Mergers and Acquisitions Exam Bank
Course Introduction
This course offers an in-depth exploration of mergers and acquisitions (M&A), examining the strategic, financial, legal, and managerial aspects of corporate restructuring. Students will learn about the motivations behind M&A, deal structuring, valuation techniques, due diligence processes, integration challenges, and the regulatory environment governing these transactions. The course combines theoretical frameworks with real-world case studies to illustrate successful and failed M&A deals, providing students with practical skills necessary to navigate and execute complex corporate transactions.
Recommended Textbook Mergers Acquisitions and Other Restructuring Activities 7th Edition by Donald DePamphilis
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Page 2
Chapter 1: Introduction to Mergers, acquisitions, and Other
Restructuring
Activities
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Sample Questions
Q1) Although the AOL-Time Warner deal is referred to as an acquisition in the case,why is it technically more correct to refer to it as a consolidation? Explain your answer.
Answer: A consolidation refers to two or more businesses combining to form a third company,with no participating firm retaining its original identity.The newly formed company assumes all the assets and liabilities of both companies.Shareholders in both companies exchange their shares for shares in the new company.
Q2) Which of the following is the most common reason that M&As often fail to meet expectations?
A) Overpayment
B) Form of payment
C) Large size of target firm
D) Inadequate post-merger due diligence
E) Poor post-merger communication
Answer: A
Q3) Holding companies and their shareholders may be subject to triple taxation.
A)True
B)False
Answer: True
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Chapter 2: The Regulatory Environment
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Q1) State antitrust laws are usually quite similar to federal laws.
A)True
B)False
Answer: True
Q2) A diligent buyer must ensure that the target is in compliance with the labyrinth of labor and benefit laws,including those covering all of the following except for
A) Sexual harassment
B) Age discrimination,
C) National security
D) Drug testing
E) Wage and hour laws.
Answer: C
Q3) A typical consent decree for firms involved in a merger requires the merging parties to divest overlapping businesses or to restrict anticompetitive practices.
A)True
B)False
Answer: True
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Chapter 3: The Corporate Takeover Market: Common
Takeover Tactics, anti-Takeover Defenses, and Corporate Governance
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Q1) Why would rising commodity prices spark industry consolidation?
Answer: Higher prices for basic ingredients tended to erode brewer profit margins.By merging,brewers would be able to negotiate larger bulk discounts from suppliers,because they would be able to able to purchase larger quantities.Selling,administrative,and distribution costs tend be lower for suppliers able to sell larger quantities to individual customers than smaller quantities to many different customers.
Q2) A no-shop agreement prohibits the takeover target from seeking other bids.
A)True
B)False
Answer: True
Q3) Corporate anti-takeover defenses are necessarily a sign of bad corporate governance.
A)True
B)False Answer: False
Q4) Litigation is a tactic that is used only by acquiring firms.
A)True
B)False
Answer: False Page 5
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Chapter 4: Planning,developing Business,and Acquisition
Plans: Phases 1 and 2 of the Acquisition Process
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Sample Questions
Q1) A corporate mission statement should be defined as broadly as possible since it seeks to describe the corporation's reason for being,and it should not exclude the firm from pursuing any significant opportunities.
A)True
B)False
Q2) Which of the following are ways to implement a firm's business strategy?
A) Merge or acquisition
B) Joint venture
C) Going it alone
D) Asset swap
E) All of the above
Q3) A collection of markets is said to comprise an industry.
A)True
B)False
Q4) Coca Cola is an example of a company that pursues both a differentiation and cost leadership strategy.
A)True
B)False
Q6) Why might the acquisition of Qwest be described as defensive? Page 7
Q5) Who are Adobe's and Omniture's customers and what are their needs?
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Page 8
Chapter 5: Implementation: Search Through Closing:
Phases 3 to 10 of the
Acquisition Process
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Q1) How could Reliable have protected itself from the outstanding warranty claims in the definitive agreement of purchase and sale?
Q2) Which of the following is true about integration planning? Without integration planning,integration is not likely to
A) Provide anticipated synergies
B) Proceed without significant disruption to the target business' operations
C) Proceed without significant disruption to the acquirer's operations
D) Be completed without experiencing substantial customer attrition
E) All of the above
Q3) The financing plan may be affected by the discovery during due diligence of assets that can be sold to pay off debt accumulated to finance the transaction.
A)True
B)False
Q4) Confidentiality agreements are rarely required when target and acquiring firms exchange information.
A)True
B)False
Q5) What was the role of "strategic controls" in implementing the K2 business plan?
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Chapter 6: Postclosing Integration: Mergers, acquisitions, and Business Alliances
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Sample Questions
Q1) The extent to which the sales forces of the two firms are combined depends on their relative size,the nature of their products and markets,and their geographic location.
A)True
B)False
Q2) Focus on customers is generally considered a factor critical to the ultimate success or failure of the merger or acquisition.
A)True
B)False
Q3) Which of the following is not true about the recommendation that integration should occur rapidly?
A) All significant operations of the two firms must be integrated immediately.
B) Rapid integration helps to minimize customer attritition.
C) Rapid integration reduces unwanted employee turnover.
D) Rapid integration reduces employee anxiety.
E) None of the above
Q4) Most corporate mergers are beset by differences in corporate cultures.How do cross-border transactions compound these differences?
10
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Chapter 7: Merger and Acquisition Cash Flow Valuation
Basics
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Sample Questions
Q1) When evaluating an acquisition,you should do which of the following:
A) Ignore market values of assets and focus on book value
B) Ignore the timing of when the cash flows will be received
C) Ignore acquisition fees and transaction costs
D) Apply the discount rate that is relevant to the incremental cash flows
E) Ignore potential losses of management talent
Q2) Studies show that it is generally unnecessary to adjust the capital asset pricing model for the size of the firm.
A)True
B)False
Q3) Free cash flow to the firm is calculated before debt and taxes.
A)True
B)False
Q4) Both public and private firms are subject to non-diversifiable risk.
A)True
B)False
Q5) A risk-free rate of return is one for which the expected return is certain.
A)True
B)False
Q6) Did @Home overpay for Excite? Page 11
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Chapter 8: Relative,asset-Oriented,and Real Option
Valuation Basics
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Q1) The so-called PEG ratio is calculated by dividing the firm's price-to-earning ratio by the expected growth rate in the firm's share price.
A)True
B)False
Q2) The use of market-based valuation methods usually reflect actual demand and supply considerations at a moment in time.
A)True
B)False
Q3) Which of the following is not generally considered a valuation method?
A) Discounted cash flow method
B) Comparable companies' method
C) Share exchange ratio method
D) Liquidation value method
E) Comparable transaction's method
Q4) The number of billing errors as a percent of total invoices is a specific example of a macro value driver.
A)True
B)False
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Q5) What method of accounting would Merrill use to show its investment in BlackRock?
Chapter 9: Applying Financial Models to Value, structure, and Negotiate Mergers and Acquisitions
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Q1) Although public companies still are required to file their financial statements with the Securities and Exchange Commission in accordance with GAAP,companies increasingly are using pro forma statements to portray their financial performance in what they argue is a more realistic (and usually more favorable)manner.
A)True
B)False
Q2) Pro forma financial statements rarely deviate from those compiled in accordance with GAAP.
A)True
B)False
Q3) What was the composition of the purchase price? Why was this composition selected according to this case study?
Q4) When one company acquires another,year over year historical earnings comparisons for the acquiring firm are unaffected.
A)True
B)False
Q5) How was the initial offer price determined according to this case study? Do you find the logic underlying the initial offer price compelling? Explain your answer.
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Chapter 10: Analysis and Valuation of Privately Held Companies
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Sample Questions
Q1) The availability and reliability of data for public companies tends to be much greater than for small private firms.
A)True
B)False
Q2) Membership or subscription businesses,such as health clubs and magazine publishers,may inflate revenue by booking the full value of muliyear contracts in the first year of the contract.
A)True
B)False
Q3) Managers and owners in public companies are likely to have the same emotional attachment to their businesses as those in private firms.
A)True
B)False
Q4) A sudden improvement in operating profits in the year in which the business is being offered for sale may suggest that both revenue and expenses had been overstated during the historical period.
A)True
B)False
Page 15
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Chapter 11: Structuring the Deal: Payment and Legal
Considerations
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Q1) Employee stock ownership plans cannot be legally used to acquire companies. A)True
B)False
Q2) What was the form of payment employed by both bidders for Unocal? In your judgment,why were they different? Be specific.
Q3) The value of an earnout payment is never subject to a cap so as not to discourage the seller from working diligently to exceed the payment threshold. A)True
B)False
Q4) What were the key differences between J&J's and Boston Scientific's bidding strategy? Be specific.
Q5) Describe Blackstone's negotiating strategy with EOP in its effort to counter Vornado's bids.Be specific.
Q6) In an earnout agreement,the acquirer must directly control the operations of the target firm to ensure the target firm adheres to the terms of the agreement.. A)True B)False
Page 16
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Chapter 12: Structuring the Deal: Tax and Accounting
Considerations
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Q1) Taxes are an important consideration in almost any transaction,and they are often the primary motivation for an acquisition.
A)True
B)False
Q2) To demonstrate continuity of interests (COI),target shareholders must continue to own a substantial part of the value of the combined target and acquiring firms.
A)True
B)False
Q3) In a purchase of assets,the buyer retains the target's tax attributes.
A)True
B)False
Q4) Empirical studies generally show that the tax shelter resulting from the ability of the acquiring firm to increase the value of acquired assets to their FMV is a highly important motivating factor for a takeover.
A)True
B)False
Q5) Did the AirTouch board make the right decision? Why or why not?
Page 17
Q6) What are the potential risk factors related to the merger?
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Chapter 13: Financing the Deal: Private Equity, hedge Funds, and
Other
Sources of Funds
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Q1) Financial buyers usually hold onto their investments for at least 15-20 years.
A)True
B)False
Q2) Divisions of larger companies are generally poor candidates for successful leveraged buyouts.
A)True
B)False
Q3) What are the advantages and disadvantages of using enterprise cash flow in valuing CK? In what might EBITDA been a superior (inferior)measure of cash flow for valuing CK?
Q4) Why did the board feel that it was appropriate to set up special committee of independent board directors?
Q5) LBO investors have become much more actively involved in managing target firms in recent years than they have in the past.
A)True B)False
Q6) LBOs can be of an entire company or divisions of a company.
A)True B)False
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Chapter 14: Highly Leveraged Transactions: Lbo Valuation and Modeling Basics
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Q1) Why would the buyout firms want Qwest to continue to provide such services as billing and information technology support? How might such services be priced?
Q2) Which of the following are steps often found in developing a LBO model?
A) Cash flow projections
B) Determining a firm's borrowing capacity
C) Determining a financial sponsor's equity contribution
D) A, B, and C
E) A and C only
Q3) The total value of the firm according to the adjusted present value method is the present value of the firm's free cash flows to equity investors plus the present value of future tax savings discounted at the firm's unlevered cost of equity.
A)True
B)False
Q4) What were the motivations for this deal from Cerberus' perspective? From Daimler's perspective?
Q5) Is this transaction taxable or non-taxable to Tribune's public shareholders? To its post-transaction shareholders? Explain your answer.
Page 19
Q6) Do you believe that MGM is an attractive LBO candidate? Why? Why not?
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Chapter 15: Business Alliances: Joint Ventures, partnerships, strategic Alliances, and Licensing
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Q1) If one party chooses to exit an alliance,the remaining party or parties often have the contractual right to
A) First offer their ownership interests to the other partners
B) Sell their ownership interests to the highest bidder
C) Put their interests to a third party that has no relationship to the alliance
D) Require that the other parties to the alliance buy them out
E) Dissolve the partnership
Q2) How would you estimate the market capitalization for Rosneft based on the terms of the share exchange? Show your work.
Q3) The desire to share risk is a common motive for a business alliance..
A)True
B)False
Q4) Strategic alliances often make use of written contracts rather than more formal legal structures such as a corporation.
A)True
B)False
Q5) What are the elements that each alliance has in common? Of these,which do you believe are the most important?
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Q6) Why do you believe Conoco's stock fell immediately following the announcement?
Chapter 16: Alternative Exit and Restructuring Strategies:
Divestitures,
spin-Offs, carve-Outs, split-Ups, and Split-Offs
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Q1) In a private solicitation,the parent firm may hire an investment banker or undertake on its own to identify potential buyers to be contacted.
A)True
B)False
Q2) Although the parent often retains control in an equity carve-out,the shareholder base of the subsidiary may be different that that of the parent.
A)True
B)False
Q3) The board of directors of a large conglomerate has decided that the investment opportunities for the firm are limited and that greater value could be created for the shareholders if the firm were divided into four independent businesses.Following approval by shareholders,the firm executed this strategy which is best described as a A) Split-up
B) Split-off
C) Spin-off
D) Equity carveout
E) Reverse merger
Q4) Describe the motivation for UPS to undertake this type of transaction.
Page 21
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Chapter 17: Alternative Exit and Restructuring Strategies:
Bankruptcy Reorganization and Liquidation
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Q1) Prepackaged bankruptcies are less common today than in years past.
A)True
B)False
Q2) All of the following are true of the bankruptcy process except for A) Creditors and the debtor-in-possession have considerable flexibility in working together.
B) The purpose of creditor committees is to work with the debtor firm to develop an acceptable reorganization plan
C) The bankruptcy judge may choose to ignore the objections of creditors and shareholders and accept a reorganization plan.
D) The government is responsible for paying the expenses of all those who contributed to the formulation of a reorganization plan.
E) The debtor firm may emerge from Chapter 11 as an ongoing concern or be merged with another firm.
Q3) While bankrupt firms generally are unable to meet the listing requirements of the major stock exchanges,their shares may trade in the over-the-counter market.
A)True
B)False
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Chapter 18: Cross-Border Mergers and Acquisitions:
Analysis and Valuation
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Q1) Why do you believe that Dofasco's board was concerned about a lengthy auction process? discussion of the Mittal-Arcelor transaction.
Q2) The decision to buy political risk insurance depends on the size of the investment and the perceived level of political and economic risk.
A)True
B)False
Q3) What is a friendly takeover? Speculate as to why it may have turned hostile?
Q4) In cross-border M&As,acquirer shares often are less attractive to potential targets because of the absence of a liquid market for resale or because the acquirer is not widely recognized by the target firm's shareholders.
A)True
B)False
Q5) Arbitrage should drive the prices in different markets to be the same,as investors sell those assets that are undervalued to buy those that are overvalued.
A)True
B)False
Q6) What were the motives for Arcelor's and ThyssenKrupp's interest in Dofasco?
Page 23
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