Lecture 8- Corporate restructuring

Description

Highers Accounting and Finance (Year 2) (Corporate Finance) Quiz on Lecture 8- Corporate restructuring, created by George Mariyajohnson on 22/12/2020.
George Mariyajohnson
Quiz by George Mariyajohnson, updated more than 1 year ago
George Mariyajohnson
Created by George Mariyajohnson almost 4 years ago
3
0

Resource summary

Question 1

Question
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]
Answer
  • transfer
  • control
  • group
  • bidder
  • target

Question 2

Question
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
Answer
  • 51%
  • shares
  • sufficient
  • share ownership
  • bidding
  • management

Question 3

Question
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
Answer
  • Absorption
  • name
  • identity
  • assets
  • liabilities
  • ceases
  • exist

Question 4

Question
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
Answer
  • merger
  • new
  • cease
  • exist
  • new

Question 5

Question
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]
Answer
  • legally simple
  • cost
  • agree
  • combine
  • operations

Question 6

Question
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
Answer
  • approved
  • vote
  • shareholders

Question 7

Question
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)
Answer
  • target
  • shares
  • cash
  • equity
  • securities
  • private
  • shares
  • tender
  • public
  • shares

Question 8

Question
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
Answer
  • hostile takeovers
  • management
  • target
  • friendly

Question 9

Question
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
Answer
  • shareholder meetings
  • votes

Question 10

Question
Acquisition of assets- Acquirer buys all of [blank_start]firm’s assets[blank_end]
Answer
  • firm’s assets

Question 11

Question
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
Answer
  • horizontal acquisition
  • same industry
  • Bidder
  • target
  • product markets

Question 12

Question
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]
Answer
  • market share
  • elimination
  • reduction
  • competition
  • economies of scales
  • access
  • under-utilised asset
  • technology transfer

Question 13

Question
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
Answer
  • vertical acquisition
  • same industry
  • stages
  • production process

Question 14

Question
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]
Answer
  • safeguarding
  • supply
  • sales
  • economies of scale
  • economies
  • complementary resources

Question 15

Question
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
Answer
  • conglomerate acquisition
  • no relation
  • bidder
  • target
  • unrelated

Question 16

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

Question 17

Question
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]
Answer
  • Positive
  • gain
  • two firms
  • merger
  • acquisition

Question 18

Question
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]
Answer
  • revenue enhancement
  • marketing
  • mergers
  • acquisitions
  • separate firms
  • strategic
  • flexibility
  • power

Question 19

Question
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
Answer
  • cost reduction
  • economies
  • scale
  • economies
  • integration
  • technology
  • resources
  • management
  • capital

Question 20

Question
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]
Answer
  • tax gains
  • tax
  • debt capacity
  • funds
  • value
  • assets

Question 21

Question
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
Answer
  • management
  • agree
  • target
  • tactic
  • highest price
  • bid price
  • target
  • meetings
  • negotiations
  • target
  • vote
  • target

Question 22

Question
In hostile takeover, [blank_start]management[blank_end] of target firm [blank_start]resists[blank_end] takeover
Answer
  • management
  • resists

Question 23

Question
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
Answer
  • toehold
  • equity
  • tender offer
  • offer
  • premium
  • market price
  • tender offer
  • shares
  • control

Question 24

Question
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]
Answer
  • street sweep
  • Bidding
  • open market
  • control

Question 25

Question
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]
Answer
  • proxy fight
  • control
  • sufficient
  • votes
  • management

Question 26

Question
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]
Answer
  • golden parachutes
  • compensation
  • top management
  • takeover

Question 27

Question
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
Answer
  • poison pills
  • financial
  • unfriendly
  • financially

Question 28

Question
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
Answer
  • corporate charters
  • corporate charters
  • stagger
  • fraction
  • replaced
  • staggered board
  • classified board
  • supermajority provision
  • increasing percentage

Question 29

Question
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
Answer
  • greenmail
  • standstill agreements
  • Greenmail
  • payments
  • repurchase
  • investor
  • eliminate
  • Standstill agreements
  • bidding
  • target

Question 30

Question
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]
Answer
  • recapitalisations
  • repurchases
  • standstill agreements
  • certain
  • equity
  • investor
  • premium

Question 31

Question
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
Answer
  • going private
  • leverage buy-out
  • Going private
  • publicly
  • private
  • existing
  • equity
  • Leverage buyouts
  • transaction
  • large
  • equity
  • cash offer
  • large

Question 32

Question
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
Answer
  • asset restructurings
  • crown jewel
  • sell
  • assets
  • target
  • bidding

Question 33

Question
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]
Answer
  • white knight
  • white squire
  • White knight
  • target
  • hostile
  • White squire
  • friendly
  • friendly
  • equity

Question 34

Question
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]
Answer
  • crown jewel
  • defensive
  • threatened
  • takeover
  • sell
  • threatened
  • sell
  • assets

Question 35

Question
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
Answer
  • shark repellent
  • tactic
  • discourage
  • merger

Question 36

Question
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
Answer
  • bonuses
  • acquiring
  • pay
  • prestige
  • size
  • favourable
  • increase

Question 37

Question
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]
Answer
  • defensive
  • beneficial
  • safeguard
  • bargain
  • bidder
  • shareholders

Question 38

Question
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
Answer
  • fair value
  • acquisition
  • IFRS 3 (Business Combinations)
  • shareholders
  • true value

Question 39

Question
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]
Answer
  • debt
  • tax deduction
  • efficiency
  • debt
  • work harder
  • efficiency

Question 40

Question
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]
Answer
  • Sale
  • assets
  • operations
  • divisions
  • segments
  • third party
  • monopolies
  • competition
  • hostile takeovers
  • cash
  • sell-offs
  • unprofitable divisions

Question 41

Question
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
Answer
  • spin-off
  • shares
  • existing
  • shareholders
  • spin-off
  • transparency
  • value
  • managers
  • tax
  • spin-off
  • cash

Question 42

Question
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]
Answer
  • carve-out
  • spin-offs
  • shares
  • public
  • IPO

Question 43

Question
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
Answer
  • split-up
  • splitting
  • two
  • more
Show full summary Hide full summary

Similar

Issues with WACC and capital structure policy
viangca
Lintner's Stylized Facts on Dividend Payouts
Tanishq Chauhan
MM Dividend Irrelevance Introduction
Tanishq Chauhan
Corporate Finance
jed
MM dividend policy intro slide
Tanishq Chauhan
Taxation and Clientele Theory
Tanishq Chauhan
Asymmetric Information and Dividends (signalling)
Tanishq Chauhan
Dividend Policy Summary
Tanishq Chauhan
Mid-Term Corporate Finance
siggahernes
Agency Theory
Tanishq Chauhan
Traditional and Modernist views
Harley Wickstead