Mergers and Acquisitions Exam Questions and Correct Answers Graded A+ (Latest Update 2024)
corporate governance - Answers "internal control"
the market for corporate control - Answers "external control"
players - Answers acquirer (aka bidder)
target
takeover mechanisms - Answers acquisition
merger
mergers - Answers characterized by mutual agreement
shareholders of the merged companies are offered equivalent holdings in the new company
-horizontal and vertical = types
takeovers - Answers friendly - makes an offer and inform's the targets board
hostile
hostile takeovers - Answers target's board rejects the offer, but bidder (aka black knight) continues to
pursue
tender offer - Answers public, open offers made directly by a potential acquirer to target's shareholders
(public traded) to tender their stock for sale
-usually pays a premium
-cash or securities (exchange offers)
-governed by the Williams Act and SEC Regulation 14E
proxy fight - Answers occurs when a firm's shareholders develop opposition to some aspects of
corporate governance
-corporate activist (raiders, sharks) will persuade shareholders to use their proxy votes to install new
management
bust-up takeovers - Answers -used when targets' assets are undervalued
-leveraged buyout: acquirer takes on debt to finance the purchase, then repays the debt with target's
assets once it has control
-acquisition followed by large divestitures
, reverse - Answers private company acquirers public company (shell)
less costly and faster than IPO
backflip - Answers acquirer turns into a subsidiary of acquired firm
merger waves - Answers peaks of heavy takeover activity followed by troughs of few transactions
merger activity is greater during economic expansions than contractions
also correlates with bull markets
1890s - Answers monopoly
1920s - Answers oligopoly
1960s - Answers conglomerate - firms typically acquired firms in unrelated businesses
1980s - Answers hostile takeover, corporate raiding = the acquirer purchased poorly performing
conglomerate and sold off its individual business units for more than the purchase price.
1990s - Answers friendly takeovers, cross-border mergers = deals that were more likely to be friendly
and to involve companies in related businesses. these mergers often were designed to create strong
firms on a scale that would allow them to compete globally. strategic deals.
200s - Answers PE, LBOs.
neoclassical - Answers industries respond to shocks thru M&A, thus creating a clustering of merger
activities.
(Mitchell, Mulherin 1995)
-takeover and restructuring activity is related to industry change.
-positively and significantly related to sales shocks (proxy for industry shock)
-both high sales and large sales declines contribute to above average takeover activity at the industry
level.
behavioral - Answers rational managers take advantage of consistent pricing error in the market to buy
physical assets with overvalued stock
synergy - Answers short-term financial synergy
-PE effects, improved liquidity, tax effects
long-term financial synergy:
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