Mergers and Acquisitions Overview
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Questions and Answers

Which of the following is NOT a change force driving mergers?

  • Negative trends in industries and economies
  • New industries
  • Technological change
  • Government ownership regulations (correct)

    • What is a primary rationale behind horizontal mergers?

  • Acquisition of new technologies
  • Diversification of products
  • Increased market competition
  • Economies of scale and scope (correct)

    • Which argument is typically raised against M&A activity?

  • Redistribution of wealth from labor to shareholders (correct)
  • Increase value and efficiency
  • Critical for healthy expansion of business firms
  • Optimum use of resources

    • What characterizes a tender offer in the context of mergers and acquisitions?

    <p>A direct appeal to shareholders without board approval can be hostile</p> Signup and view all the answers

    Which condition is likely to favor the occurrence of mergers and acquisitions?

    <p>Favorable economic and financial conditions</p> Signup and view all the answers

    What distinguishes vertical mergers from conglomerate mergers?

    <p>Vertical mergers combine firms at different stages of production.</p> Signup and view all the answers

    In what scenario would a short-form merger be utilized?

    <p>When the ownership of the combined firms is at least 90%.</p> Signup and view all the answers

    What are risk arbitragers primarily concerned with in M&A activities?

    <p>Taking a position in a merger for short-term resale profits.</p> Signup and view all the answers

    Which type of merger seeks to reduce portfolio risk through diversification?

    <p>Conglomerate merger</p> Signup and view all the answers

    Which of the following statements about tender offers is correct?

    <p>Tender offers can be both conditional and unconditional.</p> Signup and view all the answers

    What is a common outcome for minority shareholders in a merger scenario?

    <p>They can initiate a lawsuit against the parent company.</p> Signup and view all the answers

    What is the primary goal of concentric diversification?

    <p>To broaden potential markets by combining with related activities.</p> Signup and view all the answers

    How do arbitrage funds typically manage their risks in M&A activities?

    <p>By spreading deal risk over a portfolio of various deals.</p> Signup and view all the answers

    Study Notes

    Change Forces Driving Mergers

    • Technological change
    • Efficiency of operations
    • Globalization and freer trade
    • Changes in industry organization
    • New industries
    • Deregulation and regulation
    • Favorable economic and financial conditions
    • Negative trends in industries and economies
    • Widening inequalities in income and wealth
    • High valuation of equities (2007)

    Issues Regarding M&A Activity

    • In Favor:
      • Critical to healthy expansion of businesses
      • Increase value and efficiency
      • Move resources to optimal uses
    • Opposed:
      • No improvements subsequent to acquisition
      • Redistribution of wealth from labour and other stakeholders to shareholders
      • Speculative activity

    M&A Terminology

    • Merger: Negotiated deals, mutuality of negotiations, mostly friendly
    • Tender offers: Offer directly to shareholders, hostile when without board approval
    • Restructuring: Changes to improve operations, policies, and strategies

    Types of Mergers

    • Horizontal mergers: Between firms in the same business activity
      • Economies of scale and scope
      • Synergies (combining best practices)
      • Government regulation due to potential anticompetitive effects
    • Vertical mergers: Combinations between firms at different stages
      • Goal is information and transaction efficiency
    • Conglomerate mergers: Firms in unrelated business activities
    • Statutory merger: Formal legal procedures
    • Short-form merger: Streamlined legal procedures when ownership is 90%
    • Holding company: Controlling interest parent company

    Tender Offers

    • Bidder seeks target's shareholders' approval
    • Minority shareholders: Terms can be "crammed down", may be subject to "freeze-in", minority may bring legal actions, many minority squeeze-outs (often reversing equity carve-out, parents often bid high to avoid lawsuits)

    Tender Offers (cont'd)

    • Kinds of tender offers: Conditional vs. unconditional, restricted vs. unrestricted, "any-or-all" tender offer, contested offers, two-tier offers, three-piece suitor

    Risk Arbitrage in M&A Activity

    • In M&A, risk arbitragers take a position for short-term resale.
    • Arbitragers bet on a deal being completed (deal risk), but try to minimize market risk.
    • Provide liquidity for target shareholders.
    • Arbitrage funds spread deal risk & are often highly exposed to market crashes.

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    Description

    This quiz explores the driving forces behind mergers and acquisitions, including technological change, globalization, and the economic landscape. It also addresses the controversies surrounding M&A activities and key terminology used in the field. Test your understanding of these crucial business practices.

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