EBK PRINCIPLES OF CORPORATE FINANCE
12th Edition
ISBN: 9781259358487
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 31, Problem 3PS
Summary Introduction
To determine: Whether the given hypothetical mergers vertical, horizontal and conglomerate.
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A(n) ________________ occurs when the management of the target company purchases a controlling interest in that company and the company incurs a significant amount of debt as a result.
a.
greenmail
b.
statutory merger
c.
poison pill
d.
leveraged buyout
2. Types of mergers
Mergers often are classified according to the merger's participants and their lines of business. Identify each of the following four types of mergers:
Description
Motive for Merger
A merger between the manufacturer and its supplier of raw materials
A merger between an electrical appliance company and a personal hygiene company
A merger between two retail giants producing the same type of clothing
A merger between two technology firms that have no prior existing relationship and are
not competing with each other
If McDonald's were to merge with Burger King, the merger would be described as a:
O vertical merger
O horizontal merger
conglomerate merger
O congeneric merger
1. Company S and Company T combine to form a new Company ST by pooling all their assets and liabilities and issuing new ST shares to all shareholders in proportion to their previous shareholdings. How this transaction should be categorised?
a) Merger
b) Acquisition
c) Spin-off
d) De-merger
Chapter 31 Solutions
EBK PRINCIPLES OF CORPORATE FINANCE
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Similar questions
- 1. As a result of the merger, what is the goodwill? 2. What is the Retained Earnings after the merger? 3. What is the net increase or (decrease) in the stockholders' equity of SD Corp. after the merger?arrow_forwardThe following are sentences relating to types of mergers and acquisitions. Which is/are true? [S1] Both horizontal and product-extension types of M&A involve catering to the same market group before and after the M&A. [S2] A vertical M&A involves a supplier or buyer of the acting firm as the target firm.a. Only S1 is true.b. Only S2 is true.c. Neither is true.d. Both are true.arrow_forwardWhich of the following statements is most CORRECT? Oa. The primary rationale for most operating mergers is synergy. Ob. In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms. Oc. Financial theory says that the choice of how to pay for a merger is really irrelevant because, although it may affect the firm's capital structure, it will not affect its overall required rate of return. Od. The basic rationale for any financial merger is synergy and, thus, the estimation of pro forma cash flows is the single most important part of the analysis. Oe. The acquiring firm's required rate of return in most horizontal mergers will not be affected, because the 2 firms will have similar betas.arrow_forward
- Consider the following data in relation to a proposed acquisition, where Firm B will take over Firm A in a horizontal takeover. Pre-merger Value A $550m Pre-merger Value B $420m Post-merger Value A + B $1,150m Cash Offer $580m Share Offer 52% of Shares in A + B Estimate the gains available from the merger. Estimate the value of the merger to firm A’s shareholders under both the cash and share offer. Estimate the value of the merger to firm B’s shareholders under both the cash and share offer. Which offer will predominate, cash or shares, if the shareholders of A are given the choice?arrow_forwardConsider the following data in relation to a proposed acquisition, where Firm B will take over Firm A in a horizontal takeover. Pre-merger Value A $600m Pre-merger Value B $475m Post-merger Value A + B $1,200m Cash Offer $630m Share Offer 53% of Shares in A + B a. Estimate the gains available from the merger. b. Estimate the value of the merger to firm A’s shareholders under both the cash and share offer. c. Estimate the value of the merger to firm B’s shareholders under both the cash and share offer. d. Which offer will predominate, cash or shares, if the shareholders of A are given the choice?arrow_forwardCh. 29. In 2021, Google, a company that specializes in internet-related service, acquired Fitbit, the fitness tracking company, to bolster its wearable capabilities. Google paid shareholders $7.25 per share in cash. This is an example of which of the following? Group of answer choices merger horizontal acquisition vertical acquisition conglomerate acquisitionarrow_forward
- Which one of the following statements correctly applies to a merger? Multiple Choice The acquiring firm does not have to seek approval for the merger from its shareholders. The shareholders of the target firm must approve the merger. The acquiring firm will acquire the assets but not the debt of the target firm. The merged firm will have a new company name. The titles to individual assets of the target firm must be transferred into the acquiring firm's name.arrow_forwardIdentify the type of merger in the following case: ABC manufactures furniture. It acquired a leather-producing business for a 20% share in the ownership of the former. The latter agreed.a. Vertical, Hostile, Cash Purchaseb. Horizontal, Friendly, Equity Swapc. Horizontal, Hostile, Equity Swapd. Vertical, Friendly, Equity Swaparrow_forwardBMW Motors Corp. wants to acquire all the assets of MWB Corp. BMW plans to pay for the assets by issuing its own corporate stock. BMW’s board of directors has already approved the merger. In what circumstances would the approval of BMX’s shareholders be required for this merger?Is the approval of MWB’s shareholders necessary? Explain.arrow_forward
- TRUE OR FALSE 1. The merger of two completely unrelated enterprises is referred to as a congeneric merger, however, the merger of somewhat related companies is referred to as a conglomerate merger of somewhat related companies is referred to as conglomerate merger. 2. if there is sufficient proof that the acquisition has been made for a business purpose and the shareholders of the target firm will be compensated with voting shareholders of the target firm will be compensated with voting shares in the acquiring firm, the acquisition will be non-taxable. 3. with cash consideration, the stockholders of the target firm share the gains and losses of acquisition and vice-versa. 4. A merger is the total absorption of one firm by another, however with a consolidation an entirely new firm is created. 5. A white knight is a friendly suitor that a target firm turns to as an alternative to a hostile bidder.arrow_forwardWhat is the difference between an operating merger and a financial merger?arrow_forwardIf A company acquires either a supplier of inputs or a distributor of its products or the company to which it sells its products. It is : Select one: a. Congeneric Acquisition b. Horizontal Acquisition c. Conglomerate Acquisition d. Vertical Acquisition CLEAR MY CHOICEarrow_forward
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