CFM Mergers, Acquisitions & Corporate Restructuring 2

Question 1

Which statement most accurately distinguishes a merger from an acquisition?

Accepted Answer

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

Answer

In a merger, one company purchases only the assets of another; in an acquisition, both companies combine as equals

Answer

Mergers are always friendly transactions, while acquisitions are always hostile

Answer

Mergers require antitrust approval; acquisitions of any size do not

Question 2

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

Accepted Answer

Shares of the acquiring company based on a predetermined exchange ratio

Answer

Cash at the negotiated offer price per share

Answer

A mix of cash and newly issued debt instruments

Answer

Warrants to purchase shares of the combined entity at a future date

Question 3

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

Accepted Answer

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

Answer

Repurchasing its own shares at a premium to reduce the hostile bidder's potential return

Answer

Seeking a friendly competing bidder to outbid the hostile party

Answer

Issuing new shares to dilute the hostile acquirer's ownership percentage

Question 4

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

Accepted Answer

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

Answer

Is simpler to calculate using only income statement line items

Answer

Incorporates the time value of money and long-term growth expectations

Answer

Reflects only the equity value attributable to common shareholders

Question 5

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

Accepted Answer

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

Answer

A regulatory authority that intervenes to block the hostile bidder's attempt

Answer

An investment bank retained by the target to build takeover defenses

Answer

A shareholder activist who publicly supports the target's incumbent management

Question 6

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

Accepted Answer

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

Answer

A business unit is sold to a private equity firm for cash consideration

Answer

Two subsidiaries of the same parent are merged into a single consolidated operating unit

Answer

New equity is issued by a subsidiary to fund a large internal capital project

Question 7

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

Accepted Answer

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

Answer

The target company's internal audit committee after reviewing management projections

Answer

The SEC as part of its mandatory transaction review and approval process

Answer

The acquiring company's board of directors as part of its fiduciary declaration