Mergers and Acquisitions
1. What is the primary difference between a merger and a consolidation?
○ A. Mergers involve two firms ceasing to exist
○ B. Consolidation creates a new firm from existing ones
○ C. Mergers require government approval
○ D. Consolidations are always horizontal
2. What is one advantage of a merger or consolidation?
○ A. No need for shareholder approval
○ B. Legally simple
○ C. Avoids public scrutiny
○ D. Requires fewer legal resources
3. Which acquisition method does NOT require stockholder approval?
○ A. Merger
○ B. Acquisition of stock
○ C. Acquisition of assets
○ D. Consolidation
Acquisition of Stock
4. A tender offer refers to:
○ A. A formal bid to purchase a company’s assets
○ B. A public offer to buy shares on the market
○ C. A merger negotiation strategy
○ D. A defensive tactic against takeovers
5. What is a disadvantage of acquiring stock rather than assets?
○ A. Requires stockholder vote
○ B. Delays due to holdout by shareholders
○ C. Increased risk of debt
○ D. Limited synergy potential
Acquisition of Assets
6. What happens to the target firm after an acquisition of its assets?
○ A. It ceases to exist
○ B. It may continue operating
○ C. It merges with the acquiring firm
○ D. Its shareholders lose all equity
7. What is required for an acquisition of assets?
○ A. Approval by shareholders of the selling firm
○ B. A public tender offer
○ C. Approval by both firms’ boards
○ D. Approval by creditors
Classifications
8. A horizontal acquisition involves:
○ A. Firms in unrelated industries
○ B. Firms at the same stage of production
○ C. Firms in different industries
○ D. Firms at different stages of production
9. Which classification applies when two firms in the same industry combine?
○ A. Vertical merger
○ B. Horizontal merger
○ C. Conglomerate merger
○ D. Consolidation
Varieties of Takeovers
10. A leveraged buyout (LBO) refers to:
○ A. An acquisition funded primarily through debt
○ B. A strategy to fend off hostile takeovers
○ C. A method to sell assets
○ D. A merger funded by equity only
11. What is a proxy contest in a takeover?
○ A. A public offer to buy shares
○ B. A fight for shareholder votes to control the board
○ C. A consolidation of two firms
○ D. A tender offer to existing management
Synergy
12. Synergy in mergers is measured as:
○ A. Combined firm’s revenue minus transaction costs
○ B. Incremental gain from combining firms
○ C. Target firm’s market value minus debt
○ D. Acquiring firm’s net present value
13. A key source of synergy is:
○ A. Increased operational costs
○ B. Elimination of intellectual capital
○ C. Economies of scale
○ D. Reduced market power
14. The formula for synergy in a merger is:
○ A. △V = VAB – (VA + VB)
○ B. △V = VA + VB – VAB
○ C. △V = VA – (VB + VAB)
○ D. △V = VB + VAB – VA
The NPV of a Merger
15. The formula for the NPV of a cash acquisition is:
○ A. NPV = VAB – (VA + VB)
○ B. NPV = VB* – cash paid
○ C. NPV = VA + VB* – cash paid
○ D. NPV = VA + VB
16. What is a key factor in stock acquisitions?
○ A. Taxes are higher for shareholders
○ B. Gains are shared between firms
○ C. Shareholders’ equity is unaffected
○ D. No control is transferred
The Purchase Accounting Method
17. Under the purchase accounting method, goodwill is recorded as:
○ A. The difference between assets and liabilities
○ B. The excess payment above fair market value
○ C. A liability on the balance sheet
○ D. The estimated value of combined revenue
18. What happens to goodwill under modern accounting rules?
○ A. It is amortized over time
○ B. It remains until deemed impaired
○ C. It is written off immediately
○ D. It is recorded as a tax liability
19. Under the purchase accounting method, assets of the acquired firm are
reported at:
○ A. Historical cost
○ B. Book value
○ C. Fair market value
○ D. Net realizable value
Defensive Tactics
20. What is the purpose of a poison pill?
○ A. To prevent the acquirer from gaining control
○ B. To increase the acquirer’s cost of acquisition
○ C. Both A and B
○ D. Neither A nor B
21. Which of the following is NOT a defensive tactic?
○ A. Golden parachute
○ B. Proxy contest
○ C. Poison pill
○ D. White knight
Friendly vs. Hostile Takeovers
22. A hostile takeover often involves:
○ A. Management approval
○ B. Tender offers
○ C. Increased shareholder value
○ D. Mergers with friendly terms
23. Which is a characteristic of a friendly takeover?
○ A. Requires shareholder litigation
○ B. Management cooperation
○ C. Initiated via tender offer
○ D. No need for regulatory approval
Do Mergers Add Value?
24. Shareholders of target companies often gain more in:
○ A. A hostile takeover
○ B. A tender offer
○ C. A stock acquisition
○ D. A divestiture
25. What is a common reason mergers fail to create value for the acquirer?
○ A. Overestimation of synergy
○ B. Tax implications
○ C. Insufficient transaction costs
○ D. Lack of market competition