Mergers and acquisitions
19 important questions on Mergers and acquisitions
When are we talking about a Horizontal Merger?
When are we talking about a conglomerate merger?
When are we talking about a vertical merger?
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Does it make economic sense to merge for the following motives:
- Merging to achieve economics scale
- Merging to redeploy cash generated by a firm with ample profits but limited growth opportunities
- Merging to combine complementary resources
Motive 2 can also make sense, although merging is not the only way to redeploy excess cash
Does it make economic sense to merge for the following motives:
- Merging to reduce risk by diversification.
- merging just to increase earnings per share
Motive 2 may lead to a bootstrap effect wherein the combined firm's eps is higher, but if there is no real value derived from the merger, then combining the firms will not add value
Which of the following transactions are not likely to be classed as tax-free:
- Acquisition of assets
- a merger in which payment is entirely in the form of voting stock
- Cash acquisitions are generally taxable
- A merger with payment in shares is normally tax-free
Is it true that buyers usually gain more than sellers?
- Buying firms are typically larger than selling firms, so smaller benefits normally don't affect the buyer's share price by much
- The effect of competition among potential buyers
Is it true that firms that do usually well tend to be acquisition targets?
Is it true that merger activity in the united states varies dramatically from year to year?
Is it true that on the average, mergers produce large economic gains?
Is it true that tender offers require the approval of the selling firm's management?
Is it true that the cost of a merger to the buyer equals the gain realized by the seller?
What is meant with a purchase accounting?
What is meant with poison pill?
What is meant with the golden parachute?
Respond to the following comment:
Our cost of debt is too dam high, but our banks won't reduce interest rates as long as we're stuck in the volatile widget-trading business. We've got to acquire other companies with safer income streams.
Respond to the following comments:
Merge with fledging electronics? No way There P/E's too high, that deal would knock 20% off our earnings per share
Respond to the following comment:
Our stock's at an all-time high. It's time to make our offer to digital organics. Sure, we'll have to offer a hefty premium to digital stockholders, but we don't have to pay in cash. We'll give them new shares of our stock.
Suppose you obtain special information- information unavailable to investors- indicating that backwoods chemical's stock price is 40% undervalued. Is that a reason to launch a takeover bid for backwoods? Explain carefully
- This is an interesting question that centers on the source of the information.
- If you obtain the information from someone at backwoods Chemical whom you know has access to this valuable information and is breaching a fiduciary obligation by telling you, then you are guilty of Insider trading if you act upon the information
- However, if you come across the information as a result of analysis that you have done or research you have performed (which anyone could have done, but did not do), then you are free to act upon the information
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