Deck 8: Going-Private Transactions and Leveraged Buyouts

Question 1

Unsecured debt is sometimes also called subordinate debt.

Answer 1

True

Question 2

Which of the following are desirable characteristics for LBO candidates?

A) Stable cash flows
B) Unused debt capacity
C) Ability to cut costs
D) All the above
E) None of the above

Answer 2

D

Question 3

Which of the following is true of senior debt?

A) The rate on senior debt is 2% to 3% above prime
B) Senior debt is usually about a quarter to a third of total LBO debt
C) The term is usually 5 to 10 years
D) All the above

Answer 3

D

Question 4

In Hansen Trust v. SCM the court concluded:

A) Merrill Lynch was given favorable treatment
B) Use of lockup option was inappropriate
C) An appropriate auction was preempted
D) All the above
E) None of the above

Question 5

Private equity firm is a more modern name for LBO firms.

Question 6

Kaplan found that the tax benefits in LBOs were:

A) Predictable
B) Built into the takeover premium
C) Did not affect the premium
D) Both a and c
E) Both a and b True or False

Question 7

A study by Travlos and Cornett shows a statistically significant negative correlation between abnormal returns to shareholders and the P/E ratio of the firm relative to the industry.

Question 8

Research by Cao and data from Mergerstat showed that:

A) LBO premiums were less than M&A premiums but increased over time
B) Decreased over time
C) No discernable pattern
D) None of the above

Question 9

Answer: In his study of buyouts in the 1980s, Kaplan found post-buyout CEO ownership percentages:

A) Fell
B) Rose
C) No consistent pattern
D) None of the above

Question 10

In Revlon v. McAndrews and Forbes Holdings, the court held:

A) The bidding process was unfair
B) Pantry Pride's premium was not high enough
C) Forstmann Little's bid was appropriate
D) All the above

Question 11

LBOs began to be a global phenomenon starting in the fifth merger wave.

Question 12

Kaplan found that the post-buyout investors did not enjoy the tax-related benefits of LBOs.

Question 13

Harris, Siegel, and Wright found productivity improvements for European companies that underwent an MBO.

Question 14

Research shows that audit fees constitute what percent of total costs of being public?

A) 25% to 35%
B) Approximately 90%
C) 50% to 60%
D) Roughly one third

Question 15

Answer: In the United States two-tiered tender offers are not that common any more.

Question 16

Lehn and Poulson showed that buyout premiums were unrelated to the target's free cash flows.

Question 17

Which of the following firms were or are considered "LBO firms"?

A) KKR
B) TPG
C) Blackstone Group
D) All the above
E) None of the above

Question 18

The first LBOs occurred in the fourth merger wave.

Question 19

Vertical strips:

A) Refers to acquiring targets with whom the bidder has a backward relationship
B) Refers to acquiring targets with whom the bidder has a forward relationship
C) Refers to participating in several layers of LBO financing
D) None of the above

Question 20

Research by Cao and data from Mergerstat showed that LBO premiums were less than M&A premiums.