Exam 31: Mergers

Companies A and B are valued as follows: Company A now acquires B by offering one (new)share of A for every two shares of B (that is,after the merger,there are 2500 shares of A outstanding).Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger?

Firm A has a value of $100 million and Firm B has a value of $70 million.Merging the two would enable cost savings with a present value of $20 million.Firm A purchases Firm B for $75 million.What is the gain from this merger?

Following an acquisition,the acquiring firm's balance sheet shows an asset labeled "goodwill." What form of merger accounting was used?

Merging in order to lower financing costs is likely to fail for the following reason:

The following are sensible motives for mergers EXCEPT:

The following are sensible motives for mergers: I.prevent target firm from wasting surplus funds; II.eliminate target firm inefficiencies; III.complementary resources; IV.increasing earnings per share (EPS)

Briefly explain the term economies of scale.

The main difference to shareholders between a tax-free and a taxable acquisition is that: I.in a tax-free acquisition the shares are only exchanged,while in a taxable transaction the shares are considered sold and realized capital gains or losses are taxed; II.in a tax-free acquisition a capital gain or loss is realized and then new shares are issued; in a taxable transaction the assets are revalued,taxed on any capital gains or losses,and then shares are exchanged; III.in a tax-free acquisition the shareholders simply take the cash and depart,while in a taxable transaction the shareholders must stay with the new entity

A would-be acquirer making a tender offer directly to shareholders represents another form of a proxy fight.

The DOC Corporation with a book value of $20 million and a market value of $30 million has acquired the CIC Corporation with a book value of $6 million and a market value of $8 million at a price of $9 million.If the transaction is a purchase,will there be any goodwill,and if so,what is the amount of goodwill?

Discuss the difficulties associated with a typical merger.

A poison pill defense may be implemented by:

The following are dubious reasons for mergers: I.diversification; II.increase earnings per share (EPS); III.lower financing costs; IV.industry consolidation

Who are antitakeover defenses designed to protect?

Name the agencies that have successfully blocked mergers on antitrust (antimonopoly)grounds.

Firm A has a value of $150 million and Firm B has a value of $100 million.Merging the two would enable cost savings with a present value of $40 million.Firm A purchases Firm B for $120 million.What is the gain from this merger?

The following data on a merger is given: Firm A Firm B Firm AB Price per share \ 100 \ 10 Total earnings \ 500 \ 300 Shares outstanding 100 40 Total value \ 10,000 \ 400 \ 11,000 Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the postmerger P/E ratio assuming cash is used in the acquisition.

What role do hedge funds take when they speculate on merger activity by buying stock of firms that are "in play"?

Briefly explain what is meant by the economic gain from a merger?

In the purchase method of merger accounting a new asset category called goodwill is created.