summary chapter 7

Question 1

Mergers and consoliations:

Answer 1

pool the assets and liabilities of two or more corporations into a single corporation, which is either one of the combining entities (the “surviving company”) or an entirely new company (the “emerging company”)

Because mergers can so fundamentally realign teh relationships among the firm participants, every jurisdiction accords special treatment to mergers and other modes of consolidation. Many mergers exhibit the functional characteristics of fundamental changes: they are large; they often give rise to agency problems and they involve investment like decisions. These problems are predominantly addressed by a decision rights strategy. Thus, most jurisdictions require supermajority shareholder authorization for a merger or consolitation

Question 2

The two principal management-shareholder agency conflicts that potentially arise in mergers are

Answer 2

managements self-interested refusal to agree to a merger that shareholders support

Self interested attempts by maangement to build empires or to negotiate their future job status or compenstation with an acquiring company at the expense of their shareholders

in the presence of a controlling shareholder, mergers with unconnected companies involve risks for minority shareholders. But in the event of a merger with an affiliate of the controlling sahreholders, such as a parent subsidiary merger, the conflicts of interest are at the level of the subsidiary are more intense