Deck 27: Mergers and Acquisitions

Question 1

Which of the following are archetypical strategies that have a higher probability of creating value as opposed to being one of the more difficult strategies for creating value?
I.Using a roll-up strategy.
II.Consolidating to improve competitive behavior.
III.Consolidating to remove excess capacity from industry.
IV.Picking winners early and helping them develop their business.

A)I and II only.
B)I,III,and IV only.
C)II,III,and IV only.
D)III and IV only.

Answer 1

D

Question 2

A large acquisition occurring is a good predictor of an increase in acquisitions.

Answer 2

True

Question 3

List the four components that determine the value created for the acquirer in an acquisition and whether an increase in each increases or decreases that value.

Answer 3

1.Increases in the stand-alone value of the target increase the value added to the acquirer.
2.Increases in the value of performance improvements increase the value added to the acquirer.
3.Increases in the market value of the target decrease the value added to the acquirer.
4.Increases in the acquisition premium decrease the value added to the acquirer.]

Question 4

About one-third of all acquisitions create value,about one-third destroy value,and for the remaining third it is not clear whether value is created or destroyed.

Question 5

The analysis of cost savings requires an industry-specific business system.Which of the following are requirements of an insightful industry-specific business system?
I.It uses a top-down approach.
II.It uses detail to identify the precise source of the savings.
III.It assigns each cost item of the target to one segment of the business system.
IV.It assigns the savings within the bidder's organization in the appropriate segments in the business system.

A)I and II only.
B)I and III only.
C)II,III,and IV only.
D)I,II,III,and IV.

Question 6

When an acquiring firm is making the decision to offer either cash or stock for a target,it should be more inclined to offer cash if:

A)The target is larger.
B)The target is smaller.
C)The stock market is in a bubble.
D)The acquiring firm has relatively low debt-to-equity ratios.

Question 7

When an acquiring firm is making the decision to offer either cash or stock for a target,it should be more inclined to offer cash if the stock market is in a bubble.

Question 8

Which of the following are usual costs associated with pursuing synergies from an acquisition?
I.Severance pay.
II.Rebranding campaigns.
III.Decommissioning a plant.
IV.Information technology integration costs.

A)I and II only.
B)I and III only.
C)II,III,and IV only.
D)I,II,III,and IV.

Question 9

An all-equity firm worth $50 billion acquires for $4 billion cash a firm whose postacquisition value will be $6 billion.The acquiring firm had the cash and did not need to borrow.The current market value of the target is $3 billion.What is the estimated return to the shareholders of the acquiring firm?

A)2 percent.
B)4 percent.
C)6 percent.
D)8 percent.