Friendly merger; hostile merger; defensive merger; tender offer; target company; breakup value; acquiring company

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Friendly merger; hostile merger; defensive merger; tender offer; target company; breakup value; acquiring company

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Define each of the following terms:
a. Synergy; merger

Define each of the following terms:
b. Horizontal merger; vertical merger; congeneric merger; conglomerate merger

Define each of the following terms:
c. Friendly merger; hostile merger; defensive merger; tender offer; target company; breakup value; acquiring company

Explanation & AnswerSolution by a verified expert

Explanation

Businesses can often be combined to achieve advantages in cost, scale, or output that make their combination yield more total value than their previous values yielded independently. This is one of the primary reasons why businesses merge.

Verified Answer

A merger is a corporate transaction in which two separate businesses are combined into one entity.
Synergy refers to the ability of two businesses to create more value in combination than the sum of their values as separate entities.

Explanation

Mergers can achieve synergy in different ways. They may be competitors in the same industry who can streamline combined operations. They can be related vertically and thus be able to maintain synergy via combining two aspects of the business chain. They can also benefit from cross-sell opportunities by expanding into a related area in the same industry. Or they can achieve diversification by merging with companies in other industries.

Verified Answer

A horizontal merger is when two companies combine that are essentially in the same business.
A vertical merger combines two companies that have a vertical business relationship, such as a manufacturer and a supplier.
A congeneric merger combines businesses that are not exactly the same or directly competitive, but are related and in the same industry.
A conglomerate combines businesses from different industries.

Explanation

A merger represents a transaction whereby an acquiring company seeks to purchase a target company in order to merge their businesses. If the target does not wish to be acquired, one defensive tactic is to seek a company with whom it would prefer to be merged and convince shareholders that it would represent a better deal. If the acquiring company meets resistance, it can make an unsolicited tender offer to the target company's shareholders in an attempt to gain control.

Verified Answer

A friendly merger is one in which management of the target company agrees with the terms and cooperates with the acquiring company.
A hostile merger is one in which management of the target company is opposed to the acquisition.
A defensive merger is one in which a target company seeks a friendly merger as a defensive tactic against an unfriendly or hostile one.
A tender offer is an acquisition offer made directly to the shareholders of a target company.
A target company is one that is being sought for a merger or acquisition.
The breakup value of a company is the estimated value of its separate businesses if sold individually.
An acquiring company is the company who initiates a merger transaction and who would this be the purchaser of the target company.

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