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Lecture 8- Corporate restructuring

Deleted user 43 questions Updated 12 Jul 2021

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1Takeover is general term referring to [blank_start]transfer[blank_end] of [blank_start]control[blank_end] of firm from one [blank_start]group[blank_end] of shareholders to another. Firm that has decided to take over another firm is [blank_start]bidder[blank_end] & other firm is [blank_start]target[blank_end]
1. Atransfer
2. Bcontrol
3. Cgroup
4. Dbidder
5. Etarget
2Firm can get control of another firm without owning more than [blank_start]51%[blank_end] of [blank_start]shares[blank_end]. Firm can have [blank_start]sufficient[blank_end] amount of [blank_start]share ownership[blank_end] in another firm that enables [blank_start]bidding[blank_end] firm to take control of [blank_start]management[blank_end] of that firm
1. A51%
2. Bshares
3. Csufficient
4. Dshare ownership
5. Ebidding
6. Fmanagement
3Merger- [blank_start]Absorption[blank_end] of one firm by another. Acquiring firm retains [blank_start]name[blank_end] & [blank_start]identity[blank_end], & acquires all [blank_start]assets[blank_end] & [blank_start]liabilities[blank_end] of acquired firm. Acquired firm [blank_start]ceases[blank_end] to [blank_start]exist[blank_end] after merger
1. AAbsorption
2. Bname
3. Cidentity
4. Dassets
5. Eliabilities
6. Fceases
7. Gexist
4Consolidation- Similar to [blank_start]merger[blank_end] but [blank_start]new[blank_end] firm is created. Acquiring & acquired firm [blank_start]cease[blank_end] to [blank_start]exist[blank_end] & become part of [blank_start]new[blank_end] firm
1. Amerger
2. Bnew
3. Ccease
4. Dexist
5. Enew
5One advantage of using merger to acquire firm is it’s [blank_start]legally simple[blank_end] & does not [blank_start]cost[blank_end] as much as other forms of acquisition. This is because firms [blank_start]agree[blank_end] to [blank_start]combine[blank_end] their entire [blank_start]operations[blank_end]
1. Alegally simple
2. Bcost
3. Cagree
4. Dcombine
5. Eoperations
6One disadvantage of using merger to acquire firm is it must be [blank_start]approved[blank_end] by [blank_start]vote[blank_end] of [blank_start]shareholders[blank_end] of each firm
1. Aapproved
2. Bvote
3. Cshareholders
7Acquisition of shares- Acquirer purchases [blank_start]target[blank_end] firm’s voting [blank_start]shares[blank_end] in exchange for [blank_start]cash[blank_end], [blank_start]equity[blank_end] or other [blank_start]securities[blank_end]. Very often this starts as [blank_start]private[blank_end] approach to buy [blank_start]shares[blank_end] but generally ends up being [blank_start]tender[blank_end] offer ([blank_start]public[blank_end] offer to buy [blank_start]shares[blank_end] of target firm)
1. Atarget
2. Bshares
3. Ccash
4. Dequity
5. Esecurities
6. Fprivate
7. Gshares
8. Htender
9. Ipublic
10. Jshares
8Acquisition of shares very often related to [blank_start]hostile takeovers[blank_end] because easiest way for firm to acquire another firm is approach [blank_start]management[blank_end] of [blank_start]target[blank_end] firm & proceed through [blank_start]friendly[blank_end] takeover
1. Ahostile takeovers
2. Bmanagement
3. Ctarget
4. Dfriendly
9Advantage of using acquisition of shares to acquire firm is that no [blank_start]shareholder meetings[blank_end] have to be held & no [blank_start]votes[blank_end] are required
1. Ashareholder meetings
2. Bvotes
10Acquisition of assets- Acquirer buys all of [blank_start]firm’s assets[blank_end]
1. Afirm’s assets

11One classification of acquisition is [blank_start]horizontal acquisition[blank_end]. This is acquisition of firm in [blank_start]same industry[blank_end]. [blank_start]Bidder[blank_end] & [blank_start]target[blank_end] firms compete with each other in their [blank_start]product markets[blank_end] i.e. one pharmaceutical company takes over another
1. Ahorizontal acquisition
2. Bsame industry
3. CBidder
4. Dtarget
5. Eproduct markets
12Reasons for horizontal acquisition include [blank_start]market share[blank_end], [blank_start]elimination[blank_end] or [blank_start]reduction[blank_end] of [blank_start]competition[blank_end], [blank_start]economies of scales[blank_end], [blank_start]access[blank_end] to an [blank_start]under-utilised asset[blank_end] & [blank_start]technology transfer[blank_end]
1. Amarket share
2. Belimination
3. Creduction
4. Dcompetition
5. Eeconomies of scales
6. Faccess
7. Gunder-utilised asset
8. Htechnology transfer
13Another classification of acquisition is [blank_start]vertical acquisition[blank_end]. This is acquisition of firm in [blank_start]same industry[blank_end] at different [blank_start]stages[blank_end] in [blank_start]production process[blank_end] i.e. oil company takes over company in refining business
1. Avertical acquisition
2. Bsame industry
3. Cstages
4. Dproduction process
14Reasons for vertical acquisition include [blank_start]safeguarding[blank_end] sources of [blank_start]supply[blank_end] or [blank_start]sales[blank_end] outlets, access to [blank_start]economies of scale[blank_end], [blank_start]economies[blank_end] of vertical integration & [blank_start]complementary resources[blank_end]
1. Asafeguarding
2. Bsupply
3. Csales
4. Deconomies of scale
5. Eeconomies
6. Fcomplementary resources
15Third classification of acquisition is [blank_start]conglomerate acquisition[blank_end]. This is acquisition of firm that has [blank_start]no relation[blank_end] ([blank_start]bidder[blank_end] & [blank_start]target[blank_end] firm are in [blank_start]unrelated[blank_end] lines of business) i.e. software company takes over supermarket
1. Aconglomerate acquisition
2. Bno relation
3. Cbidder
4. Dtarget
5. Eunrelated
16Reasons for conglomerate acquisition include spreading [blank_start]risk[blank_end] through [blank_start]diversification[blank_end] & [blank_start]managers’ self-interest[blank_end]
1. Arisk
2. Bdiversification
3. Cmanagers’ self-interest
17Synergy- [blank_start]Positive[blank_end] incremental net [blank_start]gain[blank_end] associated with combination of [blank_start]two firms[blank_end] through [blank_start]merger[blank_end] or [blank_start]acquisition[blank_end]
1. APositive
2. Bgain
3. Ctwo firms
4. Dmerger
5. Eacquisition
18One source of synergy is [blank_start]revenue enhancement[blank_end]. This includes [blank_start]marketing[blank_end] gains ([blank_start]mergers[blank_end] & [blank_start]acquisitions[blank_end] may produce greater operating revenues than two [blank_start]separate firms[blank_end]), [blank_start]strategic[blank_end] benefits (increase management [blank_start]flexibility[blank_end] by two firms coming together) & market [blank_start]power[blank_end]
1. Arevenue enhancement
2. Bmarketing
3. Cmergers
4. Dacquisitions
5. Eseparate firms
6. Fstrategic
7. Gflexibility
8. Hpower
19Another source of synergy is [blank_start]cost reduction[blank_end]. This includes [blank_start]economies[blank_end] of [blank_start]scale[blank_end], [blank_start]economies[blank_end] of vertical [blank_start]integration[blank_end], [blank_start]technology[blank_end] transfer, complementary [blank_start]resources[blank_end], elimination of inefficient [blank_start]management[blank_end] & reduced [blank_start]capital[blank_end] requirements
1. Acost reduction
2. Beconomies
3. Cscale
4. Deconomies
5. Eintegration
6. Ftechnology
7. Gresources
8. Hmanagement
9. Icapital
20Third source of synergy is [blank_start]tax gains[blank_end]. This includes use of [blank_start]tax[blank_end] losses, use of unused [blank_start]debt capacity[blank_end], use of surplus [blank_start]funds[blank_end] & ability to write up [blank_start]value[blank_end] of depreciable [blank_start]assets[blank_end]
1. Atax gains
2. Btax
3. Cdebt capacity
4. Dfunds
5. Evalue
6. Fassets
21In friendly takeover, [blank_start]management[blank_end] of two firms [blank_start]agree[blank_end] about takeover. Acquirer decides on [blank_start]target[blank_end] firm. Then, it selects [blank_start]tactic[blank_end] to carry out acquisition. After that, it decides on [blank_start]highest price[blank_end] it’s willing to pay. Then, it sets an initial [blank_start]bid price[blank_end] & makes contact with [blank_start]target[blank_end] firm. After that, many [blank_start]meetings[blank_end] & [blank_start]negotiations[blank_end] occur. Then, [blank_start]target[blank_end] firm’s board approves acquisition. Finally, an affirmative [blank_start]vote[blank_end] by [blank_start]target[blank_end] firm’s shareholders is needed
1. Amanagement
2. Bagree
3. Ctarget
4. Dtactic
5. Ehighest price
6. Fbid price
7. Gtarget
8. Hmeetings
9. Inegotiations
10. Jtarget
11. Kvote
12. Ltarget
22In hostile takeover, [blank_start]management[blank_end] of target firm [blank_start]resists[blank_end] takeover
1. Amanagement
2. Bresists
23One strategy that is followed for hostile takeover is [blank_start]toehold[blank_end]. Start to purchase target’s [blank_start]equity[blank_end] in secret followed by [blank_start]tender offer[blank_end] ([blank_start]offer[blank_end] made directly to shareholders of target firm to buy shares at [blank_start]premium[blank_end] over current [blank_start]market price[blank_end]). When [blank_start]tender offer[blank_end] ends bidder sees whether it has got enough [blank_start]shares[blank_end] to have [blank_start]control[blank_end] i.e. control over board of directors
1. Atoehold
2. Bequity
3. Ctender offer
4. Doffer
5. Epremium
6. Fmarket price
7. Gtender offer
8. Hshares
9. Icontrol
24Another strategy that is followed for hostile takeover is [blank_start]street sweep[blank_end]. [blank_start]Bidding[blank_end] firm buys shares on [blank_start]open market[blank_end] until they have enough for [blank_start]control[blank_end]
1. Astreet sweep
2. BBidding
3. Copen market
4. Dcontrol
25Third strategy that is followed for hostile takeover is [blank_start]proxy fight[blank_end]. This is an attempt to gain [blank_start]control[blank_end] of firm by soliciting [blank_start]sufficient[blank_end] number of shareholder [blank_start]votes[blank_end] to replace existing [blank_start]management[blank_end]
1. Aproxy fight
2. Bcontrol
3. Csufficient
4. Dvotes
5. Emanagement
26One defensive tactic against hostile takeovers (before) is [blank_start]golden parachutes[blank_end]. This involves generous [blank_start]compensation[blank_end] packages paid to firm's [blank_start]top management[blank_end] in event of [blank_start]takeover[blank_end]
1. Agolden parachutes
2. Bcompensation
3. Ctop management
4. Dtakeover
27Another defensive tactic against hostile takeovers (before) is [blank_start]poison pills[blank_end]. This is [blank_start]financial[blank_end] device designed to make [blank_start]unfriendly[blank_end] takeover attempts [blank_start]financially[blank_end] unappealing, if not impossible
1. Apoison pills
2. Bfinancial
3. Cunfriendly
4. Dfinancially
28Third defensive tactic against hostile takeovers (before) is [blank_start]corporate charters[blank_end]. One device of [blank_start]corporate charters[blank_end] is to [blank_start]stagger[blank_end] election of board members. It involves only [blank_start]fraction[blank_end] of hostile management board getting [blank_start]replaced[blank_end] at a time. This is known as [blank_start]staggered board[blank_end] ([blank_start]classified board[blank_end]). Another device is [blank_start]supermajority provision[blank_end]. This is when firm makes acquisition more difficult by [blank_start]increasing percentage[blank_end] of shareholders of record who must approve merger
1. Acorporate charters
2. Bcorporate charters
3. Cstagger
4. Dfraction
5. Ereplaced
6. Fstaggered board
7. Gclassified board
8. Hsupermajority provision
9. Iincreasing percentage
29Two defensive tactics against hostile takeovers (after) are [blank_start]greenmail[blank_end] & [blank_start]standstill agreements[blank_end]. [blank_start]Greenmail[blank_end] involves [blank_start]payments[blank_end] made by firm to [blank_start]repurchase[blank_end] shares of its outstanding equity from an individual [blank_start]investor[blank_end] in an attempt to [blank_start]eliminate[blank_end] potential unfriendly takeover attempt. [blank_start]Standstill agreements[blank_end] is contract wherein [blank_start]bidding[blank_end] firm agrees to limit its holdings in [blank_start]target[blank_end] firm
1. Agreenmail
2. Bstandstill agreements
3. CGreenmail
4. Dpayments
5. Erepurchase
6. Finvestor
7. Geliminate
8. HStandstill agreements
9. Ibidding
10. Jtarget
30Another two defensive tactics against hostile takeovers (after) are [blank_start]recapitalisations[blank_end] & [blank_start]repurchases[blank_end]. These occur at same time as [blank_start]standstill agreements[blank_end]. Firm buys [blank_start]certain[blank_end] amount of its own [blank_start]equity[blank_end] from individual [blank_start]investor[blank_end], usually at [blank_start]premium[blank_end]
1. Arecapitalisations
2. Brepurchases
3. Cstandstill agreements
4. Dcertain
5. Eequity
6. Finvestor
7. Gpremium
31Another two defensive tactics against hostile takeovers (after) are [blank_start]going private[blank_end] & [blank_start]leverage buy-out[blank_end]. [blank_start]Going private[blank_end] is when [blank_start]publicly[blank_end] traded firm becomes [blank_start]private[blank_end] group, usually comprised of [blank_start]existing[blank_end] management, purchases its [blank_start]equity[blank_end] (delisted so not public/listed anymore). [blank_start]Leverage buyouts[blank_end] is going-private [blank_start]transaction[blank_end] in which [blank_start]large[blank_end] percentage of money used to acquire [blank_start]equity[blank_end] is borrowed. Normally, [blank_start]cash offer[blank_end] price is financed with [blank_start]large[blank_end] amounts of debt
1. Agoing private
2. Bleverage buy-out
3. CGoing private
4. Dpublicly
5. Eprivate
6. Fexisting
7. Gequity
8. HLeverage buyouts
9. Itransaction
10. Jlarge
11. Kequity
12. Lcash offer
13. Mlarge
32Another defensive tactic against hostile takeovers (after) is [blank_start]asset restructurings[blank_end]. This is related to [blank_start]crown jewel[blank_end] as firm threatens to [blank_start]sell[blank_end] some of most important [blank_start]assets[blank_end] to make [blank_start]target[blank_end] firm less attractive to [blank_start]bidding[blank_end] firm
1. Aasset restructurings
2. Bcrown jewel
3. Csell
4. Dassets
5. Etarget
6. Fbidding
33Another two defensive tactics against hostile takeovers (after) are [blank_start]white knight[blank_end] & [blank_start]white squire[blank_end]. [blank_start]White knight[blank_end] is [blank_start]friendly[blank_end] suitor that [blank_start]target[blank_end] firm turns to as an alternative to [blank_start]hostile[blank_end] bidder. [blank_start]White squire[blank_end] is when firm arranges for [blank_start]friendly[blank_end] entity to acquire large block of [blank_start]equity[blank_end]
1. Awhite knight
2. Bwhite squire
3. CWhite knight
4. Dtarget
5. Ehostile
6. FWhite squire
7. Gfriendly
8. Hfriendly
9. Iequity
34Another defensive tactic against hostile takeovers (after) is [blank_start]crown jewel[blank_end]. It is [blank_start]defensive[blank_end] move that firm [blank_start]threatened[blank_end] with [blank_start]takeover[blank_end] is to [blank_start]sell[blank_end] or [blank_start]threatened[blank_end] to [blank_start]sell[blank_end] its major [blank_start]assets[blank_end]
1. Acrown jewel
2. Bdefensive
3. Cthreatened
4. Dtakeover
5. Esell
6. Fthreatened
7. Gsell
8. Hassets
35Final defensive tactic against hostile takeovers (after) is [blank_start]shark repellent[blank_end]. This is any [blank_start]tactic[blank_end] designed to [blank_start]discourage[blank_end] unwanted [blank_start]merger[blank_end] offers
1. Ashark repellent
2. Btactic
3. Cdiscourage
4. Dmerger
36Benefits to managers of bidding firm of takeover are they receive [blank_start]bonuses[blank_end] when [blank_start]acquiring[blank_end] firms & their [blank_start]pay[blank_end] & [blank_start]prestige[blank_end] are often related to [blank_start]size[blank_end] of firm. Managers are disposed to look [blank_start]favourable[blank_end] on size [blank_start]increase[blank_end] acquisitions, even those with negative NPV
1. Abonuses
2. Bacquiring
3. Cpay
4. Dprestige
5. Esize
6. Ffavourable
7. Gincrease
37Managers of target firm employ [blank_start]defensive[blank_end] tactics even if takeover is [blank_start]beneficial[blank_end] to shareholders in order to [blank_start]safeguard[blank_end] their jobs. Managers that cannot avoid takeover may [blank_start]bargain[blank_end] with [blank_start]bidder[blank_end] taking good deal for themselves at expense of their [blank_start]shareholders[blank_end]
1. Adefensive
2. Bbeneficial
3. Csafeguard
4. Dbargain
5. Ebidder
6. Fshareholders
38Accounting treatment of mergers & acquisitions should recognise [blank_start]fair value[blank_end] of all assets & liabilities on [blank_start]acquisition[blank_end] date. [blank_start]IFRS 3 (Business Combinations)[blank_end], states that it should be presented in such way as to allow [blank_start]shareholders[blank_end] to understand [blank_start]true value[blank_end] of mergers & acquisitions
1. Afair value
2. Bacquisition
3. CIFRS 3 (Business Combinations)
4. Dshareholders
5. Etrue value
39Two things that create value in leverage buyouts are extra [blank_start]debt[blank_end] which provides [blank_start]tax deduction[blank_end]. Leverage buyouts may simply increase [blank_start]debt[blank_end] level to its optimum. Also, there is increased [blank_start]efficiency[blank_end]. They own firm so interested to [blank_start]work harder[blank_end] & because high interest payments need to be made, they have to increase [blank_start]efficiency[blank_end]
1. Adebt
2. Btax deduction
3. Cefficiency
4. Ddebt
5. Ework harder
6. Fefficiency
40Divestitures- [blank_start]Sale[blank_end] of [blank_start]assets[blank_end], [blank_start]operations[blank_end], [blank_start]divisions[blank_end] &/or [blank_start]segments[blank_end] of business to [blank_start]third party[blank_end]. Reasons for divestiture are required to meet [blank_start]monopolies[blank_end] or [blank_start]competition[blank_end] regulations, defence against [blank_start]hostile takeovers[blank_end], provides [blank_start]cash[blank_end] to poor liquidity firms, [blank_start]sell-offs[blank_end] streamline firm making it easier to value & firms may simply want to sell [blank_start]unprofitable divisions[blank_end]
1. ASale
2. Bassets
3. Coperations
4. Ddivisions
5. Esegments
6. Fthird party
7. Gmonopolies
8. Hcompetition
9. Ihostile takeovers
10. Jcash
11. Ksell-offs
12. Lunprofitable divisions
41One type of divestiture is [blank_start]spin-off[blank_end]. This is distribution of [blank_start]shares[blank_end] in subsidiary to [blank_start]existing[blank_end] parent company [blank_start]shareholders[blank_end]. Reasons for [blank_start]spin-off[blank_end] are publicly traded division increases [blank_start]transparency[blank_end] in market making it easier to [blank_start]value[blank_end] company & spin-off, equity acts as an incentive for [blank_start]managers[blank_end] to work harder, [blank_start]tax[blank_end] consequences of [blank_start]spin-off[blank_end] are generally better than from sale because parent receives no [blank_start]cash[blank_end] from the spin-off
1. Aspin-off
2. Bshares
3. Cexisting
4. Dshareholders
5. Espin-off
6. Ftransparency
7. Gvalue
8. Hmanagers
9. Itax
10. Jspin-off
11. Kcash
42Another type of divestiture is [blank_start]carve-out[blank_end]. This is same as [blank_start]spin-offs[blank_end] but [blank_start]shares[blank_end] in this entity are sold to [blank_start]public[blank_end] via an [blank_start]IPO[blank_end]
1. Acarve-out
2. Bspin-offs
3. Cshares
4. Dpublic
5. EIPO
43Third type of divestiture is [blank_start]split-up[blank_end]. This is [blank_start]splitting[blank_end] of company into [blank_start]two[blank_end] or [blank_start]more[blank_end] companies
1. Asplit-up
2. Bsplitting
3. Ctwo
4. Dmore

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Description: User has deleted their subject information Quiz on Lecture 8- Corporate restructuring, created by Deleted user on 12/07/2021.
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History: Created on 12 Jul 2021 · updated on 12 Jul 2021
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Lecture 8- Corporate restructuring

Questions in this quiz (43)

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