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Exam 26: Mergers and Acquisitions

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Question 31

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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 $36 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:

A) a golden parachute.
B) standstill payments.
C) greenmail.
D) a poison pill.
E) a white knight.

F) B) and D)
G) D) and E)

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Question 32

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Which one of these is the least probable reason why a firm may want to divest itself of some of its assets?

A) To cash out a profitable operation
B) To raise cash
C) To improve the strategic fit of its various divisions
D) To comply with antitrust regulations
E) To increase market share

F) A) and D)
G) A) and E)

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Question 33

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Family Travel is the sole shareholder in its subsidiary, FT Insurance. Family Travel has decided to divest itself of its insurance operations and does so by distributing the shares in the subsidiary to the shareholders of Family Travel. This distribution of shares is called a(n) :

Which one of these statements is correct regarding acquisitions?

Firm B is being acquired by Firm A for $166,000 worth of Firm A stock. The incremental value of the acquisition is $5,200. Firm A has 11,500 shares of stock outstanding at a price of $40 a share. Firm B has 6,500 shares of stock outstanding at a price of $25 a share. What is the value per share of Firm A after the acquisition?

Nadine's Home Fashions has $2.12 million in net working capital. The firm has fixed assets with a book value of $31.64 million and a market value of $33.9 million. The firm has no long-term debt. The Home Centre is buying Nadine's for $37.5 million in cash. The acquisition will be recorded using the purchase accounting method. What is the amount of goodwill that The Home Centre will record on its balance sheet as a result of this acquisition?

Melvin was attempting to gain control of Western Wood Products until he realized that the existing shareholders in the firm had the right to purchase additional shares at a below-market price given his hostile takeover attempt. Thus, Melvin decided to forgo investing in this firm. What term applies to the tactic used by Western Wood Products to stave off this takeover attempt?

Alpha is planning on merging with Beta. Alpha will pay Beta's shareholders the current value of their stock in shares of Alpha. Alpha currently has 6,500 shares of stock outstanding at a market price of $44 a share. Beta has 2,100 shares outstanding at a price of $22 a share. The post-merger earnings will be $10,400. What will the earnings per share be after the merger?

A potential merger that produces synergy:

Johnson Co. and Peabody Enterprises are both manufacturers of plastic products. These two firms have decided to work together to find a more efficient way to recycle rejected products. Thus, the two companies are each going to assign two engineers to this project and have agreed to share any and all costs. This project is an example of a:

Silver Enterprises has acquired All Gold Mining in a merger transaction. The pre-merger balance sheet for Silver Enterprises has current assets of $1,500, other assets of $400, net fixed assets of $2,300, current liabilities of $1,000, long-term debt of $500 and owners' equity of $,2700. The pre-merger balance sheet for All Gold Mining shows current assets of $600, other assets of $210, net fixed assets of $1,600, current liabilities of $500, and equity of $1,910. Assume the merger is treated as a purchase for accounting purposes. The market value of All Gold Mining's fixed assets is $2,900; the market values for current and other assets are the same as the book values. Assume that Silver Enterprises issues $4,000 in new long-term debt to finance the acquisition. The post-merger balance sheet will reflect goodwill of ________ and total equity of ________.

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 6,500 shares of stock outstanding at a market price of $26 a share. Ted's has 2,300 shares outstanding at a price of $18 a share. What is the value of the merged firm if the synergy created by the merger is $3,200?

The balance sheet of MT Co. shows current assets of $14,000, net fixed assets of $21,800, current liabilities of $4,300, long-term debt of $2,600, and equity of $28,900. The balance sheet of LF Inc. has current assets of $4,700, net fixed assets of $8,100, current liabilities of $2,200, long-term debt of $1,200, and equity of $9,400. The market value of LF's fixed assets is $14,100. MT purchases LF for $20,000 and raises the funds through an issue of long-term debt. What will be the value of the equity account on the post- merger balance sheet assuming the purchase accounting method is used?

Rural Markets and Flo's Flowers are all-equity firms. Rural Markets has 2,300 shares outstanding at a market price of $16.50 a share. Flo's Flowers has 5,000 shares outstanding at a price of $17 a share. Flo's Flowers is acquiring Rural Markets for $39,000 in cash. The incremental value of the acquisition is $1,800. What is the net present value of acquiring Rural Markets to Flo's Flowers?

Firm X has total earnings of $49,000, a market value per share of $64, a book value per share of $38, and has 25,000 shares outstanding. Firm Y has total earnings of $34,000, a market value per share of $21, a book value per share of $12, and has 22,000 shares outstanding. Assume Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $2 per share. Also assume neither firm has any debt before or after the merger. What is the value of the total equity of the combined firm, XY, if the purchase method of accounting is used?

All of the following represent potential gains from an acquisition except the:

Which one of the following statements is correct?

Davidson Global proposed splitting itself into four separate firms and its shareholders agreed. This split is referred to as a(n) :

The balance sheet of Meat Co. reflects current assets of $6,000, net fixed assets of $8,400, current liabilities of $1,800, long-term debt of $1,100, and equity of $11,500. The balance sheet of Loaf Inc. shows current assets of $2,000, net fixed assets of $3,300, current liabilities of $900, long-term debt of $500, and equity of $3,900. Suppose the fair market value of Loaf's fixed assets is $4,100 versus the $3,300 book value shown. Meat pays $5,200 for Loaf and raises the needed funds through an issue of long-term debt. Assume the purchase method of accounting is used. The post-merger balance sheet of Meat Co. will have total debt of ________ and total equity of ________.

Global Distributors has decided to sell its manufacturing operations and concentrate solely on its global distribution operations. This sale is referred to as a(n) :