E2: Mergers Flashcards
1
Q
When does a merger make economic sense?
A
- when two firms are worth more together than apart
2
Q
What are the 3 types of merger?
A
Horizontal (same line of business)
Vetical (diff stages of production)
Congolmerate (unrelated lines of business)
3
Q
name the 5 motives for a merger
A
- economies of scale and scope
- economies of vertical integration
- complementary resources
- change in corporate control
- industry consolidation
4
Q
How are many mergers paid?
A
In the acquirers stock
5
Q
What is the benefit of financing a merger using shares?
A
Tax-free
6
Q
What is a limitation of financing a merger using cash?
A
- selling shareholders are taxed which must be paid on capital gains
