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Exam 26: Mergers and Acquisitions

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Question 31

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Blasco Distributors has become a large conglomerate.Its board of directors recently concluded that the firm has become so large that it has lost its efficiency.The board further concluded that the firm could be both more efficient and more profitable if it were divided into three distinct and separate firms.The board presented this suggested to the firm's shareholders and those shareholders voted and agreed to divide the firm.Dividing this firm into separate entities is referred to as a(n) :

A) lockup transaction.
B) divestiture.
C) equity carve-out.
D) spin-off.
E) split-up.

F) C) and E)
G) C) and D)

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Question 32

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Silver Enterprises has acquired All Gold Mining in a merger transaction.The following balance sheets represent the premerger book values for both firms. Assume the merger is treated as a purchase for accounting purposes.The market value of All Gold Mining's fixed assets is $3,800; the market values for current and other assets are the same as the book values.Assume that Silver Enterprises issues $5,000 in new long-term debt to finance the acquisition.The post-merger balance sheet will reflect goodwill of _____ and total equity of _____.

A) $640; $2,700
B) $640; $4,610
C) $890; $2,700
D) $890; $4,610
E) $890; $5,500

F) B) and E)
G) All of the above

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Question 33

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Which one of the following defensive tactics is designed to prevent a "two-tier" takeover offer?

Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T) .Assume that neither firm has any debt outstanding. Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $2,500.What is the NPV of the merger assuming that Firm T is willing to be acquired for $28 per share in cash?

Pearl,Inc.has offered $920 million cash for all of the common stock in Jam Corporation.Based on recent market information,Jam is worth $710 million as an independent operation.For the merger to make economic sense for Pearl,what would the minimum estimated value of the synergistic benefits from the merger have to be?

Sue's Bakery is planning on merging with Ted's Deli.Sue's will pay Ted's shareholders the current value of their stock in shares of Sue's Bakery.Sue's currently has 4,500 shares of stock outstanding at a market price of $19 a share.Ted's has 2,300 shares outstanding at a price of $20 a share.What is the value of the merged firm?

Biltwell Hotels is acquiring all of the assets of Green Roof Inns.As a result,Green Roof Inns:

Merchantile Exchange is being acquired by National Sales.The incremental value of the acquisition is $1,800.Merchantile Exchange has 1,500 shares of stock outstanding at a price of $18 a share.National Sales has 3,500 shares of stock outstanding at a price of $54 a share.What is the net present value of the acquisition given that the actual cost of the acquisition using company stock is $28,780?

Which of the following are required for an acquisition to be considered tax-free? I.continuity of equity interest II.a business purpose,other than avoiding taxes,for the acquisition III.payment in the form of equity shares for the acquired firm IV.cash payment for the equity of the acquired firm

The pooling of interests method of accounting: I.creates an account called goodwill which is recorded on the balance sheet of the merged firm. II.consists of simply combining the balance sheets of the acquiring and the target firm. III.is currently the accounting method required by FASB for all cash acquisitions. IV.recognizes the excess of the purchase price over the fair market value and records that excess as an asset of the acquiring firm.

Which one of the following pairs of businesses could probably benefit the most by sharing complementary resources?

Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm.Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.

Which of the following are reasons why a firm may want to divest itself of some of its assets? I.to raise cash II.to unload unprofitable operations III.to improve the strategic fit of a firm's various divisions IV.to comply with antitrust regulations

Down River Markets has decided to acquire a controlling interest in Blue Jays by purchasing shares of stock in the public markets.Which of the following statements correctly apply to this acquisition? I.The purchase of publicly-traded shares may be more expensive than an outright merger with Blue Jays would have been. II.Down River Markets can avoid dealing with the board of directors of Blue Jays by purchasing shares in this manner. III.If Down River Markets is successful in acquiring at least 80 percent of the outstanding shares of Blue Jays,the remaining shareholders in Blue Jays will be forced to also sell their shares to Down River Markets. IV.Whether or not Down River Markets gains control of Blue Jays depends upon the willingness of Blue Jays shareholders to sell their shares.

Glendale Marine is being acquired by Inland Motors for $53,000 worth of Inland Motors stock.Inland Motors has 6,200 shares of stock outstanding at a price of $49 a share.Glendale Marine has 1,700 shares outstanding with a market value of $30 a share.The incremental value of the acquisition is $2,600.What is the total number of shares in the new firm?

The primary purpose of a flip-in provision is to:

A proposed acquisition may create synergy by: I.increasing the market power of the combined firm. II.improving the distribution network of the acquiring firm. III.providing the combined firm with a strategic advantage. IV.reducing the utilization of the acquiring firm's assets.

Which one of the following generally has a flip-in provision that significantly increases the cost to a shareholder who is attempting to gain control over a firm?

The Floral Shoppe and Maggie's Flowers are all-equity firms.The Floral Shoppe has 2,500 shares outstanding at a market price of $16.50 a share.Maggie's Flowers has 5,000 shares outstanding at a price of $17 a share.Maggie's Flowers is acquiring The Floral Shoppe for $42,900 in cash.The incremental value of the acquisition is $1,200.What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers?

George's Equipment is planning on merging with Nelson Machinery.George's will pay Nelson's shareholders the current value of their stock in shares of George's Equipment.George's currently has 4,600 shares of stock outstanding at a market price of $31 a share.Nelson's has 1,600 shares outstanding at a price of $38 a share.What is the value per share of the merged firm?