Types and Mechanisms of Market Control: Acquisitions and Mergers

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What is the primary difference between a horizontal merger and a vertical merger?

Vertical mergers focus on combining marketing and distribution activities, while horizontal mergers focus on synergy creation.

The industries of the target and acquirer are the same in a horizontal merger, while they are different in a vertical merger. (correct)

In a horizontal merger, the target company buys the acquirer, while in a vertical merger, the acquirer buys the target company.

A horizontal merger involves two companies in the same industry, whereas a vertical merger involves companies in different industries.

Why do overconfident CEOs sometimes pursue mergers that cannot succeed?

Due to pressure from shareholders to acquire new companies.

To diversify their investment portfolios.

Because they believe in their above-average abilities. (correct)

To increase their personal wealth through stock transactions.

Which type of merger involves companies from different industries coming together?

Conglomerate Merger (correct)

Horizontal Merger

Vertical Merger

Market Merger

What is the primary motivation behind a stock swap during an acquisition?

Target shareholders exchange old stock for new stock. Signup and view all the answers

What is an example of achieving synergy in a merger or acquisition?

Acquirer adding economic value through synergistic effects. Signup and view all the answers

Why might an acquirer pursue a merger for economies of scale?

To increase savings by producing goods in high volume. Signup and view all the answers

In what situation would vertical integration be considered a strategic move?

When two companies in the same industry merge to combine products at different production stages. Signup and view all the answers

What is one way to estimate the value of a target company during the takeover process?

Comparing the target to similar firms for a rough estimate. Signup and view all the answers

Why do CEOs sometimes pursue mergers for expertise?

When it is more efficient to acquire talent from another company. Signup and view all the answers

What is one benefit of tax savings in mergers and acquisitions?

Offsetting losses in one division with gains from another division. Signup and view all the answers

What is the main purpose of a poison pill defense strategy in a takeover?

To make it more difficult to replace bad managers Signup and view all the answers

Which of the following is NOT a potential benefit of golden parachutes for target firm shareholders?

Reduces the value of the target firm Signup and view all the answers

In a freezeout merger, what happens to the non-tendering shareholders of the target firm?

They receive the tender offer price Signup and view all the answers

Which of the following is a key factor that can lead to the board of directors of the target firm not approving a takeover offer, even if a premium is offered?

The board believes the offer price is too low Signup and view all the answers

Which of the following is a key difference between a friendly takeover and a hostile takeover?

The target firm's board approves the takeover in a friendly takeover Signup and view all the answers

Which of the following is a potential benefit of a leveraged buyout for the acquirer?

The acquirer can merge the target with the shell corporation and the debt is owed by the target Signup and view all the answers

Which of the following is a key purpose of a white knight defense strategy in a takeover?

To find a friendlier company to acquire the target Signup and view all the answers

Which of the following is a key principle of the Revlon duties in the context of a takeover?

The board must seek to maximize the value received by the target firm's shareholders Signup and view all the answers

Which of the following is a key purpose of the Unocal standard in the context of a takeover?

To ensure the board's defensive actions are not coercive or designed to preclude delay Signup and view all the answers

Which of the following is a key factor that can lead to competition in the takeover market?

The acquirer offers a high enough premium to the target firm's shareholders Signup and view all the answers