Exam 18: Corporate Restructuring

TNT, Inc. is considering making a tender offer for Blasting Caps Corp. (BCC), one of their primary suppliers. The equity section of BCC's balance sheet totals $4.95 million, and BCC stock is currently selling 20% above book value. TNT is planning to offer a 15% premium to make the offer attractive. If BCC has 200,000 shares outstanding, calculate the per share price of the tender offer.

Which of the following is not a factor that makes valuing a target's stock difficult and imprecise?

A combination of companies that have a buyer-seller relationship is a:

Synergies are very good reasons for mergers. They're always easy to identify and implement and just about always turn out to be worth more than expected.

Which is generally not a defensive measure for a target firm?

When an acquiring firm pays too much for an acquisition the real losers are the acquirer's stockholders.

Which of the following defensive tactics is not appropriate before a takeover attempt is underway?

Commercial failure (as opposed to economic failure) is an issue between a business and its owners rather than its creditors.

Kappa International is thinking about acquiring New Life Inc. New Life generated net cash flows of $13 million last year. This cash flow has been growing at a four percent rate, which is expected to continue into the foreseeable future. Kappa has 10 million shares of common stock outstanding on which stockholders earn a return of about 14%, while New Life has 15 million shares outstanding on which stockholders earn a return of 13%. What is the maximum price per share that Kappa International should offer for New Life?

Horizontal mergers can create economies of scale.

Target managements that resist mergers usually claim the offer is not in the best interest of stockholders because the price offered is too low. However, they may be:

Which of the following terms is not associated with mergers and acquisitions?

In an acquisition the acquiring firm can become the parent and the target a subsidiary.

There is virtually no distinction between economic and commercial business failures.

Control of a target can be achieved through:

Although the long-term economic and political implications of the megamergers are as yet unclear, the massive accumulation of economic power currently taking place has no potential to change the open and competitive nature of the economy.

Technical insolvency is a firm's inability to meet its current obligations. Legal insolvency means the firm's liabilities exceed its assets.

When unhappy, shareholders solicit other shareholders to join them in removing certain board members, the action is called a:

The purpose of antitrust laws is to ____.

The maximum purchase price acceptable to an acquiring firm in a merger is equal to the target's pre-merger value.