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Types of Market Control and Acquisitions
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Types of Market Control and Acquisitions

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Questions and Answers

What are the two main types of takeover methods mentioned in the text?

  • White Knights and White Squire
  • Cash Transaction and Stock Swap
  • Proxy Fight and Poison Pills
  • Friendly Takeover and Hostile Takeover (correct)
  • What is the main reason why a board may not approve a takeover offer even if a premium is offered?

  • The board wants to delay the takeover process
  • The board wants to increase the book value of the target's assets
  • The board is acting in self-interest
  • The board thinks the offer price is too low (correct)
  • What is the main advantage of a stock swap over a cash transaction in a takeover?

  • It makes it more difficult to replace bad managers
  • It ensures the combined firm has a positive NPV
  • It increases the book value of the target's assets
  • It allows the target shareholders to defer taxes until the shares are sold (correct)
  • What is a 'Poison Pill' defense mechanism in a takeover?

    <p>A rights offering that gives existing target shareholders the ability to buy shares in the target at a deeply discounted price under certain conditions</p> Signup and view all the answers

    What is the purpose of a 'Staggered Board' defense mechanism?

    <p>To make it more difficult to replace bad managers</p> Signup and view all the answers

    What is the main purpose of a 'White Knight' in a takeover situation?

    <p>To provide a more friendly alternative acquirer for the target company</p> Signup and view all the answers

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

    <p>Horizontal mergers involve companies in different industries, while vertical mergers involve companies in the same industry.</p> Signup and view all the answers

    What is an example of a reason for acquisition that is driven by the belief in above-average abilities?

    <p>Overconfidence</p> Signup and view all the answers

    In a conglomerate merger, what is the relationship between the target and bidder?

    <p>They are in different industries.</p> Signup and view all the answers

    What is the primary purpose of a stock swap during an acquisition?

    <p>To allow target shareholders to swap their old stock for new stock.</p> Signup and view all the answers

    Which type of merger focuses on the savings from producing goods in high volume?

    <p>Vertical Merger</p> Signup and view all the answers

    How do CEOs pursuing mergers due to overconfidence differ from those seeking acquisitions for expertise?

    <p>CEOs pursuing mergers due to overconfidence believe in their above-average abilities, while those seeking acquisitions for expertise focus on talent pool efficiency.</p> Signup and view all the answers

    Which of the following is NOT a valid reason for an acquisition mentioned in the text?

    <p>Diversification of risk</p> Signup and view all the answers

    In the context of mergers, what do the terms 'Economies of Scale' and 'Economies of Slope' refer to?

    <p>Savings from producing goods in high volume and combining marketing/distribution, respectively</p> Signup and view all the answers

    What is the primary purpose of the valuation step in the takeover process?

    <p>To compare the target to similar firms and gain a rough estimate of its value</p> Signup and view all the answers

    Which of the following statements about the discounted cash flow method in the takeover process is TRUE?

    <p>It incorporates potential synergies that could arise from the acquisition</p> Signup and view all the answers

    In the context of mergers, what is the defining characteristic of a conglomerate merger?

    <p>The target and acquirer operate in completely different industries</p> Signup and view all the answers

    Which of the following is a valid reason for an acquisition driven by overconfidence?

    <p>The acquirer's CEO truly believes in their above-average abilities to make the acquisition succeed</p> Signup and view all the answers

    Which of the following is NOT a key reason why a board may not approve a takeover offer even if a premium is offered?

    <p>The board wants to extract a higher price from the acquirer</p> Signup and view all the answers

    Which of the following is a key difference between a 'Poison Pill' and a 'Staggered Board' as takeover defense mechanisms?

    <p>Poison Pills give existing shareholders the right to buy discounted shares, while Staggered Boards do not</p> Signup and view all the answers

    How do the tax implications differ between a cash transaction and a stock swap in a takeover?

    <p>Cash transactions trigger an immediate tax liability for target shareholders, while stock swaps defer taxes until the shares are sold</p> Signup and view all the answers

    What is the key difference between the Revlon Duties and the Unocal standard in the context of takeovers?

    <p>Revlon Duties require the board to seek the highest value for shareholders, while Unocal allows the board to take defensive actions subject to extra scrutiny</p> Signup and view all the answers

    What is the main purpose of a 'White Squire' in a takeover situation?

    <p>To purchase a block of shares in the target with special voting rights to help defend against the takeover</p> Signup and view all the answers

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