Lesson 8 - Mergers and Acquisitions (Reading)

Question 1

takeover

Answer 1

the transfer of control from one ownership group to another

Question 2

acquisition

Answer 2

the purchase of one firm by another

Question 3

merger

Answer 3

the combination of two firms into a new legal entity

Question 4

cash transaction

Answer 4

the receipt of cash for shares by shareholders in a target company

Question 5

share transaction

Answer 5

the offer by an acquiring company of shares or a combination of cash and shares to the target company’s shareholders

Question 6

amalgamation

Answer 6

a genuine merger in which both sets of shareholders must approve the transactions (cdn term for merger)

Question 7

going private transaction or issuer bid

Answer 7

a special form of acquisition where the purchaser already owns a majority stake in the target company

Question 8

fairness opinion

Answer 8

an opinion provided by an independent expert regarding the true value of a firm’s shares, based on an external valuation; particularly difficult given that, with a controlling shareholder, there is little possibility of any other party buying the shares

Question 9

tender

Answer 9

to sign an authorization accepting a takeover bid made to target company shareholders

Question 10

creeping takeover

Answer 10

the acquisition of a target company over time by the gradual accumulation of its shares

Question 11

friendly acquisition

Answer 11

the acquisition of a target company that is willing to be taken over

Question 12

offering memorandum

Answer 12

a document describing a target company’s important features to potential buyers

Question 13

data room

Answer 13

a place where a target company keeps confidential information about itself for serious potential buyers to consult

Question 14

confidentiality agreement

Answer 14

a document signed by a potential buyer to guarantee the buyer will keep confidential any information about a target company that is available in the data room and will not use the data to harm the target company

Question 15

due diligence

Answer 15

the process of evaluating a target company by a potential buyer

Question 16

letter of intent

Answer 16

a letter signed by an acquiring company that sets out the terms of agreement of its acquisition, including legal terms

Question 17

no-shop clause

Answer 17

a clause in a letter of intent stating that the target agrees not to find another buyer, demonstrating its commitment to close the transaction

Question 18

break fee

Answer 18

a fee paid to an acquirer or target should the other party terminate the acquisition, often 2.5 percent of the value of the transaction

Question 19

asset purchase

Answer 19

a purchase of the firm’s assets rather than the firm itself

Question 20

hostile takeover

Answer 20

a takeover in which the target has no desire to be acquired, actively rebuffs the acquirer, and refuses to provide any confidential information

Question 21

tender offer

Answer 21

a public offer in which the acquiring firm offers to purchase shares of the target firm from its existing shareholders

Question 22

arbs

Answer 22

short for arbitrageurs; specialists who predict what will happen in takeovers and buy and sell shares in target companies, with the possibility of earning a premium

Question 23

defensive tactic

Answer 23

a strategy used by a target company to stave off a takeover or to try to get the best deal for its shareholders

Question 24

shareholder rights plan/poision pill

Answer 24

a plan by a target company that allows its shareholders to buy 50 percent more shares at a discounted price in the event of a takeover, which makes the target company less attractive

Question 25

selling the crown jewels

Answer 25

the sale of a target company's key assets, which the acquiring company is most interested in, to make the target company less attractive for takeover

Question 26

white knight

Answer 26

an entity that rescues a target company from a hostile takeover by making a counter bid

Question 27

horizontal merger

Answer 27

a merger in which two firms in the same industry combine

Question 28

vertical merger

Answer 28

a merger in which one firm acquires a supplier ("going backward") or another firm that is closer to its existing customers ("going forward")

Question 29

conglomerate merger

Answer 29

a merger in which two firms in unrelated businesses combine

Question 30

cross-border (international) m&a

Answer 30

a merger or acquisition involving a Canadian and a foreign firm as either the acquiring or target company

Question 31

synergy

Answer 31

value created from economies of integrating a target and acquiring company; the amount by which the value of the combined firm exceeds the sum value of the two individual firms

Question 32

over-capacity m&a

Answer 32

a merger or acquisition that occurs when an industry has too many firms operating in it

Question 33

geographic roll-up

Answer 33

the creation of a national firm from a series of regional ones

Question 34

extension m&a

Answer 34

a merger or acquisition that extends a firm's expertise