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

________ results from the combination of firms in the same line of business.

The selling of some of a firm's assets is called

A ________ is a method of structuring a financial merger, whereas a ________ involves the sale of the firm's assets.

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.

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

Tangshan Mining is considering the acquisition of Zhengsen Mining at a cash price of $6,000,000. The primary motivation for Tangshan's purchase of Zhengsen is for a special piece of drilling equipment that it believes will generate after-tax cash flows of $2,000,000 per year during the next 5 years. Zhengsen Mining has liabilities of $9,000,000 and Tangshan estimates that it can sell the remaining assets $6,500,000. Tangshan will use a 15 percent cost of capital for evaluating the acquisition. Based on this information, what is the net value of the special drilling equipment? Calculate the net value of a second alternative that would allow Tangshan to purchase a better quality asset for $12,000,000 that would provide a $2,600,000 in after-tax inflows for the next 5 years. Which alternative would you choose?

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

________ is a pro rata cash settlement of creditor claims.

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

A friendly merger transaction is typically consummated through all of the following EXCEPT

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 breakup value.

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

An involuntary petition for reorganization may be filed against a firm if any one of the following conditions are met EXCEPT

Key advantages of holding companies include all of the following EXCEPT

When a firm undertakes a merger in order to eliminate redundant functions or increase market share, this is an example of

An attractive candidate for acquisition through leveraged buyout should possess which of the following characteristics?

Greater control over the acquisition of raw materials or the distribution of finished goods is an economic benefit of

One of the key motives for combinations is the tax benefit of

Common forms of business combination include all of the following EXCEPT

If the P/E paid is less than the P/E of the acquiring company, the effect on the earnings per share of the acquired company will be