Exam 18: Mergers, Lbos, Divestitures, and Business Failure

One of the key attributes that makes a firm a good candidate for an LBO is that it has stable and predictable cash flows that are adequate to meet interest and principal payments on the debt and provide adequate working capital.

The value of a firm measured as the sum of the values of its operating units if each were sold separately is known as a firm's part and parcel value.

The synergy of mergers is the economies of scale resulting from the merged firms' lower overhead.

If the P/E paid for a target company is greater than the P/E of the acquiring company, the effect on the earnings per share of the acquiring company will be

In defending against hostile takeover attempts, a company will approve anti-takeover amendments to the corporate charter that constrain the firm's ability to transfer managerial control of the firm as a result of a merger. This is called the ________ strategy.

Methods of divestiture include the sale of a product line to another firm, the sale of a unit to existing management, spin-offs, and the liquidation of assets.

The priority of claims established by Chapter Seven of the Bankruptcy Reform Act of 1978 gives priority to

In ________, an assignment may be made by the creditors to a third party who then has the power to liquidate the firm's assets.

A(n) ________ is undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value.

When a merger transaction is not supported by the target firm's management, forcing the acquiring company to try to gain control of the firm by buying shares in the marketplace, this is an example of

All of the following may be true about tender offers EXCEPT

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

The combination of two or more companies that results in the firm maintaining the identity of one of the firms is

A formal proposal to purchase a given number of shares of a firm's stock at a specified price is a

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

Popular takeover defense methods include white knights, poison pills, greenmail, golden parachutes, and shark repellents.

One of the key attributes that makes a firm a good candidate for an LBO is that it has a relatively high level of debt and a low level of relatively liquid assets that could be used as loan collateral.

Technical insolvency occurs when a firm's liabilities exceed the fair market value of its assets.

Unlike business bankruptcy and business failure, divestiture is often undertaken for positive motives such as to generate cash for the expansion of product lines, to get rid of poorly performing operations, to streamline the company, or to restructure the business that is consistent with the firm's strategic goals.

All of the following are disadvantages of holding companies EXCEPT