Lecture 8- Corporate restructuring

Descripción

Highers (Corporate Finance) Accounting and Finance (Year 2) Test sobre Lecture 8- Corporate restructuring, creado por George Mariyajohnson el 22/12/2020.
George Mariyajohnson
Test por George Mariyajohnson, actualizado hace más de 1 año
George Mariyajohnson
Creado por George Mariyajohnson hace casi 4 años
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Resumen del Recurso

Pregunta 1

Pregunta
Takeover is general term referring to [blank_start]transfer[blank_end] of [blank_start]control[blank_end] of firm from one [blank_start]group[blank_end] of shareholders to another. Firm that has decided to take over another firm is [blank_start]bidder[blank_end] & other firm is [blank_start]target[blank_end]
Respuesta
  • transfer
  • control
  • group
  • bidder
  • target

Pregunta 2

Pregunta
Firm can get control of another firm without owning more than [blank_start]51%[blank_end] of [blank_start]shares[blank_end]. Firm can have [blank_start]sufficient[blank_end] amount of [blank_start]share ownership[blank_end] in another firm that enables [blank_start]bidding[blank_end] firm to take control of [blank_start]management[blank_end] of that firm
Respuesta
  • 51%
  • shares
  • sufficient
  • share ownership
  • bidding
  • management

Pregunta 3

Pregunta
Merger- [blank_start]Absorption[blank_end] of one firm by another. Acquiring firm retains [blank_start]name[blank_end] & [blank_start]identity[blank_end], & acquires all [blank_start]assets[blank_end] & [blank_start]liabilities[blank_end] of acquired firm. Acquired firm [blank_start]ceases[blank_end] to [blank_start]exist[blank_end] after merger
Respuesta
  • Absorption
  • name
  • identity
  • assets
  • liabilities
  • ceases
  • exist

Pregunta 4

Pregunta
Consolidation- Similar to [blank_start]merger[blank_end] but [blank_start]new[blank_end] firm is created. Acquiring & acquired firm [blank_start]cease[blank_end] to [blank_start]exist[blank_end] & become part of [blank_start]new[blank_end] firm
Respuesta
  • merger
  • new
  • cease
  • exist
  • new

Pregunta 5

Pregunta
One advantage of using merger to acquire firm is it’s [blank_start]legally simple[blank_end] & does not [blank_start]cost[blank_end] as much as other forms of acquisition. This is because firms [blank_start]agree[blank_end] to [blank_start]combine[blank_end] their entire [blank_start]operations[blank_end]
Respuesta
  • legally simple
  • cost
  • agree
  • combine
  • operations

Pregunta 6

Pregunta
One disadvantage of using merger to acquire firm is it must be [blank_start]approved[blank_end] by [blank_start]vote[blank_end] of [blank_start]shareholders[blank_end] of each firm
Respuesta
  • approved
  • vote
  • shareholders

Pregunta 7

Pregunta
Acquisition of shares- Acquirer purchases [blank_start]target[blank_end] firm’s voting [blank_start]shares[blank_end] in exchange for [blank_start]cash[blank_end], [blank_start]equity[blank_end] or other [blank_start]securities[blank_end]. Very often this starts as [blank_start]private[blank_end] approach to buy [blank_start]shares[blank_end] but generally ends up being [blank_start]tender[blank_end] offer ([blank_start]public[blank_end] offer to buy [blank_start]shares[blank_end] of target firm)
Respuesta
  • target
  • shares
  • cash
  • equity
  • securities
  • private
  • shares
  • tender
  • public
  • shares

Pregunta 8

Pregunta
Acquisition of shares very often related to [blank_start]hostile takeovers[blank_end] because easiest way for firm to acquire another firm is approach [blank_start]management[blank_end] of [blank_start]target[blank_end] firm & proceed through [blank_start]friendly[blank_end] takeover
Respuesta
  • hostile takeovers
  • management
  • target
  • friendly

Pregunta 9

Pregunta
Advantage of using acquisition of shares to acquire firm is that no [blank_start]shareholder meetings[blank_end] have to be held & no [blank_start]votes[blank_end] are required
Respuesta
  • shareholder meetings
  • votes

Pregunta 10

Pregunta
Acquisition of assets- Acquirer buys all of [blank_start]firm’s assets[blank_end]
Respuesta
  • firm’s assets

Pregunta 11

Pregunta
One classification of acquisition is [blank_start]horizontal acquisition[blank_end]. This is acquisition of firm in [blank_start]same industry[blank_end]. [blank_start]Bidder[blank_end] & [blank_start]target[blank_end] firms compete with each other in their [blank_start]product markets[blank_end] i.e. one pharmaceutical company takes over another
Respuesta
  • horizontal acquisition
  • same industry
  • Bidder
  • target
  • product markets

Pregunta 12

Pregunta
Reasons for horizontal acquisition include [blank_start]market share[blank_end], [blank_start]elimination[blank_end] or [blank_start]reduction[blank_end] of [blank_start]competition[blank_end], [blank_start]economies of scales[blank_end], [blank_start]access[blank_end] to an [blank_start]under-utilised asset[blank_end] & [blank_start]technology transfer[blank_end]
Respuesta
  • market share
  • elimination
  • reduction
  • competition
  • economies of scales
  • access
  • under-utilised asset
  • technology transfer

Pregunta 13

Pregunta
Another classification of acquisition is [blank_start]vertical acquisition[blank_end]. This is acquisition of firm in [blank_start]same industry[blank_end] at different [blank_start]stages[blank_end] in [blank_start]production process[blank_end] i.e. oil company takes over company in refining business
Respuesta
  • vertical acquisition
  • same industry
  • stages
  • production process

Pregunta 14

Pregunta
Reasons for vertical acquisition include [blank_start]safeguarding[blank_end] sources of [blank_start]supply[blank_end] or [blank_start]sales[blank_end] outlets, access to [blank_start]economies of scale[blank_end], [blank_start]economies[blank_end] of vertical integration & [blank_start]complementary resources[blank_end]
Respuesta
  • safeguarding
  • supply
  • sales
  • economies of scale
  • economies
  • complementary resources

Pregunta 15

Pregunta
Third classification of acquisition is [blank_start]conglomerate acquisition[blank_end]. This is acquisition of firm that has [blank_start]no relation[blank_end] ([blank_start]bidder[blank_end] & [blank_start]target[blank_end] firm are in [blank_start]unrelated[blank_end] lines of business) i.e. software company takes over supermarket
Respuesta
  • conglomerate acquisition
  • no relation
  • bidder
  • target
  • unrelated

Pregunta 16

Pregunta
Reasons for conglomerate acquisition include spreading [blank_start]risk[blank_end] through [blank_start]diversification[blank_end] & [blank_start]managers’ self-interest[blank_end]
Respuesta
  • risk
  • diversification
  • managers’ self-interest

Pregunta 17

Pregunta
Synergy- [blank_start]Positive[blank_end] incremental net [blank_start]gain[blank_end] associated with combination of [blank_start]two firms[blank_end] through [blank_start]merger[blank_end] or [blank_start]acquisition[blank_end]
Respuesta
  • Positive
  • gain
  • two firms
  • merger
  • acquisition

Pregunta 18

Pregunta
One source of synergy is [blank_start]revenue enhancement[blank_end]. This includes [blank_start]marketing[blank_end] gains ([blank_start]mergers[blank_end] & [blank_start]acquisitions[blank_end] may produce greater operating revenues than two [blank_start]separate firms[blank_end]), [blank_start]strategic[blank_end] benefits (increase management [blank_start]flexibility[blank_end] by two firms coming together) & market [blank_start]power[blank_end]
Respuesta
  • revenue enhancement
  • marketing
  • mergers
  • acquisitions
  • separate firms
  • strategic
  • flexibility
  • power

Pregunta 19

Pregunta
Another source of synergy is [blank_start]cost reduction[blank_end]. This includes [blank_start]economies[blank_end] of [blank_start]scale[blank_end], [blank_start]economies[blank_end] of vertical [blank_start]integration[blank_end], [blank_start]technology[blank_end] transfer, complementary [blank_start]resources[blank_end], elimination of inefficient [blank_start]management[blank_end] & reduced [blank_start]capital[blank_end] requirements
Respuesta
  • cost reduction
  • economies
  • scale
  • economies
  • integration
  • technology
  • resources
  • management
  • capital

Pregunta 20

Pregunta
Third source of synergy is [blank_start]tax gains[blank_end]. This includes use of [blank_start]tax[blank_end] losses, use of unused [blank_start]debt capacity[blank_end], use of surplus [blank_start]funds[blank_end] & ability to write up [blank_start]value[blank_end] of depreciable [blank_start]assets[blank_end]
Respuesta
  • tax gains
  • tax
  • debt capacity
  • funds
  • value
  • assets

Pregunta 21

Pregunta
In friendly takeover, [blank_start]management[blank_end] of two firms [blank_start]agree[blank_end] about takeover. Acquirer decides on [blank_start]target[blank_end] firm. Then, it selects [blank_start]tactic[blank_end] to carry out acquisition. After that, it decides on [blank_start]highest price[blank_end] it’s willing to pay. Then, it sets an initial [blank_start]bid price[blank_end] & makes contact with [blank_start]target[blank_end] firm. After that, many [blank_start]meetings[blank_end] & [blank_start]negotiations[blank_end] occur. Then, [blank_start]target[blank_end] firm’s board approves acquisition. Finally, an affirmative [blank_start]vote[blank_end] by [blank_start]target[blank_end] firm’s shareholders is needed
Respuesta
  • management
  • agree
  • target
  • tactic
  • highest price
  • bid price
  • target
  • meetings
  • negotiations
  • target
  • vote
  • target

Pregunta 22

Pregunta
In hostile takeover, [blank_start]management[blank_end] of target firm [blank_start]resists[blank_end] takeover
Respuesta
  • management
  • resists

Pregunta 23

Pregunta
One strategy that is followed for hostile takeover is [blank_start]toehold[blank_end]. Start to purchase target’s [blank_start]equity[blank_end] in secret followed by [blank_start]tender offer[blank_end] ([blank_start]offer[blank_end] made directly to shareholders of target firm to buy shares at [blank_start]premium[blank_end] over current [blank_start]market price[blank_end]). When [blank_start]tender offer[blank_end] ends bidder sees whether it has got enough [blank_start]shares[blank_end] to have [blank_start]control[blank_end] i.e. control over board of directors
Respuesta
  • toehold
  • equity
  • tender offer
  • offer
  • premium
  • market price
  • tender offer
  • shares
  • control

Pregunta 24

Pregunta
Another strategy that is followed for hostile takeover is [blank_start]street sweep[blank_end]. [blank_start]Bidding[blank_end] firm buys shares on [blank_start]open market[blank_end] until they have enough for [blank_start]control[blank_end]
Respuesta
  • street sweep
  • Bidding
  • open market
  • control

Pregunta 25

Pregunta
Third strategy that is followed for hostile takeover is [blank_start]proxy fight[blank_end]. This is an attempt to gain [blank_start]control[blank_end] of firm by soliciting [blank_start]sufficient[blank_end] number of shareholder [blank_start]votes[blank_end] to replace existing [blank_start]management[blank_end]
Respuesta
  • proxy fight
  • control
  • sufficient
  • votes
  • management

Pregunta 26

Pregunta
One defensive tactic against hostile takeovers (before) is [blank_start]golden parachutes[blank_end]. This involves generous [blank_start]compensation[blank_end] packages paid to firm's [blank_start]top management[blank_end] in event of [blank_start]takeover[blank_end]
Respuesta
  • golden parachutes
  • compensation
  • top management
  • takeover

Pregunta 27

Pregunta
Another defensive tactic against hostile takeovers (before) is [blank_start]poison pills[blank_end]. This is [blank_start]financial[blank_end] device designed to make [blank_start]unfriendly[blank_end] takeover attempts [blank_start]financially[blank_end] unappealing, if not impossible
Respuesta
  • poison pills
  • financial
  • unfriendly
  • financially

Pregunta 28

Pregunta
Third defensive tactic against hostile takeovers (before) is [blank_start]corporate charters[blank_end]. One device of [blank_start]corporate charters[blank_end] is to [blank_start]stagger[blank_end] election of board members. It involves only [blank_start]fraction[blank_end] of hostile management board getting [blank_start]replaced[blank_end] at a time. This is known as [blank_start]staggered board[blank_end] ([blank_start]classified board[blank_end]). Another device is [blank_start]supermajority provision[blank_end]. This is when firm makes acquisition more difficult by [blank_start]increasing percentage[blank_end] of shareholders of record who must approve merger
Respuesta
  • corporate charters
  • corporate charters
  • stagger
  • fraction
  • replaced
  • staggered board
  • classified board
  • supermajority provision
  • increasing percentage

Pregunta 29

Pregunta
Two defensive tactics against hostile takeovers (after) are [blank_start]greenmail[blank_end] & [blank_start]standstill agreements[blank_end]. [blank_start]Greenmail[blank_end] involves [blank_start]payments[blank_end] made by firm to [blank_start]repurchase[blank_end] shares of its outstanding equity from an individual [blank_start]investor[blank_end] in an attempt to [blank_start]eliminate[blank_end] potential unfriendly takeover attempt. [blank_start]Standstill agreements[blank_end] is contract wherein [blank_start]bidding[blank_end] firm agrees to limit its holdings in [blank_start]target[blank_end] firm
Respuesta
  • greenmail
  • standstill agreements
  • Greenmail
  • payments
  • repurchase
  • investor
  • eliminate
  • Standstill agreements
  • bidding
  • target

Pregunta 30

Pregunta
Another two defensive tactics against hostile takeovers (after) are [blank_start]recapitalisations[blank_end] & [blank_start]repurchases[blank_end]. These occur at same time as [blank_start]standstill agreements[blank_end]. Firm buys [blank_start]certain[blank_end] amount of its own [blank_start]equity[blank_end] from individual [blank_start]investor[blank_end], usually at [blank_start]premium[blank_end]
Respuesta
  • recapitalisations
  • repurchases
  • standstill agreements
  • certain
  • equity
  • investor
  • premium

Pregunta 31

Pregunta
Another two defensive tactics against hostile takeovers (after) are [blank_start]going private[blank_end] & [blank_start]leverage buy-out[blank_end]. [blank_start]Going private[blank_end] is when [blank_start]publicly[blank_end] traded firm becomes [blank_start]private[blank_end] group, usually comprised of [blank_start]existing[blank_end] management, purchases its [blank_start]equity[blank_end] (delisted so not public/listed anymore). [blank_start]Leverage buyouts[blank_end] is going-private [blank_start]transaction[blank_end] in which [blank_start]large[blank_end] percentage of money used to acquire [blank_start]equity[blank_end] is borrowed. Normally, [blank_start]cash offer[blank_end] price is financed with [blank_start]large[blank_end] amounts of debt
Respuesta
  • going private
  • leverage buy-out
  • Going private
  • publicly
  • private
  • existing
  • equity
  • Leverage buyouts
  • transaction
  • large
  • equity
  • cash offer
  • large

Pregunta 32

Pregunta
Another defensive tactic against hostile takeovers (after) is [blank_start]asset restructurings[blank_end]. This is related to [blank_start]crown jewel[blank_end] as firm threatens to [blank_start]sell[blank_end] some of most important [blank_start]assets[blank_end] to make [blank_start]target[blank_end] firm less attractive to [blank_start]bidding[blank_end] firm
Respuesta
  • asset restructurings
  • crown jewel
  • sell
  • assets
  • target
  • bidding

Pregunta 33

Pregunta
Another two defensive tactics against hostile takeovers (after) are [blank_start]white knight[blank_end] & [blank_start]white squire[blank_end]. [blank_start]White knight[blank_end] is [blank_start]friendly[blank_end] suitor that [blank_start]target[blank_end] firm turns to as an alternative to [blank_start]hostile[blank_end] bidder. [blank_start]White squire[blank_end] is when firm arranges for [blank_start]friendly[blank_end] entity to acquire large block of [blank_start]equity[blank_end]
Respuesta
  • white knight
  • white squire
  • White knight
  • target
  • hostile
  • White squire
  • friendly
  • friendly
  • equity

Pregunta 34

Pregunta
Another defensive tactic against hostile takeovers (after) is [blank_start]crown jewel[blank_end]. It is [blank_start]defensive[blank_end] move that firm [blank_start]threatened[blank_end] with [blank_start]takeover[blank_end] is to [blank_start]sell[blank_end] or [blank_start]threatened[blank_end] to [blank_start]sell[blank_end] its major [blank_start]assets[blank_end]
Respuesta
  • crown jewel
  • defensive
  • threatened
  • takeover
  • sell
  • threatened
  • sell
  • assets

Pregunta 35

Pregunta
Final defensive tactic against hostile takeovers (after) is [blank_start]shark repellent[blank_end]. This is any [blank_start]tactic[blank_end] designed to [blank_start]discourage[blank_end] unwanted [blank_start]merger[blank_end] offers
Respuesta
  • shark repellent
  • tactic
  • discourage
  • merger

Pregunta 36

Pregunta
Benefits to managers of bidding firm of takeover are they receive [blank_start]bonuses[blank_end] when [blank_start]acquiring[blank_end] firms & their [blank_start]pay[blank_end] & [blank_start]prestige[blank_end] are often related to [blank_start]size[blank_end] of firm. Managers are disposed to look [blank_start]favourable[blank_end] on size [blank_start]increase[blank_end] acquisitions, even those with negative NPV
Respuesta
  • bonuses
  • acquiring
  • pay
  • prestige
  • size
  • favourable
  • increase

Pregunta 37

Pregunta
Managers of target firm employ [blank_start]defensive[blank_end] tactics even if takeover is [blank_start]beneficial[blank_end] to shareholders in order to [blank_start]safeguard[blank_end] their jobs. Managers that cannot avoid takeover may [blank_start]bargain[blank_end] with [blank_start]bidder[blank_end] taking good deal for themselves at expense of their [blank_start]shareholders[blank_end]
Respuesta
  • defensive
  • beneficial
  • safeguard
  • bargain
  • bidder
  • shareholders

Pregunta 38

Pregunta
Accounting treatment of mergers & acquisitions should recognise [blank_start]fair value[blank_end] of all assets & liabilities on [blank_start]acquisition[blank_end] date. [blank_start]IFRS 3 (Business Combinations)[blank_end], states that it should be presented in such way as to allow [blank_start]shareholders[blank_end] to understand [blank_start]true value[blank_end] of mergers & acquisitions
Respuesta
  • fair value
  • acquisition
  • IFRS 3 (Business Combinations)
  • shareholders
  • true value

Pregunta 39

Pregunta
Two things that create value in leverage buyouts are extra [blank_start]debt[blank_end] which provides [blank_start]tax deduction[blank_end]. Leverage buyouts may simply increase [blank_start]debt[blank_end] level to its optimum. Also, there is increased [blank_start]efficiency[blank_end]. They own firm so interested to [blank_start]work harder[blank_end] & because high interest payments need to be made, they have to increase [blank_start]efficiency[blank_end]
Respuesta
  • debt
  • tax deduction
  • efficiency
  • debt
  • work harder
  • efficiency

Pregunta 40

Pregunta
Divestitures- [blank_start]Sale[blank_end] of [blank_start]assets[blank_end], [blank_start]operations[blank_end], [blank_start]divisions[blank_end] &/or [blank_start]segments[blank_end] of business to [blank_start]third party[blank_end]. Reasons for divestiture are required to meet [blank_start]monopolies[blank_end] or [blank_start]competition[blank_end] regulations, defence against [blank_start]hostile takeovers[blank_end], provides [blank_start]cash[blank_end] to poor liquidity firms, [blank_start]sell-offs[blank_end] streamline firm making it easier to value & firms may simply want to sell [blank_start]unprofitable divisions[blank_end]
Respuesta
  • Sale
  • assets
  • operations
  • divisions
  • segments
  • third party
  • monopolies
  • competition
  • hostile takeovers
  • cash
  • sell-offs
  • unprofitable divisions

Pregunta 41

Pregunta
One type of divestiture is [blank_start]spin-off[blank_end]. This is distribution of [blank_start]shares[blank_end] in subsidiary to [blank_start]existing[blank_end] parent company [blank_start]shareholders[blank_end]. Reasons for [blank_start]spin-off[blank_end] are publicly traded division increases [blank_start]transparency[blank_end] in market making it easier to [blank_start]value[blank_end] company & spin-off, equity acts as an incentive for [blank_start]managers[blank_end] to work harder, [blank_start]tax[blank_end] consequences of [blank_start]spin-off[blank_end] are generally better than from sale because parent receives no [blank_start]cash[blank_end] from the spin-off
Respuesta
  • spin-off
  • shares
  • existing
  • shareholders
  • spin-off
  • transparency
  • value
  • managers
  • tax
  • spin-off
  • cash

Pregunta 42

Pregunta
Another type of divestiture is [blank_start]carve-out[blank_end]. This is same as [blank_start]spin-offs[blank_end] but [blank_start]shares[blank_end] in this entity are sold to [blank_start]public[blank_end] via an [blank_start]IPO[blank_end]
Respuesta
  • carve-out
  • spin-offs
  • shares
  • public
  • IPO

Pregunta 43

Pregunta
Third type of divestiture is [blank_start]split-up[blank_end]. This is [blank_start]splitting[blank_end] of company into [blank_start]two[blank_end] or [blank_start]more[blank_end] companies
Respuesta
  • split-up
  • splitting
  • two
  • more
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