A) Once a tender offer is announced, the uncertainty about whether the takeover will succeed reduces the volatility of the stock price. This uncertainty creates an opportunity for investors to speculate on the outcome of the deal without bearing the risk of volatility.
B) Traders known as risk-arbitrageurs, who believe that they can predict the outcome of a deal, take positions based on their beliefs.
C) A potential profit arises from the difference between the target's stock price and the implied offer price, and is referred to as the merger-arbitrage spread.
D) However, it is not a true arbitrage opportunity because there is a risk that the deal will not go through. If the takeover did not ultimately succeed, the risk-arbitrageur would eventually have to unwind his position at whatever market prices prevailed.
F) A) and C)
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A) tax loss benefits
B) lower cost of debt or increased debt capacity
C) direct risk reduction
D) liquidity enhancement
F) All of the above
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A) economies of scale
B) horizontal integration
C) vertical integration
D) economies of scope
F) All of the above
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B) False
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A) the premerger, or standalone, value of the acquirer
B) the value of the synergies created by the merger
C) the premerger (standalone) value of the target
D) new shares to pay for the target
F) B) and C)
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A) All else being equal, larger firms, because they are more diversified, have an increased probability of bankruptcy.
B) To justify a takeover based on operating losses, management would have to argue that the tax savings are over and above what the firm would save using carryback and carryforward provisions.
C) It is possible to combine two companies with the result that the earnings per share of the merged company exceed the premerger earnings per share of either company, even when the merger itself creates no economic value.
D) When an acquirer buys a private target, it provides the target's owners with a way to reduce their risk exposure by cashing out their investment in the private target and reinvesting in a diversified portfolio.
F) A) and B)
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When a hostile takeover appears to be in...View Answer
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