What is a merger? A) A company buying its own shares B) The combination of two companies to form a new entity C) The sale of a company’s assets D) The splitting of a company into separate entities Answer: B
What is an acquisition? A) The purchase of one company by another B) The combination of two companies into a new entity C) The sale of a company’s shares D) The issuance of new shares Answer: A
What is a horizontal merger? A) Merger between companies at different stages of production B) Merger between companies in unrelated industries C) Merger between companies in the same industry D) Merger between companies of different sizes Answer: C
What is a vertical merger? A) Merger between companies at the same stage of production B) Merger between companies in unrelated industries C) Merger between companies at different stages of production D) Merger between companies in different countries Answer: C
What is a conglomerate merger? A) Merger between companies in the same industry B) Merger between companies at different stages of production C) Merger between companies in unrelated industries D) Merger between a parent company and its subsidiary Answer: C
Types and Strategies
Which of the following is an example of a friendly acquisition? A) Hostile takeover B) Poison pill strategy C) Agreement between management of both companies D) Leveraged buyout Answer: C
What is a hostile takeover? A) Acquisition approved by the target company’s management B) Acquisition opposed by the target company’s management C) Acquisition through mutual agreement D) Acquisition of a company’s assets only Answer: B
What is a leveraged buyout (LBO)? A) Purchase of a company using a small amount of equity and a large amount of borrowed funds B) Acquisition of a company’s assets C) Merger of two companies in the same industry D) Sale of a company to its employees Answer: A
Which strategy involves the target company making itself less attractive to the acquirer? A) Golden parachute B) Poison pill C) White knight D) Greenmail Answer: B
What is a “white knight” in M&A terminology? A) A hostile acquirer B) A friendly acquirer that rescues the target company from a hostile takeover C) A financial advisor D) A legal advisor Answer: B
Valuation and Financing
Which valuation method involves discounting future cash flows? A) Comparable company analysis B) Precedent transaction analysis C) Discounted cash flow (DCF) analysis D) Market capitalization Answer: C
What is the purpose of a fairness opinion? A) To provide a legal opinion on the merger B) To assess whether the terms of the merger are fair to shareholders C) To estimate the market value of the target company D) To evaluate the financial performance of the acquiring company Answer: B
Which of the following is NOT a common method of financing an acquisition? A) Cash B) Stock C) Debt D) Barter Answer: D
What is the typical outcome for the stock price of the acquiring company immediately after the announcement of an acquisition? A) Significant increase B) Significant decrease C) Small increase or decrease D) No change Answer: C
Which of the following is a key benefit of using stock to finance an acquisition? A) No dilution of ownership B) Immediate cash outflow C) Tax advantages D) Preservation of cash reserves Answer: D
Due Diligence and Integration
What is due diligence? A) Legal process of merging companies B) Comprehensive appraisal of a business by a prospective buyer C) Issuance of new shares by the acquiring company D) Strategic planning for post-merger integration Answer: B
Which aspect is typically NOT part of the due diligence process? A) Financial performance B) Operational capabilities C) Cultural fit D) Stock market trends Answer: D
What is the primary goal of post-merger integration? A) Finalizing the legal aspects of the merger B) Combining the operations and cultures of the merging companies to realize synergies C) Conducting due diligence D) Evaluating the fairness of the merger terms Answer: B
Which of the following is a common challenge in post-merger integration? A) High valuation of the target company B) Lack of financial resources C) Cultural differences between the merging companies D) Absence of legal advisors Answer: C
What is a merger agreement? A) A non-binding letter of intent B) A binding contract that outlines the terms and conditions of the merger C) A document detailing the cultural integration plan D) A financial report on the target company Answer: B
Regulatory and Legal Issues
Which government body in the United States is primarily responsible for antitrust reviews of mergers and acquisitions? A) Federal Reserve B) Securities and Exchange Commission (SEC) C) Federal Trade Commission (FTC) D) Department of Labor Answer: C
What is the main purpose of antitrust laws in the context of M&A? A) To protect intellectual property rights B) To prevent monopolies and promote competition C) To regulate financial reporting D) To ensure fair labor practices Answer: B
Which of the following is a common regulatory concern in cross-border mergers and acquisitions? A) Currency exchange rates B) International trade agreements C) Compliance with both countries’ legal and regulatory requirements D) Differences in time zones Answer: C
What is a tender offer? A) An offer made by a company to purchase some or all of shareholders’ shares in a corporation B) A formal offer made by a company to merge with another C) A non-binding letter of intent to merge D) An offer to sell assets to another company Answer: A
What is a breakup fee? A) A fee paid by the target company to the acquiring company if the merger does not go through B) A fee paid by the acquiring company to the target company if the merger does not go through C) A fee paid to the government for regulatory approval D) A fee paid to financial advisors for their services Answer: A
Real-World Scenarios
Which company became famous for its aggressive hostile takeover attempts in the 1980s? A) General Electric B) Berkshire Hathaway C) T. Boone Pickens’ Mesa Petroleum D) Microsoft Answer: C
What was a significant outcome of the AOL and Time Warner merger? A) Immediate financial success B) Massive cultural integration success C) Considered one of the biggest failures in M&A history D) Increased market share in the technology sector Answer: C
What is a common reason for companies to pursue mergers and acquisitions? A) To reduce competition B) To increase product diversity C) To achieve economies of scale D) All of the above Answer: D
Which type of merger might a car manufacturer and a tire company pursue? A) Horizontal merger B) Vertical merger C) Conglomerate merger D) Hostile takeover Answer: B
What is one of the biggest risks associated with mergers and acquisitions? A) Increased market share B) Economies of scale C) Cultural clashes D) Diversification Answer: C
Advanced Concepts
What is synergy in the context of M&A? A) The combined value of two companies being greater than the sum of their individual values B) The process of legal integration of two companies C) The cultural integration between two companies D) The financial risk assessment of the merger Answer: A
What is a “poison pill” strategy? A) A strategy to make a company less attractive to hostile bidders B) A strategy to increase the share price of a company C) A strategy to integrate two companies’ operations D) A strategy to reduce the debt of a target company Answer: A
What does “earnings accretion” mean in the context of M&A? A) The increase in earnings per share following the merger B) The decrease in earnings per share following the merger C) The immediate increase in stock price following the merger D) The increase in the cost of capital following the merger Answer: A
What is a “spin-off” in corporate restructuring? A) The sale of a subsidiary to another company B) The creation of a new, independent company by separating part of the parent company C) The merger of two unrelated companies D) The acquisition of a smaller company Answer: B
What does “due diligence” typically include? A) Analysis of the target company’s financials, operations, and legal matters B) Negotiation of the merger price C) Planning the integration process D) None of the above Answer: A