Exam 18: Corporate Restructuring

In a consolidation the acquiring firm becomes the parent and the target a subsidiary.

Greenmail is an attempt to stop a hostile takeover by offering to buy any stockholder's shares at a price above market.

In a ____, the acquiring company offers to buy the target company's shares at a price above market.

Two companies are competitors. The following facts about the companies and their industry are significant. a. Both firms use similar production, distribution, and sales techniques. b. One firm is losing money, while the other is profitable. c. There is a great deal of overhead in the business. d. The industry is dominated by a single firm that's about as big as these two combined. The two companies are considering a merger. State several arguments in favor of the combination.

Which of the following justifications for mergers is arguably for the benefit of management rather than stockholders?

Contrast the merger negotiations in a friendly merger and a hostile merger.

Conglomerate mergers often occur when businesses are trying to:

In a consolidation, a new firm is formed from the assets of the combining firms.

Which of the merger waves in the United States consisted largely of conglomerate mergers?

AMAY's mining division does not fit well strategically with the remainder of the firm. Conversely, the mining division would fit well with the mission of Nuccar Minerals. A good way for AMAY to divest of its mining unit is through:

Acquiring a firm with a tax loss can shelter the acquirer's earnings, unless the primary reason for the merger is:

In an acquisition a new firm is formed from the assets of the combining firms.

Which of the following is true of a congeneric merger?

When companies merge and the combined unit's performance is better than the sum of the performances of the combining companies, the effect is called a(n):

What is the resulting capital structure after an LBO if prior to the deal the firm had $225Min equity and $10M in debt, and the acquiring group bought the company's stock at book value contributing $20M of its own money and borrowing the rest?

In a horizontal merger or combination, the firms involved are in supplier-customer relationships.

Bumpstead Inc. is interested in acquiring Blondies Corp. which it has estimated will generate the following cash flows over the next three years ($000) 1 2 3 \4 55 \2 75 \6 35 In addition, Bumpstead thinks there will be $25,000 per year in synergies available at no extra cost. Blondies has 50,000 shares outstanding, and its cost of equity is approximately 14%. If Bumpstead is very conservative, and will not look beyond a three year time horizon to justify an acquisition, how much should it pay per share for Blondies stock?

Lavender Inc. is thinking about acquiring Scarlet Corp. After all benefits, synergies and tax effects, Lavender's management has estimated that the incremental cash flows from the acquisition will be as follows Year CasihFlow 1 \ 120,000 2 \ 135,000 3 \ 140,000 Beyond 3\% growth They have also estimated the project's discount rate, appropriately adjusted for risk, at 12%. Scarlet is a privately owned firm with 50,000 shares of stock outstanding. How much should Lavender be willing to pay per share?

A combination of two entities in which both legally cease to exist and a new legal entity is formed is:

Which of the following is true of a strategic merger?