E2: Mergers

Question 1

When does a merger make economic sense?

Answer 1

• when two firms are worth more together than apart

Question 2

What are the 3 types of merger?

Answer 2

Horizontal (same line of business)
Vetical (diff stages of production)
Congolmerate (unrelated lines of business)

Question 3

name the 5 motives for a merger

Answer 3

• economies of scale and scope
• economies of vertical integration
• complementary resources
• change in corporate control
• industry consolidation

Question 4

How are many mergers paid?

Answer 4

In the acquirers stock

Question 5

What is the benefit of financing a merger using shares?

Answer 5

Tax-free

Question 6

What is a limitation of financing a merger using cash?

Answer 6

• selling shareholders are taxed which must be paid on capital gains