MERGERS & AQUISITION

Question 1

The combination of two firms to form a single firm

Answer 1

Merger

Question 2

have stimulated a number of mergers

Answer 2

Tax Considerations

Question 2

The condition wherein the whole is greater than the sum of its parts; in a synergistic merger, the postmerger value exceeds the sum of the separate companies’ premerger values

Answer 2

Synergy

Question 2

Personal considerations deter as well as motivate mergers.
After most takeovers, some managers of the acquired companies lose their jobs, or at least their autonomy.

Answer 2

Managers’ Personal Incentives

Question 3

Firms can be valued by book value, economic value, or replacement value.

Answer 3

Breakup Value

Question 4

Managers often cite diversification as a reason for mergers. They contend that diversification helps stabilize a firm’s earnings and thus benefits its owners

Answer 4

Diversification

Question 5

A combination of two firms that produce the same type of good or service.

Answer 5

Horizontal Merger

Types of Mergers

Question 6

A merger between a firm and one of its suppliers or customers.

Answer 6

Vertical Merger-

Types of Mergers

Question 7

A merger of firms in the same general industry, but for which no customer or supplier relationship exists

Answer 7

Congeneric Merger

Types of Mergers

Question 8

A merger of companies in totally different industries.

Answer 8

Conglomerate Merger

Types of Mergers

Question 9

Consodolations occured in the oil, steel, tobacco and other basic industries

Answer 9

1800

Five Major “Merger Waves” in USA

Question 10

Stock Market boom helped financial promoters consolidate firms in
a number of industries, including utilities, communications and autos.

Answer 10

1920’s

Five Major “Merger Waves” in USA

Question 11

Conglomerate mergers were the rage.

Answer 11

1960’s

Five Major “Merger Waves” in USA

Question 12

LBO firms and others began using junk bonds to finance all manner of acquisition.

Answer 12

1980’s

Five Major “Merger Waves” in USA

Question 13

Involves strategic alliances designed to enable firms to compete better in the global economy.

Answer 13

Today

Five Major “Merger Waves” in USA

Question 14

A company that seeks to acquire another firm

Answer 14

Acquiring Company

Question 15

A firm that another company seeks to acquire

Answer 15

Target Company

Question 15

A merger whose terms are approved by the
managements of both companies

Answer 15

Friendly Merger

Question 16

A merger whose terms are approved by the
managements of both companies

Answer 16

Hostile Merger

Question 17

The offer of one firm to buy stock of another by going directly to the stockholders, frequently (but not always) over the opposition of the target company’s management

Answer 17

Tender Offer

Question 18

An attempt to gain control of a firm by soliciting stockholders to vote for a new management team.

Answer 18

Merger Regulation

Question 19

Obtaining accurate post-merger cash flow forecasts is by far the most important task in the DCF approach

Answer 19

Pro Forma Cash Flow
Statements

Question 19

approach to valuing a business involves the application of capital budgeting procedures to an entire firm rather than to a single projects.

Answer 19

discounted cash flow (DCF)

Question 19

A merger in which the firms involved will not be operated as a single unit and from which no operating economies are expected.

Answer 19

Financial Merger

Question 20

A merger in which operations of the firms involved are integrated in hope of achieving synergistic benefits.

Answer 20

Operating Merger

Question 21

A method used to value a target firm using net cash flows that are a residual and belong solely to the acquiring firm’s shareholders.

Answer 21

Equity Residual Method

Question 22

A method of valuing a target company that applies a market determined multiple to net income, earnings per share, sales, book value, and so forth.

Answer 22

Market Multiple Analysis

Question 23

A method of accounting for a merger as a purchase. In this method, the acquiring firm is assumed to have “bought” the acquired company in much the same way it would buy any capital asset.

Answer 23

Purchase Accounting

Question 24

Refers to the excess paid for a firm above the appraised value of the physical and intangible assets purchased

Answer 24

Goodwill

Question 25

Occurs when the assets of a division are sold off piecemeal, rather than as an operating entity

Answer 25

Liquidation

Question 25

A minority interest in a corporate subsidiary is sold to new shareholders, so the parent gains new equity financing yet retains control

Answer 25

Carve-Out

Question 25

A divestiture in which the stock of a subsidiary is given to the parent company’s stockholders.

Answer 25

Spin-Off

Question 26

The sale of some of a company’s operating assets.

Answer 26

Divestiture

Question 27

A small group of investors, which usually includes current management, acquires a firm in a transaction financed largely by debt.

Answer 27

Leverage Buyouts

Question 28

A corporate alliance in which two or more independent companies combine their resources to achieve a specific, limited objective

Answer 28

Joint Venture

CORPORATE ALLIANCES

Question 28

An action that will seriously hurt a company if it is acquired by another

Answer 28

Poison Pill

Question 28

A cooperative deal that
stops short of a merger.

Answer 28

Corporate, or Strategic, Alliance

CORPORATE ALLIANCES

Question 29

Large payments made to the managers of a target firm if it is acquired.

Answer 29

Golden
Parachutes

Question 30

Generally means simultaneously buying and selling the same commodity or security in two different markets at different prices, and pocketing a risk-free return

Answer 30

Arbitrage

Question 31

Members of these groups identify firms with excess cash that might
want to buy other firms, companies that might be willing to be bought,
and firms that might, for a number of reasons, be attractive to others

Answer 31

Arranging Mergers

Question 32

A merger can have a significant effect on reported profits. If asset values are increased, as they often are under a purchase, this must be reflected in higher depreciation charges.

Answer 32

Income Statement Effects