Exam 18: Mergers and Acquisitions, and Business Failure

Pyramiding is an arrangement among holding companies wherein one company controls others,thereby causing an even greater magnification of earnings and losses.

In defending against a hostile takeover, the strategy that involves the target firm creating securitiesthat give their holders certain rights that become effective when a takeover is attempted is called the __________strategy.

An attempt to gain control of the firm by buying sufficient shares of the target firm in themarketplace is known as a__________ and is typically accomplished through a

Firms' motives to merge include growth or diversification, synergy, fundraising, tax considerations, and defense against takeover.

Typically, reasons for undertaking mergers are

A conglomerate merger is the merger of firms in unrelated businesses.

When the ratio of exchange in a merger is equal to one and both the acquiring and the target companies have the same premerger earnings per share, both the acquiring and the target companies have the same

Marketing Concepts, Inc. is considering the acquisition of Management Theories, Inc. at a cashprice of $1.5 million. Management Theories, Inc. has short?term liabilities of $500,000. As a resultof acquiring Management Theories, Inc., Marketing Concepts, Inc. would acquire the copyrights to a national best?seller which would provide an estimated cash flow of $300,000 for the next five years. The firm has a cost of capital of 20 percent. The approximate net present value of this acquisition is

__________is an arrangement initiated by the debtor firm to negotiate with the creditors about a plan for sustaining or liquidating the firm.

Ratio of exchange in market price indicates the market price per share of the acquiring firm paid for each dollar of market price per share of the target firm.

A merger involving the purchase of a specific product line, rather than the whole company is

Vertical merger may result in expansion of operations in an existing product line and elimination of a competitor.

The sale of a unit of a firm to existing management is often achieved through a leveraged buyout.

In defending against a hostile takeover, the strategy that involves the firm repurchasing through negotiation a large block of stock at a premium from one or more shareholders in order to end those shareholders' hostile takeover attempt is known as the __________strategy.

Business failure may be caused by all of the following EXCEPT

The combination of two or more companies which results in one of the corporations having a voting control of one or more of the other companies is a

White knight is a takeover defense in which a firm issues securities that give their holders certain rights that become effective when a takeover is attempted and that make the target firm less desirable to a hostile acquirer.

A major disadvantage of holding companies is the increased risk resulting from the leverage effect.

Greenmail is a takeover defense under which the target firm repurchases a large block of shares at a premium from one or more shareholders in order to end a hostile takeover attempt by those shareholders.

A __________occurs when the operations of the acquiring and target firms are combined in order toachieve economies and thereby cause the performance of the merged firm to exceed that of thepre?merged firm.