a. Acquiring firms send a signal that their stock is undervalued if they choose
ID: 2699840 • Letter: A
Question
a. Acquiring firms send a signal that their stock is undervalued if they choose to use stock to pay for the acquisition. b. If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger. c. In a liquidation, the firm's existing stockholders are given new stock representing separate ownership rights in the division that was divested. The division establishes its own board of directors and officers, and it becomes a separate company. d. A defensive merger is one where the firm's managers decide to merge with another firm to avoid or lessen the possibility of being acquired through a hostile takeover. e. If there are no synergistic benefits to be gained from a merger, the acquiring company will stop its plans for the merger. However, if synergistic gains are large, plans for the merger will continue. In fact, the greater the synergistic gains, the smaller the gap between the target's current price and the maximum the acquiring company could pay because of the acquiring company's upper hand in the merger.Explanation / Answer
c. In a liquidation, the firm's existing stockholders are given new stock representing separate ownership rights in the division that was divested. The division establishes its own board of directors and officers, and it becomes a separate company.
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