上一主题:Corporate Finance【 Reading 29,Reading30】
下一主题:Corporate Finance【 Reading 31】Sample
返回列表 发帖

Corporate Finance【 Reading 32】Sample

Which of the following is NOT a commonly used merger classification describing forms of integration?
A)
Regulatory merger.
B)
Consolidation.
C)
Subsidiary merger.



Regulatory merger is not a commonly used merger classification. Both remaining answers are commonly used to describe the form of integration following a merger.

Suppose that a manufacturer of steel bridge beams (BridgeCo) acquires its main supplier of the steel (SteelCo) used to make the beams. After the merger is completed, the only surviving entity is BridgeCo. This is best described as a:
A)
subsidiary merger.
B)
horizontal merger.
C)
vertical merger.



This is best described as a vertical merger, since BridgeCo is purchasing a company from which it gets production inputs. It could also be described as a statutory merger, since only the acquiring firm is in existence following the combination.

TOP

A combination of two firms in entirely different industries is called a:
A)
vertical merger.
B)
horizontal merger.
C)
conglomerate merger.



When two firms in entirely different industries merge, it is called a conglomerate merger.

TOP

Burger World is interested in obtaining a controlling interest in Snappy Auto Repair. This potential merger is best described as a:
A)
conglomerate.
B)
horizontal merger.
C)
vertical merger.



Combining firms in separate industries represents a conglomerate merger.

TOP

Which type of merger is most likely when the motivation for merging is to bootstrap earnings per share (EPS), and what does this imply about the lifecycle stage of the acquirer and the target?
A)
Conglomerate and same stage.
B)
Conglomerate and different stages.
C)
Horizontal and different stages.



In order for EPS bootstrapping to occur, the target must have a lower price-to-earnings (P/E) ratio than the acquirer. Since firms in the same industry are more likely to have similar P/Es, this makes a horizontal merger less likely. The differential in P/Es implies a differing level of expected growth. All else being equal, this suggests that the firms will be in different lifecycle stages

TOP

Grogan Medical Devices (GMD) is a leading manufacturer of cardiac treatment devices including defibrillators and pacemakers. Over the last three months, problems have been discovered with a GMD defibrillator model, resulting in a massive product recall. As a result of the recall, and the potential impact on future sales, the price of GMD’s stock dropped to its current level of $18 per share.

As a result of the drop in the price of the stock, two firms have expressed interest in acquiring GMD. Paulsgrove Corporation (Paulsgrove) is a large health care conglomerate with businesses in consumer products, pharmaceuticals, and cardiac treatment devices. The management team at Paulsgrove sees a merger with GMD as a means to combine its current defibrillator and pacemaker operations with those of GMD, creating the worldwide leader in those two product lines.

Bailey Scientific (Bailey) is a specialty manufacturer of stents used to open clogged arteries during heart surgery. Bailey sees a merger with GMD as a natural extension of its existing heart treatment product line, and believes using its existing stent product specialists to also market defibrillators and pacemakers could result in significant cost savings. They also believe that there would be benefits from expanding the size of Bailey’s operations. What would be the best description of the type of merger if GMD were to merge Paulsgrove or if GMD were to merge with Bailey respectively?
Merger with PaulsgroveMerger with Bailey
A)
Horizontal mergerHorizontal merger
B)
Conglomerate mergerHorizontal merger
C)
Horizontal mergerVertical merger



Either a merger with Paulsgrove or a merger with Bailey would be described as a horizontal merger. In a horizontal merger, the two businesses operate in the same or similar industries. Even though Paulsgrove is already a conglomerate firm, the purpose of the merger would be to combine Paulsgrove’s existing defibrillator and pacemaker business with that of GMD. A merger with Bailey would also be considered a horizontal merger as the two firms operate in similar industries. Note that the primary benefit for either Paulsgrove or Bailey is economies of scale, which is typically the strategy behind a pure horizontal merger. With a vertical merger, a firm moves up or down the supply chain (i.e., acquiring a firm that makes the equipment to make pacemakers, or buying a hospital to distribute the products). With a conglomerate merger, the businesses operate in separate industries.

TOP

World Beaters, a maker of electric mixers and other kitchen appliances, is considering a hostile takeover of Gadgets ’N More, a catalog retailer specializing in products for the kitchen.Lars Clausen, deputy chief financial officer for World Beaters, is preparing a report on the merger for senior management. After a review of financial literature on mergers and extensive interviews with managers for both World Beaters and Gadgets ’N More, Clausen submits a report recommending against the merger. The reasons for his disapproval are listed below:
Gadgets ’N More has a higher growth rate than World Beaters, and a purchase will lower per-share profits. Shareholders will not benefit from World Beaters’ new lower financing rates. Because the merger must be an acquisition of assets, World Beaters will need shareholder approval from Gadgets ’N More.
Which of Clausen’s arguments against the merger is least valid?
A)
Gadgets ’N More has a higher growth rate than World Beaters, and a purchase will lower per-share profits.
B)
Shareholders will not benefit from World Beaters’ new lower financing rates.
C)
Because the merger must be an acquisition of assets, we will need approval from Gadgets ’N More shareholders.



In an acquisition of assets, the acquirer buys assets directly from the company, skirting shareholders. As such, the claim that World Beaters will need shareholder approval is false, and the argument is invalid. When a high-growth firm purchases a low-growth firm, per-share profits are temporarily boosted, thus lowering future growth prospects on a per-share basis. Since Gadgets ’N More has a higher growth rate than World Beaters, the effect will be just the opposite, depressing EPS in the near term. While the acquisition could boost the growth rate going forward because of the depression of current earnings and the integration of a faster-growth business, this could indeed be used as an argument against a merger, as in some cases, any one-time decline in EPS is unacceptable. As such, this argument is somewhat valid. Lower financing rates benefit the company, but usually not shareholders, because the company’s price likely reflects the fact that shareholders of both companies end up guaranteeing each other’s debt.

World Beater’s proposed purchase of Gadgets ’N More is a:
A)
vertical merger.
B)
horizontal merger.
C)
conglomerate merger.



In a vertical merger, the acquiring company moves up or down the supply chain. In this case, World Beaters wants to buy a retailer that sells its products, moving up the supply chain toward consumers.

TOP

Which of the following represents a vertical merger?
A)
A hamburger chain purchasing a pizza chain.
B)
An automobile manufacturer purchasing a tire manufacturer.
C)
An automobile manufacturer divesting its tire manufacturing division.


In a vertical merger, the acquiring company seeks to move up or down the product supply chain. In purchasing a tire manufacturer, the automobile manufacturer is acquiring one of its inputs to production.

TOP

A conglomerate is most likely to participate in which type of merger?
A)
Vertical merger.
B)
Diversifying merger.
C)
Horizontal merger.



Conglomerates by definition invest in unrelated business lines.

TOP

If a firm combines with one of its suppliers or customers, it is called a:
A)
horizontal merger.
B)
conglomerate merger.
C)
vertical merger.



When a firm merges with a supplier or customer, it is a vertical merger.

TOP

返回列表
上一主题:Corporate Finance【 Reading 29,Reading30】
下一主题:Corporate Finance【 Reading 31】Sample