A$.$ Assignment $-$ Review Questions

Instructions:

Name three industries in which mergers have been prominent.

What is the difference between a merger and a consolidation?

Why might the portfolio effect of a merger provide a higher valuation for the participating firms?

What is the difference between horizontal integration and vertical integration? How does antitrust policy affect the nature of

mergers?

What is synergy? What might cause this result? Is there a tendency for management to over$-$ or underestimate the potential

synergistic benefits of a merger?

If a firm wishes to achieve immediate appreciation in earnings per share as a result of a merger, how can this be best

accomplished in terms of exchange variables? What is a possible drawback to this approach in terms of long$-$range

considerations?

It is possible for the postmerger P$/$E ratio to move in a direction opposite to that of the immediate postmerger earnings per

share. Explain why this could happen.

How is goodwill now treated in a merger?

Suggest some ways in which firms have tried to avoid being part of a target takeover.

What is a typical merger premium paid in a merger or acquisition? What effect does this premium have on the market value

of the merger candidate, and when is most of this movement likely to take place?