39 Questions
What are the two primary mechanisms used for control in the market?
Acquisition and Merger
In a Horizontal Merger, the target and acquirer are in which type of industry?
The same industry
What is the primary reason for a Stock Swap in an acquisition?
For the target shareholders to swap their old stock for new stock
Which of the following is NOT a reason to acquire a company?
Increasing the share price
What is the main advantage of a Vertical Merger?
Merging two companies in the same industry at different stages of the production cycle
Which valuation method incorporates synergies from the acquisition?
Discounted cash flows
What is the primary objective of a Conglomerate Merger?
To diversify into unrelated industries
What is the main benefit of a Vertical Integration merger?
Merging two companies in the same industry at different stages of the production cycle
Which type of merger involves companies in different industries?
Conglomerate Merger
What is the primary reason for overconfident CEOs to pursue mergers?
They truly believe in their above-average abilities
What is the purpose of a poison pill defense strategy used by a target company?
To make it more difficult for an acquirer to replace the target's management team
What is the primary purpose of a staggered board of directors in the context of a takeover?
To make it more difficult for an acquirer to replace the entire board at once
What is the primary advantage of a leveraged buyout (LBO) for the corporate raider?
The raider can borrow money through a shell corporation and use the target's shares as collateral
How does the 'Revlon duties' principle affect the target company's board of directors during a takeover?
The board must seek to maximize the value received by the target company's shareholders
What is the primary purpose of a 'white knight' defense strategy in a takeover?
To encourage a friendlier company to acquire the target
How do 'golden parachutes' affect the target company's management team during a takeover?
They make the management team more receptive to a takeover offer
What is the primary purpose of a 'toehold' stake in a target company for a corporate raider?
To initiate a takeover attempt
What is the primary purpose of a 'freezeout merger' in the context of a takeover?
To allow the acquiring company to gain full control of the target company
How does competition in the takeover market affect the premium paid to target company shareholders?
Competition increases the premium paid to target shareholders
What is the primary advantage of a stock swap transaction compared to a cash transaction in a takeover?
It allows the target company's shareholders to defer taxes until the shares are sold
What are the two primary mechanisms used for control in the market?
Acquisition and Merger
Which type of merger involves companies in different industries?
Conglomerate Merger
What is the main benefit of a Vertical Integration merger?
Merger of companies in the same production cycle
Which valuation method incorporates synergies from the acquisition?
Discounted cash flows
What is the primary reason for overconfident CEOs to pursue mergers?
They truly believe in their above-average abilities
What is the primary purpose of a Stock Swap in an acquisition?
Target shareholders swap their old stock for new stock
What is the primary objective of a Conglomerate Merger?
Combining companies in different industries
What is the main advantage of a Vertical Merger?
Merger of companies in the same production cycle
In a Horizontal Merger, the target and acquirer are in which type of industry?
The same industry
Which of the following is NOT a reason to acquire a company?
Overconfidence
What is the main reason a board may not approve a takeover offer even if a premium is offered?
The board might consider that the acquirer is overvalued in a stock swap
What is the purpose of the 'Unocal' duties when a board takes defensive actions in a takeover scenario?
To mandate that defensive actions are not coercive and are subject to scrutiny
What is the primary purpose of a 'poison pill' defense strategy in a takeover?
To give existing shareholders discounted shares in the target, making it harder for an acquirer to gain control
Who benefits the most from a takeover in a competitive market according to the text?
The target shareholders who receive most of the benefit from the merger
What is the purpose of 'white squire' defense strategy in a takeover scenario?
To agree to purchase a block of shares in a target with special voting rights
How does goodwill impact future taxes according to the text?
Goodwill can be amortized, reducing future taxes for the merged firm
'Golden parachutes' are primarily designed to provide what to senior managers during a takeover?
Lucrative severance packages if they are let go after a takeover
'Staggered boards' defense strategy aims to achieve what during a potential acquisition?
'Staggered boards' prevent immediate replacement of the entire board during a takeover attempt
'White Knights' defense strategy involves doing what during a takeover attempt?
'White Knights' look for friendly companies to acquire them instead of hostile bidders
Explore the two primary mechanisms used in market control: Acquisition and Merger. Learn about the types of mergers including Horizontal Merger, Vertical Merger, and Conglomerate Merger. Discover the reasons for acquisition such as Stock Swap and Overconfidence among CEOs.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
