Which of the following statements is NOT correct? a.Horizontal mergers combine f

Question

Which of the following statements is NOT correct?

a.Horizontal mergers combine firms in the same line of business

b. The management of a target firm resists a takeover attempt in a hostile merger by encouraging shareholders to tender their shares

c. Vertical mergers combine firms with others that are upstream or downstream

d.Friendly mergers are supported by both the acquiring and target firms' management

e. Congeneric mergers combine related firms, but the firms do not produce similar goods nor have a relationship

Explanation / Answer

Answer: b. The acquiring firm can use unfavorable tactics, such as a dawn raid where it buys a substantial stake in the target company as soon as the markets open, causing the target to lose control of the company before it realizes what is happening. The target firm’s management and board of directors may strongly resist takeover attempts through tactics such as a poison pill, which lets the target’s shareholders purchase more shares at a discount to dilute the acquirer’s holdings and make a takeover more expensive.

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