Lecture 1

Question 1

Acquisitions

Answer 1

Purchase of stock or purchase of assets

Question 2

Types of consideration (payment)

Answer 2

• cash deals (generally by issuing debt)
• stock deals (generally issue new equity)
• asset swaps

Question 3

What is a merger?

Answer 3

Absorption (one firm ceases to exist)
Consolidation (both firms cease to exist
Subsidiary merger

Question 4

What is a tender offer?

Answer 4

A specific mechanism for acquiring a public company
A buyer has to make an offer to the public -> these offers are highly regulated

Question 5

What is a hostile transaction?

Answer 5

Term used to convey dissatisfaction by politicians or unions
Generally agreed definition: A hostile transaction is one opposed by the target’s management

Question 6

Types of synergies

Answer 6

• revenue
• cost
• asset
• financing

Question 7

Revenue synergies

Answer 7

We can sell more together than apart
- market power
- complementary distribution channel

Question 8

Cost side synergies

Answer 8

Our total costs will be lower together
- eliminate duplicate functions in HQ or personnel
- reorganize production

Question 9

Asset synergies

Answer 9

Our balance sheet can be cut
- real estate, inventory

Question 10

Financing synergies

Answer 10

Lower discount rates through use of debt