Series 79 – Investment Banking Representative Exam Mergers & Acquisitions Transactions 1 — Questions and Answers
Question 1: In an M&A transaction, what is a 'fairness opinion'?
- A legal document filed with the SEC
- An independent assessment by a financial advisor that the deal price is fair (Correct answer)
- A board resolution approving the transaction
- A FINRA requirement for all public mergers
Correct answer: An independent assessment by a financial advisor that the deal price is fair
A fairness opinion is an independent financial analysis provided by an investment bank concluding that the consideration offered in an M&A transaction is fair from a financial point of view.
Question 2: Which merger structure allows the acquirer to purchase only selected assets and liabilities of the target company?
- Stock acquisition
- Asset acquisition (Correct answer)
- Reverse merger
- Leveraged buyout
Correct answer: Asset acquisition
In an asset acquisition, the buyer selectively purchases specific assets and assumes only chosen liabilities, avoiding unwanted obligations of the target.
Question 3: What is a 'lock-up agreement' in the context of M&A?
- A restriction on target management from soliciting other bids after signing (Correct answer)
- A financing commitment from lenders
- An SEC filing required within 48 hours of a merger announcement
- A standstill agreement between two competing bidders
Correct answer: A restriction on target management from soliciting other bids after signing
A lock-up agreement restricts the target company from soliciting or entertaining competing bids after a merger agreement has been signed, protecting the acquirer's deal.
Question 4: Under the Hart-Scott-Rodino (HSR) Act, when must parties notify the FTC and DOJ of a proposed merger?
- Only when the target is a public company
- When the transaction exceeds the applicable HSR threshold size-of-transaction test (Correct answer)
- All mergers regardless of size
- When the acquirer is a foreign entity
Correct answer: When the transaction exceeds the applicable HSR threshold size-of-transaction test
The HSR Act requires pre-merger notification when a transaction meets both the size-of-transaction and size-of-person thresholds, triggering a mandatory waiting period.
Question 5: What does 'accretion/dilution analysis' measure in an M&A context?
- The change in book value of assets after a merger
- The impact of an acquisition on the acquirer's earnings per share (EPS) (Correct answer)
- The percentage premium paid over market price
- The change in the target's credit rating post-merger
Correct answer: The impact of an acquisition on the acquirer's earnings per share (EPS)
Accretion/dilution analysis evaluates whether an acquisition increases (accretive) or decreases (dilutive) the acquirer's pro forma earnings per share.
Question 6: In a hostile takeover, a 'bear hug' is best described as:
- A tender offer launched directly to shareholders without board approval
- A public letter to the target's board making an unsolicited high-premium offer and pressuring acceptance (Correct answer)
- A poison pill defense mechanism
- A white knight bidder entering the auction
Correct answer: A public letter to the target's board making an unsolicited high-premium offer and pressuring acceptance
A bear hug is an unsolicited offer letter sent to the target's board at a significant premium, making rejection politically difficult by implying shareholders would be harmed.
Series 79 – Investment Banking Representative Exam Mergers & Acquisitions Transactions 1
In an M&A transaction, what is a 'fairness opinion'?