s name.
III. The acquiring firm does not have to seek approval for the merger from its
shareholders.
IV. The shareholders of the acquired company must approve the merger.
19.
In a merger the:
20.
Which of the following increase the costs associated with a merger?