PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 31, Problem 3PS
Summary Introduction
To determine: Whether the given hypothetical mergers vertical, horizontal and conglomerate.
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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
BMW 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.
When one company buys the assets and liabilities of another company, this is known as which of the following?Choose one answer.a. Limited liability company b. Merger c. Conventional corporation d. Acquisition
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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 buyoutarrow_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_forwardWhat is a statutory merger?a. A merger approved by the Securities and Exchange Commission.b. An acquisition involving the purchase of both stock and assets.c. A takeover completed within one year of the initial tender offer.d. A business combination in which only one company continues to exist as a legal entity.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_forwardUse the following information for the next two questions. Tangy is attempting to acquire Target. Tangy has sufficient authorized but unissued shares to carry out the proposed merger. Selected financial data is presented for both companies in the table below: Item Tangy Target Co. Earnings Available for common stock $10,000,000 $1,000,000 Number of shares of common stock outstanding 1,000,000 50,000 Market price per share $100 $120 Calculate the EPS of Tangy and Target before the merger. 2. If the ratio of exchange is 1.8, what will be the earnings per share of the merged company?arrow_forwardDefine each of the following terms:a. Synergy; mergerb. Horizontal merger; vertical merger; congeneric merger; conglomerate mergerc. Friendly merger; hostile merger; defensive merger; tender offer; target company;breakup value; acquiring companyd. Operating merger; financial merger; equity residual method; market multiple analysise. White knight; white squire; poison pill; golden parachutef. Arbitrageg. Joint venture; corporate, or strategic, allianceh. Divestiture; spin-off; leveraged buyout (LBO); carve-out; liquidationarrow_forward
- Explain how purchase accounting is implementedin a merger. Does the accounting profession nowrequire this method? How is any premium that theacquiring firm paid over the acquired firm’s bookvalue treated subsequent to a merger?arrow_forwardCreate a table to compare and contrast the three types of corporate mergers: horizontal, vertical, or conglomerate. Describe the characteristics of the corporations that are involved (products, consumers, etc.) and the benefits of this type of merger for each corporation.arrow_forwardChoose the correct. What is a statutory merger?a. A merger approved by the Securities and Exchange Commission.b. An acquisition involving the purchase of both stock and assets.c. A takeover completed within one year of the initial tender offer.d. A business combination in which only one company continues to exist as a legal entity.arrow_forward
- The 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_forwardRatio of exchange and EPS Marla’s Cafe is attempting to acquire the Victory Club. Certain financial data on these corporations are summarized in the following table. Marla’s Cafe has sufficient authorized but unissued shares to carry out the proposed merger. If the ratio of exchange is 1.8, what will be the earnings per share (EPS) based on the original shares of each firm? Repeat part a if the ratio of exchange is 2.0. Repeat part a if the ratio of exchange is 2.2. Discuss the principle illustrated by your answers to parts a througharrow_forwardExamples of two or more companies that have gone through merger and acquisition in most recent years?arrow_forward
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