MERGERS AND ACQUISITIONS
Procter & Gamble Acquires Gillette
Define synergy. Is synergy a valid rationale for mergers? Describe
several situations that might produce synergistic gains.
Give two examples of how tax considerations can motivate mergers.
Suppose your firm could purchase another firm for only half of its
replacement value.
Would that be a sufficient justification for the acquisition?
Discuss the pros and cons of diversification as a rationale for mergers.
What is breakup value?
What are the four economic types of mergers?
What five major “merger waves” have occurred in the United States?
What are some reasons for the current wave?
What’s the difference between a hostile and a friendly merger?
Is there a need to regulate mergers? Explain.
Do the states play a role in merger regulation, or is it all done at the
national level? Explain.
What is the difference between an operating merger and a financial
merger?
Describe the way post-merger cash flows are estimated in a DCF
analysis.
What is the basis for the discount rate in a DCF analysis? Describe
how this rate might be estimated.
Describe the market multiple approach.
What are some factors that acquiring firms consider when they set a
bid price?
How do control issues affect mergers?
What is purchase accounting for mergers?
What is goodwill? What effect does goodwill have on the firm’s
balance sheet? On its income statement?
What are some defensive tactics that firms can use to resist hostile
takeovers?
What role did junk bonds play in the merger wave of the 1980s?
What is the difference between pure arbitrage and risk arbitrage?
Explain how researchers can study the effects of mergers on share-
holder wealth.
Do mergers create value? If so, who profits from this value?
Do the research results discussed in this section seem logical? Explain.
What is the difference between a merger and a corporate alliance?
What is a joint venture? Give some reasons joint ventures may be
advantageous to the parties involved.
What is an LBO?
What actions do companies typically take to meet the large debt
burdens resulting from LBOs?
What are some reasons companies divest assets?
What are four major motives for divestitures?