Exam 20: External Growth Through Mergers

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Selling stockholders who are offered cash or another company's stock in a merger may be willing to part with the shares because

One potential advantage of a merger to the acquiring firm is the "portfolio effect," which attempts to achieve risk reduction while perhaps maintaining the rate of return for the firm.

Which of the following is NOT a potential benefit of a merger?

Most mergers are horizontal in nature in order to avoid the potential antitrust complications involved with the elimination of competition.

The portfolio effect in a merger has to do with

The "two-step buyout" procedure induces stockholders to delay their reaction to the offer, since they will receive a higher price later.

The direct financial motives for merger activity include all of the following EXCEPT:

Goodwill is created when the purchasing firm pays more than what the acquired firm is worth.

A business combination of two or more companies in which the resulting firm maintains the identity of the acquiring company is defined as a

In a horizontal merger, the integration that occurs comes from acquiring companies that supply resources to the company's production process.

The price that a company has to pay to purchase another firm is usually

A "takeover tender offer" describes the attempted purchase of a firm with the consent of that firm's management.

By using cash instead of stock, a company may diminish the perceived dilutive effects of a merger.

Selling stockholders during a merger may receive a price well above current market or book value.

"Poison pills" are strategies that reduce the value of a firm if it is taken over by a corporate raider.

One of the reasons that companies merge with other companies is to secure access to a competing industry.

Which of the following is NOT a potential challenge to a merger?

Although corporate managers have a responsibility to act in the shareholders' best interest, management frequently opposes acquisitions due to personal motives.

The Celluloid Collar Corporation has $210,000 in tax loss carry forwards. The Bowstring Shirt Company, a firm in the 30% tax bracket, would be willing to pay (on a non-discounted basis) the sum of ______________ for Celluloid Collar Corporation's carry forward alone.