Legal Forms of Acquisition
21 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What happens to the acquired firm in a merger?

  • It becomes part of the acquiring firm. (correct)
  • It continues to operate independently.
  • It is sold to another company.
  • It merges and retains its own identity.

    • What is the primary advantage of a merger?

  • It is legally simple and cost-effective. (correct)
  • It always requires government approval.
  • It creates a new legal entity.
  • It allows for stockholder voting rights.

    • What occurs during a consolidation?

  • The acquiring firm absorbs the acquired firm completely.
  • Only the acquired firm is terminated.
  • The acquired firm retains its name.
  • An entirely new firm is created. (correct)

    • What is a tender offer?

    <p>A public proposal to purchase shares from stockholders.</p> Signup and view all the answers

    What is a disadvantage of a merger?

    <p>It must be approved by a significant percentage of stockholders.</p> Signup and view all the answers

    What is a common strategy used to circumvent management resistance in stock acquisitions?

    <p>Direct offer to target firm’s shareholders</p> Signup and view all the answers

    Which of the following is NOT a source of synergistic effects in mergers?

    <p>Enhanced Customer Loyalty</p> Signup and view all the answers

    In an acquisition of stock, what is not necessary?

    <p>A vote by the shareholders.</p> Signup and view all the answers

    What advantage does acquiring a firm's assets offer compared to stock acquisition?

    <p>Requires no formal vote from stockholders</p> Signup and view all the answers

    Which statement best describes the outcome of a merger?

    <p>Only the acquiring firm's identity remains.</p> Signup and view all the answers

    How does an acquisition of stock differ from a merger?

    <p>It can occur without a tender offer.</p> Signup and view all the answers

    How can tax considerations influence a merger?

    <p>Facilitating tax savings through accumulated losses</p> Signup and view all the answers

    What is the primary objective of increasing market power through mergers?

    <p>To reduce competition in the market</p> Signup and view all the answers

    What might delay the realization of a merger after a stock acquisition?

    <p>Tender offers from minority shareholders</p> Signup and view all the answers

    Which of the following best describes the rationale of revenue enhancement in mergers?

    <p>To create a larger customer base for combined entities</p> Signup and view all the answers

    What is a potential downside of acquiring a firm’s assets?

    <p>Costly transfer of titles to individual assets</p> Signup and view all the answers

    What is one potential source of revenue increase for a firm?

    <p>Acquisition of undervalued assets</p> Signup and view all the answers

    Which analysis uses proforma statements to forecast incremental cash flows?

    <p>Discounted Cash Flow Analysis</p> Signup and view all the answers

    What two key items are needed for Discounted Cash Flow Analysis?

    <p>Forecasted cash flows and a discount rate</p> Signup and view all the answers

    How is a company's value estimated using Market Multiple Analysis?

    <p>By multiplying net income by a market multiple</p> Signup and view all the answers

    Why might a target firm be considered a good acquisition candidate?

    <p>Its assets can be replaced more affordably than their market value</p> Signup and view all the answers

    Study Notes

    • Merger: Complete absorption of one firm by another; acquiring firm retains its name and identity, acquiring all assets and liabilities.
    • Example of Merger: Philippine National Bank (PNB) merged with Allied Bank, with PNB as the surviving entity.
    • Consolidation: Creation of an entirely new firm, terminating the previous legal existence of both merging firms.
    • Example of Consolidation: PCIBank and Equitable Bank became Equitable PCI Bank after merging.

    Key Advantages and Disadvantages

    • Merger advantages: Legally straightforward, cost-effective compared to other acquisition forms.
    • Merger disadvantage: Requires approval through a two-thirds vote by stockholders of both firms.
    • Consolidation challenges: Creation of a new firm diminishes the identity of existing firms.

    Types of Stock Acquisition

    • Acquisition of Stock: Involves purchasing a firm's voting stock for cash, shares, or other securities.
    • Tender Offer: Public offer for shares made directly to shareholders, bypassing management and Board of Directors.
    • Stock acquisition can be unfriendly, often encountering resistance from target management.
    • Majority shareholders may delay realization of merger through tender offer holds.

    Acquisition of Assets

    • Involves buying most or all assets of a firm; does not necessitate cessation of the target firm’s existence.
    • Requires formal stockholder votes from the selling firm; mitigates issues with minority shareholders.
    • Cost implications arise due to the need for transferring titles to individual assets.

    Rationale for Mergers

    • Synergy: Incremental net gain from combining two firms, arising from operating economies, financial economies, differential efficiency, and increased market power.
    • Tax Considerations: Profitable firms can acquire firms with tax losses, leading to immediate tax savings.
    • Revenue Enhancement: Combined firms may generate more revenue than separate firms through strategic benefits and market power increase.
    • Asset Purchase Below Replacement Cost: Firms may acquire undervalued assets rather than opting for costly exploratory methods, exemplified by Chevron’s acquisition of Gulf Oil.

    Valuation of Target Firm

    • Discounted Cash Flow Analysis: Uses capital budgeting techniques to forecast the firm’s incremental free cash flows and discounts them to determine value.
    • Market Multiple Analysis: Values a target company by applying market multiples (like P/E ratio) to key financial metrics such as net income, illustrating valuation techniques with examples from forecasted earnings.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    ACQUISITION-OF-MANG-INASAL.pptx

    Description

    This quiz explores the concept of mergers and consolidations in business acquisitions. Learn about the process where one firm absorbs another and the implications of such transactions. Test your knowledge on various acquisition strategies and examples within the corporate landscape.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser