PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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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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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.
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
Which 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.
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Similar questions
- 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_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_forward
- Question : Majan Group is considering the acquisition of Mazoon Company in which Mazoon Company would receive OMR 66.50 for each share of its common stock. The Majan Group does not expect any change in its price/earnings multiple after the merger. Majan Group is considering either undertaking the acquisition either through a stock for stock transaction, an all-cash transaction or in a stock and cash transaction. Majan Group intends to borrow the cash involved in the transaction in an interest only loan at an annual rate of 6% with the principal to be repaid as a in 15 years. If the stock and cash transaction is to be considered, Majan Group will pay a purchase price of one share of its stock plus a cash amount equal the difference between the offer share price and the target's share price. The marginal tax rate of Majan Group is 40%. Majan Group Mazoon Company Earnings available for common stock OMR 184,450 OMR 38,150 Number of shares of common stock outstanding 81,900 24,500 Market…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_forwardWhich of the following is correct in a Forward Triangular Merger. Cash and stock may be used as consideration A combination of parent and subsidiary stock may be used. Target shareholder's approval is not necessary. At least 40% of targets assets must be acquired.arrow_forward
- T/F The npv of a merger equals the total value of the acquired firm minus the synergies created by the merger.arrow_forwardExamples of two or more companies that have gone through merger and acquisition in most recent years?arrow_forwardWhat does empirical evidence suggest about the distribution of gains from mergers? Shareholders of the acquired firm gain the most. Shareholders of the acquiring firm gain the most. Neither group of shareholders is likely to gain. Both groups of shareholders gain equally.arrow_forward
- ABC Broadcasting Inc. acquires GO Telecommunications Inc. ABC runs TV channels while GO sells TV and internet plans. ABC acquired Go by paying P10,000,000 and 200,000 ABC ordinary shares to the shareholders of Go who willing accepted the offer. 1. Kind according to purpose (Choose 1) a. Horizontalb. Verticalc. Product Extentiond. Market Extensione. Congenericf. Conglomerate 2. Kind according to approach to the target firm (Choose 1)a. Friendlyb. Hostile 3. Kind according to acquisition mode (Choose 1) a. Cashb. Equity swapc. Mix of cash and equity swaparrow_forwardPlease refer to the picture below for information. Instructions: Show the complete solution Question: 1. Prepare the Statement of Financial Position (SFP) of Tanangonan after the merger. 2. Determine the goodwill or gain on bargain purchase from the above acquisition.arrow_forwardWhy would a company implement this upon acquisitions: "All significant intercompany transactions and balances between Group enterprises are eliminated on combination." I would like to know the possible reasons for this statement in a companies annual report.arrow_forward
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