Exam 24: Mergers and Acquisitions

A situation where every director serves a three-year term and the terms are staggered so that only one-third of the directors are up for election each year is called a

Greentree Holdings has announced plans to acquire Mackinac Corporation.Greentree is trading for $15 per share and has a premerger value of $950 million,while Mackinac is trading for $25 per share and has a premerger value of $225 million dollars.If Greentree's maximum offer is 2.25 shares for each Mackinac share,what are the projected synergies from the merger?

Greentree Holdings has announced plans to acquire Mackinac Corporation.Greentree is trading for $15.75 per share and has a premerger value of $950 million,while Mackinac is trading for $24 per share and has a premerger value of $225 million dollars.If the projected synergies from the merger are $95 million,what is the maximum exchange ratio that Greentree could offer in a stock swap and still generate a positive NPV?

Consider two firms,Left Company and Right Enterprises,both with earnings of $2.50 per share and 15 million shares outstanding.Left is a mature company with few growth opportunities and a stock price of $7 per share.Right is a new firm with much higher growth opportunities and a stock price of $16 per share.Assume Right acquires Left using its own stock and the takeover adds no value.In a perfect capital market,how many shares must Right offer Left's shareholders in exchange for their shares?

Sol Company has announced plans to acquire Luna Corporation at a premium of 30% over the pre-announcement share price.Sol is trading for $19 per share,and has a premerger value of $37 billion.Prior to the announcement,Luna was trading for $12 per share,and currently has 192 million shares outstanding.The projected synergies from the merger are $2 billion.What is the maximum exchange ratio that Sol could offer in a stock swap transaction and still generate a positive NPV?

Use the information for the question(s) below. Martin Manufacturing has earnings per share (EPS) of $3.00, 5 million shares outstanding, and a share price of $32. Martin is considering buying Luther Industries, which has earnings per share of $2.50, 2 million shares outstanding, and a share price of $20. Martin will pay for Luther by issuing new shares. There are no expected synergies from the transaction. -If Martin pays no premium to acquire Luther,what will the earnings per share be after the merger?

This period is known for hostile,"bust-up" takeovers,in which the acquirer purchased a poorly performing conglomerate and sold off its individual business units for more than the purchase price:

Revenue enhancement synergies are more common and easier to achieve than cost-reduction synergies.

Consider two firms,ABC and XYZ.Both companies will either make $5 million or lose $2 million every year with equal probability.The companies' profits are perfectly negatively correlated,so that in any year,one company makes $5 million and the other loses $2 million.The two firms decide to enter into a merger and combine operations.What are the expected after-tax profits of the combined company in any year,assuming a corporate tax rate of 35% and no tax loss carryback or carryforward,if they are run as two independent divisions?

What are risk arbitrageurs? Do their actions represent true arbitrage?

Consider two firms,Big Company and Little Enterprises,both with earnings of $6 per share and 2 million shares outstanding.Big is a mature company with few growth opportunities and a stock price of $56 per share.Little is a new firm with much higher growth opportunities and a stock price of $72 per share.Assume Little acquires Big using its own stock and the takeover adds no value.In a perfect capital market,how many shares must Little offer Big's shareholders in exchange for their shares?

Which of the following statements best describes the average stock price reactions to mergers?

Savings that come from combining the marketing and distribution of different types of related products are called

Barlow Manufacturing has announced plans to acquire Hull Enterprises.Barlow is trading for $19.25 per share and has a premerger value of $3 billion,while Hull is trading for $41.35 per share and has a premerger value of $950 million dollars.If the projected synergies from the merger are $425 million,what is the maximum cash offer per share that Barlow could make and still generate a positive NPV?

Pfizer,a pharmaceutical company,has proposed an acquisition of Allergan,another pharmaceutical company.The combined firm is expected to be able to streamline operations by eliminating overlap,and thus reducing costs substantially.What type of synergies are the most likely reason behind this merger?

Consider two firms,Blue and Berry.Both companies will either make $25 million or lose $5 million every year with equal probability.The companies' profits are perfectly negatively correlated,so that in any year,one company makes $25 million and the other loses $5 million.If the two firms merge but are run as two independent divisions,what is the change in expected after-tax profits of the combined company (BlueBerry)in any year versus the combined expected after-tax profits of the two separate companies in any year,assuming a corporate tax rate of 30% and no tax loss carryback or carryforward?

General Mills,a producer of breakfast cereal,has proposed an acquisition of Kellogg,another cereal producer.The combined firm is expected to be able to negotiate a reduced cost for the grain used in its cereal.What type of synergies are the most likely reason behind this merger?

Consider two firms,Bob Company and Cat Enterprises,both with earnings of $10 per share and 5 million shares outstanding.Cat is a mature company with few growth opportunities and a stock price of $25 per share.Bob is a new firm with much higher growth opportunities and a stock price of $40 per share.Assume Bob acquires Cat using its own stock and the takeover adds no value.What is the change in Bob's price-earnings ratio as a result of the acquisition?

Consider two firms,Blue and Berry.Both companies will either make $30 million or lose $5 million every year with equal probability.The companies' profits are perfectly negatively correlated,so that in any year,one company makes $20 million and the other loses $10 million.If the two firms merge but are run as two independent divisions,what is the change in expected after-tax profits of the combined company (BlueBerry)in any year versus the combined expected after-tax profits of the two separate companies in any year,assuming a corporate tax rate of 30% and no tax loss carryback or carryforward?

Which of the following is an example of a merger undertaken in order to achieve monopoly gains?