Reading 35: Mergers and Acquisitions - LOS d ～ Q1-4 likely, overall, growing, selling, industry

cfaedu

1.The Larson Trust holds a broad portfolio of firms. One of the Trust’s holdings, Music World, is growing at roughly the same, or slightly slower rate as the overall economy. The Trust is considering selling the firm. What stage of the industry lifecycle is Music World most likely in, and which method of selling the firm is most probable?

A)   Stabilization phase, equity carve-out.

B)   Stabilization phase, divestiture.

C)   Decline phase, divestiture.

D)   Decline phase, equity carve-out.

2.Conglomerate mergers are least likely for companies in which stages of the industry lifecycle?

A)   Pioneer/Development, Rapid Growth.

B)   Stabilization, Decline.

C)   Mature Growth, Stabilization.

D)   Rapid Growth, Mature Growth.

3.When an industry has reached the stabilization stage, the most common type of merger is:

A)   conglomerate.

B)   vertical.

C)   diversification.

D)   horizontal.

4.Firms are most likely to seek mergers in order to gain access to capital during which industry lifecycle stages?

A)   Pioneer/Development and Rapid Growth.

B)   Pioneer/Development and Decline.

C)   Stabilization and Decline.

D)   Rapid Growth and Mature Growth.

cfaedu

答案和详解如下：

1.The Larson Trust holds a broad portfolio of firms. One of the Trust’s holdings, Music World, is growing at roughly the same, or slightly slower rate as the overall economy. The Trust is considering selling the firm. What stage of the industry lifecycle is Music World most likely in, and which method of selling the firm is most probable?

A)   Stabilization phase, equity carve-out.

B)   Stabilization phase, divestiture.

C)   Decline phase, divestiture.

D)   Decline phase, equity carve-out.

The correct answer was B)

Music World appears to be in the stabilization phase, as it is growing at approximately the same rate as the overall economy. If it were in the decline phase, growth would be negative. Divestiture, most likely to a firm in a similar line of business, is more likely than an equity carve-out. A divestiture would allow the buyer to consolidate market share. An equity carve-out would involve a public offering of shares with only marginal attractiveness as a stand-alone enterprise.

2.Conglomerate mergers are least likely for companies in which stages of the industry lifecycle?

A)   Pioneer/Development, Rapid Growth.

B)   Stabilization, Decline.

C)   Mature Growth, Stabilization.

D)   Rapid Growth, Mature Growth.

The correct answer was C)

Conglomerate mergers are least likely for firms in the mature growth and stabilization stages of the industry lifecycle. In these stages, industry growth is slowing, and they are more likely to be seeking horizontal mergers to enhance economies of scale.

3.When an industry has reached the stabilization stage, the most common type of merger is:

A)   conglomerate.

B)   vertical.

C)   diversification.

D)   horizontal.

The correct answer was D)

In the stabilization stage, companies typically seek mergers to improve economies of scale. Horizontal mergers are the most common as stronger companies acquire weaker companies to expand market share and reduce costs.

4.Firms are most likely to seek mergers in order to gain access to capital during which industry lifecycle stages?

A)   Pioneer/Development and Rapid Growth.

B)   Pioneer/Development and Decline.

C)   Stabilization and Decline.

D)   Rapid Growth and Mature Growth.

The correct answer was A)

The industry lifestyle stages during which firms often merge to gain access to additional capital are the pioneer/development and rapid growth stages.