MF 0011

MCQS
1. Merger is defined as combination where two or more than
two companies combine into one company.
2. Another form of merger, one company purchases another
company for cash and integrates the purchased company
with itself.
3. Merger may take two forms merger through absorption and
merger through consolidation.
4. Absorption is grouping two or more companies into an
existing company.
5. Consolidation is known as the fusion of two or more than
two companies into a new company in which all the existing
companies are legally dissolved and a new company is
created.
6. The term acquisition refers to the procurement of assets
by one company from another company.
7. A pre emptive move it can prevent a competitor from
establishing a similar position in that industry.
8. Risk reduction by diversification is a common reason
behind mergers.
9. Horizontal it is a merger of two competing firms engaged in
the production of similar products of providing similar
services.
10. Concentric is a variation of horizontal mergers. It is a
combination of two firms that are not in the same industry but
operate in related industrial segments.
11. Vertical when two or more companies, involved in different
stages of activities like production or distribution, combine
with each other the combination is called a vertical merger.
12. Forward integration in this kind of vertical combination a
manufacturer combines with its customer.
13. Backward integration in this kind of vertical combination
a manufacturer combines with the supplier of input material.

14. Conglomerate is the combination of companies engaged in

unrelated businesses.
15. The basic purpose of valuation of target companies is to
locate possibilities of takeover.
16. Dividend paid by both companies in the immediate past is
important as the shareholders want continuity of dividend
income.
17. PERs of both companies as well as the future growth rate of
combined company would be important factors.
18. The fair price is worked out on the basis of the track
record of the company.
19. The break up value of the equity shares may be arrived at
having regard to the following.
20. Average earnings the average profit of the past three years
after taxes less preference dividend is taken.
21. Market price market expectations regarding dividend and
capital appreciation are important factors in determing the
share price.
22. A takeover generally involves the acquisition of a certain
block of equity capital which enables the acquirer to exercise
control over the affairs of the company.
23. Due diligence process is one common thread that runs
throughout much of the M & A process.
24. An acquisition that has long-term strategic benefits may
be retained as a strategic investment in the portfolio of an
acquiring company.
25. Compatibility and fit should b assessed across a range of
criteria size, kind of business, capital structure, core
competencies etc.
26. The goal of M &A is to achieve corporate and business
strategic objectives.
27. Preservation is great need for autonomy so that the
capabilities of the acquired firm are nurtured by the acquire.

28. Holding company refers to involving no interaction

between portfolio companies, with passive investment by
parent more in the nature of a financial portfolio.
29. Symbiosis refers to two firms initially co-existing but
gradually becoming independent.
30. Absorption means full consolidation of the operations,
organization and culture of both the firms over time.
31. Excess cash can be a trigger for merger activity.
32. A merger of two companies with fluctuating but negatively
correlated cash flows can bring stability of cash flows of the
combined company.
33. Although the cost capital is reduced by enhanced debt
capacity of the merged firm.
34. Merger is a special type of capital budgeting and should
reflect the effect of operating efficiencies and synergy.
35. Synergy is the additional value that is generated by the
combination of two or more than two firms creating
opportunities that would be available to the firms
independently.
36. Economics of scale it may result from the merger, enabling
the combined firm to become more cost efficient and
profitable.
37. Greater pricing resulting from reduced competition and
greater market share should lead to higher profit margins and
operating income.
38. Higher growth in existing or new markets can result from
a merger.
39. Combination of different functional strengths may
enhance the revenue and net income of the merger entity.
40. Synergy results from complementary activities.
41. When two firms combine, of which one has surplus cash
but no opportunities and the other has excellent
investment opportunities but is facing a cash crunch.

42. Managerial synergy synergies are typically gained when

competitively relevant skills that were possessed by
managers in the formerly independent companies.
43. Shake out stage. A new industry emerges in this stage
and it is at this stage competitors begin realizing business
opportunities in the emerging industry.
44. Synergy requires a great deal of work on the part of
managers at the corporate and business levels.
45. Strategic compatibility refers to the matching of
organizations strategic capabilities.
46. Organizational compatibility occurs when two
organizations have similar management processes.
47. Value creation is the fourth synergy creation building
block. The focus here is on derivation benefits from synergy in
excess of the costs to be incurred.
48. Corporate restructuring is a broad-based business
initiative that results in major change of size, ownership,
control and /or management.
49. Corporate restructuring can be defined as the process of
redesigning one or more features of a business firm.
50. Selling or closing of unprofitable divisions from its core
business, thereby achieving staff reduction and a stronger
balance sheet.
51. Reorganizing a companys financial assets and liabilities so
that the most favorable financial environment is created is
called financial restructuring.
52. Financial restructuring may be considered to be a
process for eliminating wastes arising from the operations of
the firm.
53. Joint ventures are new enterprises formed by coming
together of two or more participants, typically formed for
special purpose for a limited duration.
54. Sell of means selling a part or the whole of a firm
through a sale, liquidation or spin-off.

55. A partial sell-of/slump sale involves the sale of a

subsidiary, a business unit or a plant.
56. Spin-of also a new legal entity is created, but shares are
issued to the existing stockholders on a pro rata basis. This
means that the stockholder base in the new company is the
same as that of the old company.
57. A split-up is defined as the separation of a company into
two or more parts.
58. A transaction through which a firm sells a portion of its
assets, a product line, a subsidiary or a division to another
company for cash or securities called divesture.
59. Reverse synergy means that the parts are worth more
separately than they are within the parent companys
corporate structure.
60. Cash inflow is often an immediate benefit of a sell-off.
61. An equity carve-out involves the sale of equity interest in
a subsidiary.
62. A leveraged buyout borrowed funds are used to finance
the buyout.
63. Management buyouts (MBO) management of the
company buys the company, and they may be joined by
employees in the venture.
64. Master limited partnership (MLPs) are limited
partnerships dealing with publicly traded shares.
65. Employee stock ownership plans (ESOP) is a type of
defined contribution benefit plan that buys and holds stock.
66. The transfer of undertakings is done by the demerged
company, otherwise known as transferor company. The
company to which the undertaking is being transferred is
known as resulting company otherwise known as transferee
company.
67. A demerger is distribution of the shares of a firms
subsidiary to the shareholders of the firm on a pro rata basis.

68. Split of to a transaction in which some, but not all,

shareholders of the parent company receive shares in a
subsidiary.
69. Split-up, a company splits up into two or more
independence companies.
70. Demergers will be tax-neutral and not attract any
additional liability to tax.
71. Tax benefits and concessions available to the demerged
undertaking will be available to the resulting company after
demerger.
72. Assets and the liabilities of the undertaking are
transferred from the demerged company to the resulting
company.
73. Shareholders holding not less than 75 percent in value of
the shares in the demerged company become shareholders of
the resulting company or companies by virtue of the
demerger.
74. Accumulated losses and unabsorbed depreciation can
be carried forward from the demerged company to the
resulting company.
75. Demerger is often used to separate different undertaking
of a business functioning under a common umbrella.
76. A demerger is distribution of the shares of a firms
subsidiary to the shareholders of the firm on a pro rata basis.
Neither the dilution of equity nor the transfer of ownership
from the current shareholders is involved.
77. LBO is a financing technique of purchasing a private
company with the help of borrowed or debt capital.
78. Senior debt debt that is at the topmost rank amongst all
the other debt and equity capital in the business is the senior
debt.
79. Subordinated debt is ranked after senior debt.
80. Mezzanine finance an alternative to high yield bonds and
is considered as a type of intermediate financing between
debt and equity.

81. Loan stock as form of equity financing once it is convertible

into equity capital.
82. Preference share is a part of the companys share capital.
It gives a fixed dividend and fixed share of the companys
equity.
83. The Ratchet incentivize the management team to achieve
certain targets, performance ratchets are common
arrangements in MBO transactions.
84. Master limited partnership (MLP) is a limited partnership
that is publicity traded on a securities exchange.
85. Roll-ups were the first type of MLPs to be formed, and
invested in projects in the oil industry.
86. Acquisition MLP here the MLP interest is offered to the
public and the proceeds are used to purchase assets.
87. An employee acquires entitlement to ESOP, he must
employee leaves before period, which is referred to as the
vesting period.
88. A put option is offered by some companies, for company
stock bought via the ESOP benefits plan. In this option.
89. A non leveraged ESOP is a stock bonus plan, identified
as an ESOP in the plan document that invests primarily in
company stock.
90. Leveraged ESOP borrows money on the credit of the
employer or other related parties to buy company stock.
91. Joint venture the commercial arrangement between two or
more economically independent entities.
92. JVs may include companies in one or more countries.
93. To supplement insufficient financial or technical ability in
organization a particular line or business.
94. Partnerships are special purpose vehicles (SPV) set up by
two independent entities for a specific purpose. The format of
the SPV is a partnership.
95. A strategic alliance is when two or more businesses join
together for a set period of time.

96. JV companies get advantageous tax treatment in special

cases.
97. International JV is single mode of JV, where in the a
domestic owner of a technology can exploit or develop that
technology in a foreign market.
98. Two international parties (individual or companies)
incorporate a company. Business of one party is transferred to
the company and as consideration for such transfer.
99. Global mindset affects the success of cross-border M & A.
100.
An asset exploiting firm seeks to deploy, in another
country, its strategic assets that have given it competitive
advantage in the home country.
101.
The internalisation decision is similar to a mark-orbuy decision.
102.
Developing new products and new businesses
internally can be expensive and time-consuming.
103.
Foreign exchange rates affect international mergers
in a number of ways.
104.
Bailout takeover refers to a substantial acquisition of
shares in a financially weak company in pursuance to a
scheme of rehabilitation approved by a public financial
institution or a scheduled bank.
105.
Friendly takeover a bidder makes an offer for another
company, usually first informs the companys board of
directors.
106.
When a private company takes over or acquires a
public company a takeover is said to have taken place.
107.
A corporate raid or breaking of a company, is a
business term the signifies the buying of a large interest in a
corporation and then using the acquired voting rights to pass
measures directed at increasing the share value.
108.
Poison pill scheme can be triggered by a target
company when a hostile suitor acquires a predetermined
percentage of company stock.

109.
Divestiture the target company diverts or spins off
some of its business in the form of an independent subsidiary
company.
110.
The target companys management may seek out a
friendly potential acquirer known as white knight.
111.
Golden parachutes an agreement that is made
between a company and employee (generally a higher
executive) that specifies that the employee will be eligible for
certain significant benefits if terminated from employement.
112.
Greenmail involves a target company buying back its
own shares from the acquirer, but typically above the stocks
market price.
113.
Sandbag is a stalling tactic used by management to
deter a company that is showing interest in taking them over.
114.
Lobster trap the company passes a provision
preventing anyone with more than 10% ownership from
converting convertible securities into voting stock.
115.
People pill a variant of poison pill, is defensive
strategy to ward off a hostile takeover.
116.
Permission for merger amalgamation is possible
between two or more companies only when the amalgamation
is permitted under their memoranda of association and the
acquiring company.
117.
Information to the stock exchange the where they
are listed about the merger should be informed by the
acquiring and the acquired companies.
118.
FEMA is the primary Indian law which regulates
dealings in foreign exchange certain provisions of the Act.
119.
Amalgamation means of two or more than two
companies. The teerm include mergers (uniting of two
existing companies) and acquisition (one company buying out
another company.
120.
Amalgamation all assets and liabilities of the
transferor company become or get transferred as, the assets
and liabilities of the transferee company.

121.
Pooling of interests refers to the adding together of
interests of the merging entities.
122.
The reserves of the transferor company (other than
statutory reserves should not be incorporated in the financial
statements of the transferee company.
123.
The legislative reserves/funds by the transferor
company should integrated in the financial accounts of the
transferee company and should be maintained for a specified
period.
124.
Purchase consideration implies the value agreed
upon for the net assets taken over.
125.
Amalgamation consideration comprises of shares
and other securities, cash and other assets and the amount of
consideration depends on the fair value of its components.
During the securities issues.
126.
Fair value of other assets may be determined by the
market value on the assets given up.
127.
Amalgamation goodwill represents a payment made
in expectancy income for the future and is appropriate to
reach needs to be amoritsed.
128.
The basic difference between the net payment
method and the net assets method is that in the former.
129.
Income based approach determines fair market value
by multiplying the benefit stream generated by the target
company.
130.
Asset-based approach works on the concept that a
business is equal to the sum of its parts.
131.
Market value is value quoted for listed companies
shares on a stock exchange.
132.
Investment value signifies the cost incurred to
establish and enterprise.
133.
Book value with revaluation represents the current
worth of the assets on the balance sheet.
134.
Cost value represents the net book value of the assets
on the balnance sheet.

135.
Substitution value is the estimated cost of
constructing the undertaking of similar utility and capacity.
136.
Discounted cash flow method based on flow of free
cash is considered and effective toll.
137.
Earnings per share (EPS) are the earnings which can
be attributed to share holders divided by the number of
outstanding shares.
138.
The number of shares is increased by the additional
shares which would result if the rights in all the warrants.
139.
The number of outstanding shares is conversion.
140.
Fair value of assets might be appropriate when market
value of a company is independent of its profitability.
141.
Open market value refers to a price of the assets of
the company which could be fetched or realized by
negotiating sale.
142.
Dividend approach in addition to asset based
valuation, dividend approach could be supplemented.
143.
Due diligence involves comprehensive analysis of the
financial position, management capabilities physical assets
and intangible assets of the target company.
144.
Complementary resources ideal conditions for a
merger are when the primary resources of the acquiring and
target firms are somewhat different, yet simultaneously.
145.
Cultural compatibility is one of the most significant
determinants of a successful M & A transaction.
146.
The firm develops and overall corporate strategy, the
acquisitions should help in supporting this strategy.
147.
The post acquisition integration process should be
managed to ensure that the value that was anticipated at
conception is generated.
148.
A due diligence team (from areas like HR , finance,
tax technology etc)and on or more top managers are
responsible for the acquisition.

149.
Speed if the integration takes place faster, the
company will start making profits from the predicated
collaboration earlier.
150.
The people problem a successful merger is the one
which retains the key people of both the companies.
151.
Keeping culture high on the agenda all companies are
different in what they do and the way they get things done.
152.
If the soft stuf is not managed efficiently it can be
disastrous for the deal as the potential costs are high.
Researches show that people/ cultural issues can destroy a
deal.
153.
Cultural compatibility is one of the most significant
determinants of a successful M & A transaction.