EP FUNDAMENTALS OF FIN.MGMT.-MINDTAP
14th Edition
ISBN: 9781305672086
Author: Brigham
Publisher: CENGAGE L
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Chapter 21, Problem 3P
Summary Introduction
To Determine: The range of possible prices it could bid for each share of Corporation V's common stock from the results obtained from 21-1 and 21-2.
Introduction: A merger is the mix of two organizations into one by either shutting the old entities into one new entity or by one organization engrossing the other. In other terms, at least two organizations are united into one organization to form a merger.
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What is a typical merger premium paid in a merger or acquisition? What effect does this premium have on the market value of the merger candidate, and when is most of this movement likely to take place?
Look at a recent example of a merger announcement, and log on to the website of the acquiring company. What reasons does the acquirer give for buying the target? How does it intend to pay for the target—with cash, shares, or a mixture of the two? Can you work out how much the target’s shareholders will gain from the offer? Is it more or less than would be the case for an average merger? Now log on to finance.yahoo.com and find out what happened to the stock price of the acquiring company when the merger was announced. Were shareholders pleased with the announcement?
Which of the following statements regarding merger deals is (are) correct?
Choose all correct answer(s)
On average, the price of the target increases substantially, while the price of the bidder
does not increase by much.
If the premium paid by the bidder exceeds the expected additional value to be created
through the merger, the bidder's share price is likely to drop on the announcement of the
bid.
A bidder can often acquire a public-listed company for less than its current market value.
Synergies are by far the most common justification that bidders give for the premium they
pay for a target.
Chapter 21 Solutions
EP FUNDAMENTALS OF FIN.MGMT.-MINDTAP
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Similar questions
- Describe some of the positives and negatives from the point of view of both the acquirer and the target in a merger. What is the usual impact on the stock prices of each?arrow_forwardThe minority stakeholders may exchange their P100 par value shares for P400 cash in case they do not agree with the acquisition what type of anti-hostile takeover strategy ???arrow_forwardMERGER BID On the basis of your answers to problems 21-1 and 21-2, if Hastings were to acquire Visscher, what would be the range of possible prices it could bid for each share of Visscher common stock?arrow_forward
- What is the difference between a stock dividend and a stock split? As astockholder, would you prefer to see your company declare a 100% stockdividend or a 2-for-1 split? Assume that either action is feasible.arrow_forwardIf stock market returns for merged firms are positive, which motives for horizontal merger would be supported? If stock market returns were negative, which motives would be supported? PORarrow_forwardIdentify which anti-hostile takeover strategies are being described. [S1] A merger will only push through if at least 80% of the outstanding capital stock vote for this decision. [S2] A third entity purchases the remaining 30% shares so that the would-be acquirer cannot increase its ownership of the corporation from 41% to 71%.a. Supermajority provision; White Knightb. Lobster Trap; Creeping Tender Offerc. Lobster Trap; White Knightd. Supermajority provision; Creeping Tender Offerarrow_forward
- How does option value factor into this decision to acquire MGM? What factors should Amazon consider when bidding on MGM? How does competition affect Amazon's decision to acquire MGM?arrow_forwardPlease assist me with the questions. options for B: (first blank) lowest/highest (second blank) a combination of some share price appreciation and a moderate dividend/price appreciation only (third blank) high/low (fourth blank) a low/no (fifth blank) a low/no (sixth blank) lowest/largestarrow_forwardDo solve it as soon as possible Identify which statement is not correct. In a takeover bid to acquire a part or all shares in another company: Select one: a. Friendly merger reduces the chance of overpaying for target’s shares. b. Successful acquirer is likely to pay more for target’s shares in scenarios that include multiple rival bidders. c. Target company management would not accept an offer where the consideration for target’s shares exceeds the NPV of the merger. d. Hostile takeover may result in overpaying for target’s shares.arrow_forward
- please answer it with a solution. REQUIRED: DETERMINE THE FAIR VALUE OF THE SHARES ISSUED BY BENI CO. TO ACQUIRE PATTY.arrow_forward2. Which of the following terms best describes a financial instrument which gives the holder the right, but not the obligation, to purchase shares at a specified price, up to and including a specified date? European Option Call Option Put Option In-the-money Optionarrow_forwardDiscuss how time to completion affects merger arbitrage traders’ returns.arrow_forward
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