Chapter 10

Question 1

acquisition

Answer 1

when a firm purchases another firm

Question 2

controlling share

Answer 2

when you own enough shares to control all of the management decisions

Question 3

friendly acquistions

Answer 3

when the management of the target firm wants the firm to be acquired

Question 4

unfriendly acquisitions

Answer 4

occur when the management of the target firm does not want to be acquired

Question 5

hostile takeovers

Answer 5

when a tender offer is given to the public to buy the company shares

Question 6

acquisition premium

Answer 6

difference between market value and the price of the target firm’s shares

Question 7

merger

Answer 7

when assets of two similar firms are combined

Question 8

current market value

Answer 8

price of shares times the number of shares

Question 9

vertical merger

Answer 9

this happens when a firm vertically integrates forwards or backwards when it merges

Question 10

horizontal merger

Answer 10

this happens when a firm buys a former competitor

Question 11

product extension merger

Answer 11

when a firm acquires other complementary products

Question 12

market extension merger

Answer 12

merging to get into new geographic markets

Question 13

conglomerate merger

Answer 13

when a firm is not a vertical, horizontal, product extension, or market extension

Question 14

technical economies

Answer 14

in marketing, production, and similar forms of relatedness

Question 15

pecuniary economies

Answer 15

market power

Question 16

diversification economies

Answer 16

in portfolio management and risk reduction

Question 17

free cash flow

Answer 17

left over cash flow after all of the other business functions have been funded

Question 18

managerial hubris

Answer 18

management thinking that they can manage the resources of another firm, better than the target firm can

Question 19

market for corporate control

Answer 19

the market that is created when multiple firms actively seek to acquire one or several firms

Question 20

thinly traded market

Answer 20

market where there are only a small number of buyers and sellers, where info is not widely known

Question 21

poison pills

Answer 21

any of a variety of actions that a target firm takes to make the price really high

Question 22

tender offers

Answer 22

direct offers made to owners of stock

Question 23

shark repellant

Answer 23

things that make it hard for a firm to be acquired

Question 24

white knight

Answer 24

another bidding firm that agrees to buy a target firm in the place of another firm

Question 25

auction

Answer 25

giving it to the highest bidder