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Questions and Answers
What is the primary difference between a merger and an acquisition?
What is the primary difference between a merger and an acquisition?
- An acquisition always requires the formation of a new business.
- A merger results in a new firm, while an acquisition maintains the identity of the bigger firm. (correct)
- In a merger, only one company maintains control.
- A merger involves two businesses of unequal sizes combining.
In a vertical merger, what is the relationship between the two merging businesses?
In a vertical merger, what is the relationship between the two merging businesses?
- They compete in the same market.
- They have identical product lines.
- They operate in completely different sectors.
- One is a direct supplier or customer of the other. (correct)
Which type of merger involves two businesses from unrelated industries?
Which type of merger involves two businesses from unrelated industries?
- Vertical merger
- Strategic alliance
- Horizontal merger
- Conglomerate merger (correct)
What typically happens to the shareholders of the smaller company in an acquisition?
What typically happens to the shareholders of the smaller company in an acquisition?
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Which option best describes a horizontal merger?
Which option best describes a horizontal merger?
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What is a common result of a merger for the previous shareholders?
What is a common result of a merger for the previous shareholders?
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Which of the following is NOT a common type of merger or acquisition?
Which of the following is NOT a common type of merger or acquisition?
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Study Notes
Mergers
- Mergers involve two similarly sized companies combining, with mutual agreement from management and owners.
- A new business entity is typically formed, with original shareholders retaining significant ownership.
Acquisitions & Takeovers
- Acquisitions or takeovers involve a larger company gaining control of a smaller one.
- Target company shareholders may sell their shares or become minority shareholders in the acquiring company.
Types of Mergers & Acquisitions
- Horizontal merger: Combines businesses producing similar products within the same industry (e.g., two auto manufacturers).
- Vertical merger: Unites businesses where one directly supplies or purchases from the other within the same industry (e.g., tire manufacturer and automaker).
- Conglomerate merger: Involves businesses in unrelated industries (e.g., grocery chain and automaker).
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