Exam 18: Corporate Restructuring

Incompatible operations can be separated without damaging either or altering stockholders positions through a:

Holding companies enable a parent to control a subsidiary without owning all of its stock. As a general rule, 25% ownership of a widely held company virtually guarantees control.

In a Leveraged Buy Out (LBO) the leverage is usually collateralized by:

Offsetting profits and losses to save on taxes is often the only reason behind successful mergers.

It can be argued that there are no economic benefits to shareholders from a conglomerate merger.

Which of the following is not a characteristic of the merger wave that started in about 1981 and ended in 1989?

Economies of scale are rarely realized in a horizontal merger.

The category of business combination where the firms have a supplier-customer relationship is known as a:

Century Corp and Haverty Inc. combined to form the Proton Company. Although the term merger is loosely used to refer to many business combinations, this is technically a:

A merger may be stopped if a majority of the target's stockholders _____the price offered by the acquiring company.

An acquiring firm can bypass a target's management by making a tender offer directly to:

Appleton Inc. wants to acquire Gentronix Corp., but its offer of a friendly merger has been rejected. Gentronix's board of directors includes six of the firm's top managers who together own 40% of its stock. Is a hostile takeover bypassing the board likely to succeed?

A firm can be insolvent because:

_____ mergers are undertaken to make money from the merger itself rather than from the underlying businesses.

Unlike a vertical merger, a horizontal merger expands the market share of the acquiring firm.

A firm acquires a supplier or a customer in a vertical merger.

The following information relates to the planned acquisition of a target. Cash flow and synergy figures are after tax. ($M) EstimatedCash Flow for the first 3 years \5 0, \6 5, \7 5 Estimated amual synergies \1 5 Planned reinvestment (including synergies) 40\% Projected anmual growth rate beyond the third year 4\% Return on the market 16\% The 90 day bill rate ( 8\% Beta of the acquiring company 1.25 Beta of the target company 1.75 Number of outstanding shares of target 10 million Today's per share selling price of target \1 6.50 Calculate the maximum percentage premium that should be offered to the target company's shareholders.

The best rationale for a merger is that the value of the firms combined is:

Congeneric mergers do not generally have major anticompetitive effects as the merging firms don't directly compete.

A business combination can expand the value of combining firms due to the effect of economies of scale.