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Exam 26: Mergers and Acquisitions

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Question 41

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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 pooling of interests for accounting purposes.The total assets are _____ and the total equity is _____ on the post-merger balance sheet.

A) $24,500; $10,500
B) $24,500; $18,200
C) $26,300; $10,500
D) $26,300; $16,600
E) $27,500; $19,400

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Question 42

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Which one of the following statements is correct?

A) A spin-off frequently follows an equity carve-out.
B) A split-up frequently follows a spin-off.
C) An equity carve-out is a specific type of acquisition.
D) A spin-off involves an initial public offering.
E) A divestiture means that the original firm ceases to exist.

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Question 43

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Penn Corp.is analyzing the possible acquisition of Teller Company.Both firms have no debt.Penn believes the acquisition will increase its total aftertax annual cash flows by $3.7 million indefinitely.The current market value of Teller is $103 million,and that of Penn is $151.7 million.The appropriate discount rate for the incremental cash flows is 9 percent.Penn is trying to decide whether it should offer 40 percent of its stock of $127 million in cash to Teller's shareholders.The cost of the cash alternative is _____,while the cost of the stock alternative is _____.

Princeton Enterprises is a diversified company.In addition to its primary business operations,the firm is also the sole shareholder of a wholly owned subsidiary.As part of its restructuring plan,Princeton has decided to implement an IPO offering for shares in the subsidiary.This offering is equivalent to a 25 percent ownership stake in the subsidiary.What is the distribution of these shares called?

Moore Industries has agreed to be acquired by Scott Enterprises for $22,000 worth of Scott Enterprises stock.Scott Enterprises currently has 7,500 shares of stock outstanding at a price of $28 a share.Moore Industries has 1,800 shares outstanding at a price of $12 a share.The incremental value of the acquisition is $1,100.What is the value per share of Scott Enterprises stock after the acquisition?

The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation.Information about each firm is given here: Jolie's shareholders will receive one share of Pitt stock for every three shares they hold in Jolie.Assume the NPV of the acquisition is zero.What will the post-merger PE ratio be for Pitt?

Outdoor Living has agreed to be acquired by New Adventures for $48,000 worth of New Adventures stock.New Adventures currently has 8,000 shares of stock outstanding at a price of $32 a share.Outdoor Living has 1,700 shares outstanding at a price of $43 a share.The incremental value of the acquisition is $21,000.What is the value of the merged firm?

A potential merger which produces synergy:

Hanover Tires is being acquired by Better Tires for $89,000 worth of Better Tires stock.Hanover Tires has 2,500 shares of stock outstanding at a price of $36 a share.Better Tires has 6,000 shares outstanding with a market value of $23 a share.The incremental value of the acquisition is $4,200.How many new shares of stock will be issued to complete this acquisition?

Rosie's has 1,800 shares outstanding at a market price per share of $23.50.Sandy's has 2,500 shares outstanding at a market price of $21 a share.Neither firm has any debt.Sandy's is acquiring Rosie's.The incremental value of the acquisition is $1,200.What is the value of Rosie's to Sandy's?

When evaluating an acquisition you should:

An acquisition completed simply to diversify a firm will:

Assume the shareholders of a target firm benefit from being acquired in a stock transaction.Given this,these shareholders are most apt to realize the largest benefit if the:

If General Electric,a highly diversified company,were to acquire Ocean Freight Limited,the acquisition would be classified as a _____ acquisition.

If a firm sells its crown jewels when threatened with a takeover attempt,the firm is employing a strategy commonly referred to as a _____ strategy.

Roger is a major shareholder in RB Industrial Supply.Currently,Roger is quite unhappy with the direction the firm is headed and is rumored to be considering an attempt to take over the firm by soliciting the votes of other shareholders.To head off this potential attempt,the board of RB Industrial Supply has decided to offer Roger $35 a share for all the shares he owns in the firm.The current market value per share is $32.This offer to purchase Roger's shares is commonly referred to as:

If Paul's Hardware were to acquire Suburban Hardware,the acquisition would be classified as a _____ acquisition.

Firm B is being acquired by Firm A for $162,000 worth of Firm A stock.The incremental value of the acquisition is $4,600.Firm A has 8,500 shares of stock outstanding at a price of $36 a share.Firm B has 5,900 shares of stock outstanding at a price of $27 a share.What is the value per share of Firm A after the acquisition?

Taylor's Hardware is acquiring The Corner Store for $25,000 in cash.Taylor's has 1,500 shares of stock outstanding at a market value of $46 a share.The Corner Store has 2,200 shares of stock outstanding at a market price of $8 a share.Neither firm has any debt.The incremental value of the acquisition is $3,500.What is the value of Taylor's Hardware after the acquisition?

Some Freight Line Express shareholders are very dissatisfied with the performance of the firm's current management team.These shareholders want to gain control of the board of directors so they can have the power to oust current management.As a means of gaining control,these shareholders have select candidates for all of the open positions on the firm's board of directors.Since they have insufficient votes to guarantee the election of these individuals,they are contacting other shareholders and asking them to vote with them on this important matter.Of course,the current management team is encouraging shareholders to vote for their candidates for the board.Which one of the following terms is best illustrated by this situation?