Quiz 1 Flashcards
A merger is a combination of two firms in which only one firm’s identity survives
True or False?
True
A horizontal merger occurs between firms at different stages of the value chain
True or False?
False
Joint ventures are a business strategy, just as M&A is a business strategy
True or False?
True
Merger Arbitrageurs buy the target stock and make a profit on the difference between the deal price and the target’s current stock price if the deal is consummated
True or False?
True
Perceived synergies between two companies is rarely a motivation for M&A
True or False?
False
M&A transactions rarely pay off for target firm shareholders
True or False?
False
Investment bankers offer strategic and tactical advice and acquisition opportunities, screen potential buyers and sellers, make initial contact with a seller or buyer, and provide negotiation support for their clients
True or False?
True
Most M&A transactions are hostile or unfriendly takeover attempts
True or False?
False
Synergy is the notion that the combination of two or more firms will create value exceeding what either firm could have achieved if they had remained independent True or False?
True
Financial considerations, such as booming stock market or falling interest rates, can drive surges or waves in the number of acquisitions
True or False?
True
Successful corporate governance systems rely on aligning managerial incentives with those of shareholders and minimizing “agency” issues
True or False?
True
Institutional activist hedge funds have proven to be largely ineffective in promoting good governance practices through target company board and management changes
True or False?
False
To initiate a proxy contest, a hostile bidder may attempt to call a special stockholders’ meeting or may introduce a proposal to replace the target’s board at a regularly scheduled shareholders’ meeting
True or False?
True
Public “bear hug” announcements of a proposed takeover are often designed to put pressure on the board of the target firm
True or False?
True
According to the management entrenchment theory, takeover defenses are designed to protect the target firm’s management from a hostile takeover
True or False?
True
Bylaws may provide for a staggered board and supermajority voting requirements for approval of mergers
True or False?
True
Tender offers always consist of an offer to exchange acquirer shares for shares in the target firm
True or False?
False
Vertical mergers are those in which the participants are
A) In the same industry
B) In different industries
C) In different phases of an industry’s value chain
D) none of the above
C) In different phases of an industry’s value chain
All of the following are common motives for a merger or acquisition except for
A) Operating or financial synergies
B) Economies of scale or scope
C) Raising cost of capital
D) Buying undervalued assets
C) Raising cost of capital
Buyers often prefer “friendly” mergers to hostile takeovers because of all the following except:
A) Can often be consummated at a lower price
B) Avoid an auction environment
C) Facilitate post-merger integration
D) A shareholder vote is not required
D) A shareholder vote is not required
Which of the following are often participants in the acquisition process?
A) Investment bankers
B) Lawyers
C) Accountants
D) All of the above
D) All of the above
Restaurant chain Camin Holdings acquired all of the asset and liabilities of Cheesecakes R Us. The combined firm is still known as Camin Holdings, and Cheesecakes R Us no longer exists as a separate legal entity. The acquisition is best described as:
A) Statutory Merger
B) Consolidation
C) Tender Offer
D) Divestiture
A) Statutory Merger
Pacific Surfware acquired Surferdude and as part of the transaction, both of the firms ceased to exist in their prior form. They combined to create an entirely new legal entity, Wildly Exotic Surfware. Which one of the following terms best describes this transactions?
A) Tender offer
B) Joint venture
C) Spinoff
D) Consolidation
D) Consolidation
News Corporation of America announced its intention to directly purchase shares from the shareholders of another national newspaper chain. Which one of the following terms best describes this announcement
A) Spinoff
B) Consolidation
C) Tender offer
D) Merger proposal
C) Tender Offer
Which of the following is not usually considered a takeover defense?
A) A tender offer
B) A poison pill
C) A golden parachute
D) A staggered board
A) A tender offer
Some of Acme Inc shareholders are very dissatisfied with the performance of the firm’s current management team and want to gain control of the board. To do so, these shareholders offer their own slate of candidates for open spaces on the firm’s board of directors. Lacking the necessary votes to elect these candidates, they are contacting other shareholders and asking them to vote for their slate of candidates. Acme’s existing management and board is asking shareholders to vote for the candidates they have proposed to fill the vacant board seats. Which of the following terms best describes this scenatrio?
A) Leveraged buyout
B) Proxy contest
C) Divestiture
D) None of the above
B) Proxy contest
Xon Enterprises is attempting to taker over Rayon Group. Rayon’s shareholders have the right to buy additional shares at below market prices if Xon (a hostile bidder) buys more than 15% of Rayon’s outstanding shares. What term applies to this anti-takeover measure?
A) Share repellent plan
B) Golden parachute plan
C) Poison Pill
D) Greenmail provision
C) Poison pill
The US Airline Industry’s top 5 competitor market share breaks down as follows:
American Air 28%
Delta Air 25%
United Air 21%
Southwest 14%
Alaska 6%
What is the HHI score for this industry?
A) 83
B) 1447
C) 2082
D) 6889
C) 2082
Using the US Airline data above, what us the industry HHI score should Delta Air announce a merger with United Air?
A) 46
B) 2029
C) 3132
D) 8456
C) 3132
Given the airline industry HI score assuming a United/Delta proposed merger, how would anti-trust regulators most likely categorize this market?
A) unconcentrated
B) competitive
C) robust
D) concentrated
D) Concentrated
