M&A ch1

Which of the following is true only of a consolidation? More than two firms are involved in the combination One company becomes a wholly owned subsidiary of the other. One party to the combination legally ceases to exist The entity resulting from the combination assumes ownership of the assets and liabilities of the acquired firm. All parties to the combination legally cease to exist

All parties to the combination legally cease to exist

Arbitrageurs often adopt which of the following strategies in a share for share exchange just before or just after a merger announcement? Sell the target's stock short and do nothing else Buy the acquirer's stock and do nothing else Buy the target firm's stock and do nothing else Sell the target's stock short and buy the acquirer's stock Buy the target firm's stock and sell the acquirer's stock short

Buy the target firm's stock and sell the acquirer's stock short

Which of the following is generally not considered as a motive for mergers? Desire to purchase undervalued assets Desire to achieve antitrust regulatory approval Desire to achieve economies of scale Desire to achieve economies of scope Strategic realignment

Desire to achieve antitrust regulatory approval

Which of the following is not true of strategic realignment? It is rarely a result of technological change It is commonly a result of technological change It is a common motive for M&As It may be a result of industry deregulation

It is rarely a result of technological change

A firm may be motivated to purchase another firm whenever The cost to replace the target firm's assets is less than its market value The replacement cost of the target firm's assets exceeds its market value The market to book ratio is greater than one and increasing The ratio of the target firm's market value is more than four times its book value When the inflation rate is accelerating

The replacement cost of the target firm's assets exceeds its market value

The purpose of a fairness opinion from an investment bank is To support the buyer's negotiation effort To satisfy Securities and Exchange Commission filing requirements To assist acquiring management in the evaluation of takeover targets To evaluate for the target's board of directors the appropriateness of a takeover offer

To evaluate for the target's board of directors the appropriateness of a takeover offer

Which one of the following is not an example of a horizontal merger? Exxon and Mobil Oil combine Hewlett Packard and Compaq Computer combine U.S. Steel and Marathon Oil combine NationsBank and Bank of America combine SBC Communications and Ameritech Communications combine

U.S. Steel and Marathon Oil combine

A steel maker acquired an iron ore mining company. This is an example of which of the following transaction types? Horizontal merger Tender offer Obtuse transaction Vertical merger Conglomerate merger

Vertical merger

Around the announcement date of a merger, acquiring firm shareholders earn on average -20% abnormal return 30% positive abnormal returns 10% positive abnormal returns 100% positive abnormal returns Zero to slightly positive returns

Zero to slightly positive returns

Which of the following is the most common reason that M&As often fail to meet expectations? Large size of target firm Overpayment for the target Inadequate post-merger due diligence Form of payment (that is cash, stock, etc.) Poor post-merger communication

Overpayment for the target

Which of the following is an example of economies of scope? Amortization of capitalized software Shifting production from an underutilized facility to another to achieve a higher overall operating rate and shutting down the first facility A single computer center supports multiple business units The divestiture of a product line Declining average fixed costs due to increasing levels of capacity utilization

A single computer center supports multiple business units

Pacific Surfware combined with Surferdude. As part of the transaction both firms ceased to exist in their form prior to the transaction and an entirely new entity, Wildly Exotic Surfware, is created. Which one of the following terms best describes this transaction? Divestiture Spinoff Consolidation Partnership Joint venture

Consolidation

Joe's Barber Shop buys Jose's Hair Salon. Which of the following terms best describes this deal? Strategic alliance Conglomerate merger Joint venture Vertical merger Horizontal merger

Horizontal merger

Which of the following are often participants in the acquisition process? Select all that apply. Lawyers Proxy solicitors Newspapers and journalists Accountants Investment bankers

Lawyers Proxy solicitors Accountants Investment bankers

Restaurant chain, Camin Holdings, acquired all of the assets and liabilities of Cheesecakes R Us. The combined firm is known as Camin Holdings, and Cheesecakes R Us no longer exists as an independent entity. The transaction is best described as a: Spinoff Divestiture Partnership Consolidation Merger

Merger

Each of the following is an example of a partnering approach to value maximization except Joint ventures Mergers Franchises Licensing agreements Alliances

Mergers