Mergers and Acquisitions Worksheet

A conglomerate merger will:

• diversify business operations and investments.

• allow the firm to have a less dominant position in its market.

• enable the firm to enjoy a higher degree of specialization.

• give the firm a more secure access to needed materials and components and better control over quality.

One result of taking a firm private is:

• the firm's stock is no longer available for purchase on the open market.

• managers lose some control as the number of stockholders increases.

• the public image of the firm will suffer.

• the firm will have access to more capital.

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is called a(n):

• golden parachute.

• arbitrage agreement.

• factor transaction.

• leveraged buyout.

If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves, this is referred to as:

• capitalizing.

• stock turning.

• turning the equity.

• taking the firm private.

The difference between a merger and an acquisition is:

• a merger does not combine the assets and liabilities of firms, whereas an acquisition combines assets and liabilities.

• a merger combines the assets of the two firms, but each company continues to assume its own liabilities, whereas an acquisition is a total buyout of one firm by another.

• a merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources.

• a merger is always something smaller tagging onto something larger, like a merging lane onto an interstate, whereas an acquisition is two firms that are relatively the same size agreeing to continue as one, more like two major interstates that come together and travel as one for several miles.

When two firms which do not participate in the same industries, for example, a software company and a fast food restaurant company, decide to merge, the result is called a ________ merger.

• vertical

• horizontal

• linear

• conglomerate

A merger involving a commercial bakery and a grocery retailer would be an example of a:

• vertical merger.

• horizontal merger.

• linear merger.

• conglomerate merger.

A merger involving a software producer and a clothing manufacturer is an example of a:

• vertical merger.

• horizontal merger.

• linear merger.

• conglomerate merger.

In a leveraged buyout, the managers of a firm, its employees, or other investors:

• move the company elsewhere and start over.

• obtain the assets of the company through bankruptcy proceedings.

• borrow funds to buy out the firm's stockholders.

• negotiate a merger with another firm to create a conglomerate.

When investors successfully take a firm private, the firm's stock is:

• converted into bonds.

• converted into cash.

• no longer sold to investors on the open market.

• pledged as collateral to its bondholders.