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Exam 18: Corporate Restructuring

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Question 91

Multiple Choice

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The wave of merger activity that resulted in largely horizontal mergers in the mining metals production, and food products industries was:

A) Wave 1, 1897-1904.
B) Wave 2, 1916-1929.
C) Wave 3, 1965-1969.
D) Wave 4, 1981-1989.

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

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Question 92

Multiple Choice

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The success of junk bonds in the 1980s was based on a rationale that was eventually proven wrong. That rationale was:

A) the failure rate of risky companies is only slightly higher than that of more reputable firms.
B) risky firms fail only slightly more often than highly rated firms in good economic times.
C) during hard times, risky companies fail a lot more frequently than higher rated firms.
D) None of the above correctly states the junk bond rationale.

E) None of the above
F) All of the above

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Question 93

True/False

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A firm acquires a supplier or a customer in a horizontal merger.

The quest for rapid growth is a major reason for which companies undertake acquisitions.

To be acceptable to the acquirer, the total premium paid must be:

In a congeneric merger:

A divestiture is unlikely to be undertaken because of:

_____ laws prohibit mergers that significantly reduce competition.

A consolidation occurs when all of the combining legal entities dissolve, and a new entity with a new name is formed to continue into the future.

A spinoff is a last resort effort to divest a badly failing business.

In a financial merger, the acquisition is intended to:

A competent merger analysis calculates the maximum per share price that should be paid for an acquisition as:

A combination of companies in which neither competes with the other, no buyer-seller relationship exists between them, and the firms' businesses are unrelated is a:

A conglomerate merger occurs when companies acquire firms in unrelated industries.

Tancesco Inc. is considering acquiring Aldine Corp. which it has estimated will generate the following after tax cash flows over the next three years ($000). After that management expects a growth rate of 3% indefinitely. $\begin{array}{lr}1&2&3\\\$580&\$600&\$650\end{array}$ In addition, Tancesco thinks a merger will produce $40,000 per year in after tax synergies. Aldine has 65,000 shares of common stock outstanding. The company's beta is 1.6, the market is currently returning an average of 12% on stock investments and short term treasury bills are yielding 3%. What should Tancesco be willing to pay per share for Aldine if management is willing to value the acquisition over an indefinitely long time horizon? ($000)

Why don't hostile takeovers create feuds between the stockholders of the companies involved?

The annual after-tax free cash flow from the acquisition by Pacific Care of Universal Health is projected to be $12 million. These flows are expected to continue for 20 years. No value is placed on cash flows beyond 20 years. If the appropriate risk-adjusted discount rate is 15 percent, what is the maximum amount Pacific Care should pay to acquire Universal Health?

Rank the various types of mergers from high to low with respect to their potential to raise antitrust issues.

When a target company's management and board of directors feel that a combination would be a good idea and agree to cooperate with an acquirer, the result is commonly called:

A merger between a tire manufacturer and an automobile manufacturer is an example of: