Types of Market Control and Acquisitions

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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?

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

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

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

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

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

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

Horizontal mergers involve companies in different industries, while vertical mergers involve companies in the same industry. 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?

Overconfidence Signup and view all the answers

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

They are in different industries. Signup and view all the answers

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

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

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

Vertical Merger Signup and view all the answers

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

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

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

Diversification of risk Signup and view all the answers

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

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

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

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

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

It incorporates potential synergies that could arise from the acquisition Signup and view all the answers

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

The target and acquirer operate in completely different industries Signup and view all the answers

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

The acquirer's CEO truly believes in their above-average abilities to make the acquisition succeed 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?

The board wants to extract a higher price from the acquirer 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?

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

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

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

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

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 Signup and view all the answers

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

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