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Exam 26: Mergers and Acquisitions

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Question 21

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Assume the shareholders of a target firm benefit from being acquired in a stock transaction. Given this, these shareholders are most apt to realize the largest benefit if the:

A) acquiring firm has the better management team and replaces the target firm's managers.
B) management of the target firm is more efficient than the management of the acquiring firm which replaces them.
C) management of both the acquiring firm and the target firm are as equivalent as possible.
D) current management team of the target firm is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation.
E) current management team of the target firm is technologically knowledgeable but yet ineffective.

F) A) and B)
G) A) and C)

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Question 22

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Which one of the following statements correctly applies to a legally defined merger?

A) The acquiring firm retains its identity and absorbs only the assets of the acquired firm.
B) The acquired firm is completely absorbed and ceases to exist as a separate legal entity.
C) A new firm is created which includes all the assets and liabilities of the acquiring firm plus the assets only of the acquired firm.
D) A new firm is created from the assets and liabilities of both the acquiring and acquired firms.
E) A merger reclassifies the acquired firm into a new entity which becomes a subsidiary of the acquiring firm.

F) C) and D)
G) A) and E)

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Question 23

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Which one of the following statements is correct?

Firm A is being acquired by Firm B for $54,000 worth of Firm B stock. The incremental value of the acquisition is $5,600. Firm A has 2,400 shares of stock outstanding at a price of $21 a share. Firm B has 2,700 shares of stock outstanding at a price of $50 a share. What is the actual cost of the acquisition using company stock?

Identify the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

The Town Crier and The News Express are all-equity firms. The Town Crier has 11,500 shares outstanding at a market price of $26 a share. The News Express has 15,000 shares outstanding at a price of $31 a share. The News Express is acquiring The Town Crier. The incremental value of the acquisition is $3,800. What is the value of The Town Crier to The News Express?

Which of the following represent potential tax benefits that can directly result from an acquisition? I. an increase in depreciation expense II. an increase in surplus funds III. the use of net operating losses IV. an increased use of leverage

Which of the following statements correctly apply to a merger? I. The titles to individual assets of the acquired firm must be transferred into the acquiring firm's name. II. The merged firm will retain the use of the acquiring company's name. III. The acquiring firm does not have to seek approval for the merger from its shareholders. IV. The shareholders of the acquired company must approve the merger.

Which of the following are required for an acquisition to be considered tax-free? I. continuity of equity interest II. a business purpose, other than avoiding taxes, for the acquisition III. payment in the form of equity shares for the acquired firm IV. cash payment for the equity of the acquired firm

Which one of the following best defines synergy given the following? V_A = Value of firm A V_B = Value of firm B V_AB = Value of merged firm AB

Firm A is acquiring Firm B for $75,000 in cash. Firm A has 4,500 shares of stock outstanding at a market value of $27 a share. Firm B has 2,500 shares of stock outstanding at a market price of $29 a share. Neither firm has any debt. The incremental value of the acquisition is $2,200. What is the price per share of Firm A's stock after the acquisition?

Dixie and ten of her wealthy friends formed a group and borrowed the funds necessary to acquire 100 percent of the outstanding shares of Southern Fried Chicken. This transaction is known as a:

A proposed acquisition may create synergy by: I. increasing the market power of the combined firm. II. improving the distribution network of the acquiring firm. III. providing the combined firm with a strategic advantage. IV. reducing the utilization of the acquiring firm's assets.

Which one of the following statements is correct?

Which of the following are reasons why a firm may want to divest itself of some of its assets? I. to raise cash II. to unload unprofitable operations III. to improve the strategic fit of a firm's various divisions IV. to comply with antitrust regulations

Alliance Chemicals recently acquired Swenson Industries in a transaction that produced a NPV of $1.3 million. This NPV is referred to as:

Hanover Tires is being acquired by Better Tires for $89,000 worth of Better Tires stock. Hanover Tires has 2,500 shares of stock outstanding at a price of $36 a share. Better Tires has 6,000 shares outstanding with a market value of $23 a share. The incremental value of the acquisition is $4,200. How many new shares of stock will be issued to complete this acquisition?

Biltwell Hotels is acquiring all of the assets of Green Roof Inns. As a result, Green Roof Inns:

Pearl, Inc. has offered $860 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $710 million as an independent operation. For the merger to make economic sense for Pearl, what would the minimum estimated value of the synergistic benefits from the merger have to be?

Which of the following increase the costs associated with a merger?