Mergers True and False Ch 17, 18, 19, 20, 21

International takeover activity has declined over the last few decades as a result of political and legal obstacles.

False

Large companies usually prefer to use fixed price tender offers rather than open market repurchases since tender offers give the firm more flexibility in timing the repurchase.

False

M&As are an insignificant external control mechanism for management, as the acquiring firms never replace the target's management for fear of disrupting its operational viability.

False

Members of a firm's board are not allowed to hold shares in firms they monitor.

False

Merger arbitrage is the zero-investment purchase of a security financed by the sale of an identical security at a higher price.

False

Merger arbitrageurs do not provide insurance against deal failures to investors of target firms

False

Merger arbitrageurs have consistently experienced significantly positive returns in market downturns, such as October 1987.

False

Outside of the United States, the cost of equity is usually lower than the cost of debt.

False

Price pressure caused by merger arbitrageurs is not a significant factor for the acquirers' negative price reaction in fixed-exchange ratio mergers.

False

Proposals for improved pay-performance policies have focused on increasing the base salaries of executives in order to protect them from short-term movements of the market.

False

Public pension funds are legally forbidden from any involvement in corporate governance of the firms in which they hold equity.

False

Recent calls for reform of corporate boards have urged directors to hold positions in a wide cross-section of firms in order to gain exposure to a range of management styles and techniques.

False

Studies show that foreign buyers pay smaller premia than domestic acquirers, which can be explained by caution in entering unknown markets.

False

Technological considerations play an insignificant role in international M&As as firms can always transfer information without actually purchasing another firm.

False

The international Fisher relation suggests that real rates of interest will differ across countries based on the expected rates of inflation in respective countries.

False

The payment of greenmail occurs when the acquirer makes side payments to the officers of the target firm in order to speed up the transaction.

False

A share repurchase may be an effective defense against takeovers by reducing the firm's cash holdings and removing low reservation price shareholders.

True

Conflicts of interest between managers and shareholders may occur both when the management's equity stake is too low and too high.

True

Corporate restructuring in general may be a defense against a takeover, as the resulting increase in value reduces the potential improvements an acquirer might make.

True

Deal spread narrows as the probability of deal completion incre

True

Domination of the board of directors by insiders may hurt its ability to objectively monitor the performance of managers.

True

Firms in small countries may expand internationally to escape constraints of a small home market.

True

Firms may choose to expand into foreign countries to avoid import regulations.

True

Golden parachutes compensate target management for losing their jobs following a takeover.

True

Golden parachutes may benefit shareholders by dissuading management from resisting takeover offers that would benefit shareholders.

True

If different countries' economies are not perfectly correlated, international mergers can reduce the earnings risk of being dependent on a single domestic market.

True

In a Pac Man defense, the target makes a retaliatory offer to purchase the acquiring firm.

True

In a stock merger, the arbitrageur buys the target stock and shorts the stock of the acquirer based on the merger exchange ratio.

True

In a white knight defense, the target seeks to be bought by another company rather than the bidding firm.

True

In recent years, share repurchases have grown much faster than dividends, and by some measures now exceed dividends.

True

International joint ventures are the only means for some firms to gain access to certain protected markets.

True

Joint ventures with foreign firms offer an alternative to international mergers.

True

Market reaction to the adoption of antitakeover measures by a firm may be confounded by the contradictory effects of making a takeover more difficult to complete while also indicating that the firm fears a takeover may be imminent.

True

Merger arbitrage is risky due to the possibility of deal failure

True

Merger arbitrageurs generally buy shares of the target firm after the announcement of the merger.

True

Proxy contests and takeovers are related in that both can result in replacement of ineffective management.

True

Resistance to a takeover may be an attempt to improve the purchase price rather than outright opposition to a purchase by another firm.

True

Share repurchases can substitute for dividends as an effective way of paying out cash to shareholders.

True

Share repurchases may be used to increase a firm's debt/equity ratio.

True

The corporate governance models of Japan and Germany have been strained by economic difficulties in those countries.

True

The fact that management is usually precluded from selling their shares into a share repurchase supports the hypothesis that repurchases are used as a signal of firm undervaluation.

True

The relative political and economic stability of the United States has been an important factor in attracting foreign buyers.

True

Transferable Put Rights (TPRs) repurchases avoid the problem of pro-rationing oversubscribed offers by having the firm issue a fixed number of put securities to the shareholders.

True

Banks are a negligible component of international M&As because of daunting legal regulations.

False

Because stock option grants have been rapidly increasing, share repurchases are unable to offset the dilutive effect of options.

False

Event return studies of international mergers yield vastly different results than those of domestic mergers.

False

Historically, the main form of corporate ownership in the U.S. has been large ownership stakes held by large institutions such as banks and government agencies.

False

In a merger arbitrage there is no overall market risk because the arbitrageur can always hedge his position.

False

A disadvantage of open market repurchases (OMRs) is the fact that once the repurchase is announced, the firm is legally bound to continue purchasing shares until the stated quota is reached.

False

A good way to ward off takeover attempts is to reduce the firm's leverage and amass a large holding of cash which can be used as a "war chest" against potential acquirers.

False

A major disadvantage of repurchasing shares via a fixed price tender offer (FPT) is the fact that the firm is legally obliged to purchase all of the tendered shares.

False

A poison pill defense refers to the threat of the target management to resign following a successful takeover.

False