Mergers, Acquisitions & Corporate Restructuring Flashcards

Which statement most accurately distinguishes a merger from an acquisition?

Answer: In a merger, two companies combine to form a new or surviving entity; in an acquisition, one company purchases and absorbs another

A merger combines two companies into a single surviving or newly formed entity, while an acquisition involves one company purchasing another and maintaining its own corporate identity.

In a stock-for-stock acquisition, what do the target company's shareholders receive as consideration?

Answer: Shares of the acquiring company based on a predetermined exchange ratio

In a stock-for-stock deal, target shareholders exchange their shares for acquirer shares at an agreed-upon ratio, making them equity holders in the combined company.

A 'crown jewel' takeover defense strategy involves the target company:

Answer: Divesting or spinning off its most valuable assets to make the company less attractive to the acquirer

The crown jewel defense removes the primary asset the hostile bidder is pursuing, reducing the strategic rationale for the acquisition and making the target less valuable.

A key advantage of using EV/EBITDA over a P/E multiple in M&A valuation is that EV/EBITDA:

Answer: Is capital-structure neutral, enabling fair comparison across companies with different levels of debt

Because EV/EBITDA uses enterprise value (which includes debt) divided by pre-interest, pre-tax earnings, the multiple is unaffected by how a company is financed, enabling apples-to-apples industry comparisons.

In a hostile takeover scenario, a 'white knight' is best described as:

Answer: A friendly alternative acquirer invited by the target's board to submit a competing bid

A white knight is a preferred buyer that the target's board actively solicits to make a competing offer, providing shareholders with an alternative to the hostile bid on more favorable or culturally compatible terms.

A corporate spin-off is best described as a transaction in which:

Answer: Shares of a subsidiary are distributed pro rata to the parent company's existing shareholders, creating an independent public company

In a spin-off, the parent distributes subsidiary shares to its existing shareholders, resulting in the subsidiary becoming a separately traded public company while the parent retains its own listing.

A fairness opinion in an M&A transaction is typically issued by:

Answer: An independent investment bank, confirming the deal price is fair to shareholders from a financial point of view

A fairness opinion is an independent financial analysis provided by an investment bank that confirms the transaction consideration is fair to the target's shareholders, helping the board fulfill its fiduciary duties.