A takeover creates value for the acquirer as long as which of the following statements is true:
A) The NPV of the standalone value of the target firm plus synergy less the offer price is greater than or equal to zero
B) The NPV of the standalone value of the target firm less the offer price is greater than or equal to zero
C) The NPV of the standalone value of the target firm plus synergy less the sum of the offer price and transaction-related expenses is greater than or equal to zero
D) The NPV of the offer price less the standalone value of the target firm is less than or equal to zero
E) None of the above

Question

Quizplus · Accepted Answer

Choice C is the most comprehensive and accurate statement. It includes the standalone value of the target firm, any potential synergies, and also takes into account transaction-related expenses. This means that the acquirer will only create value if the combined value of the two firms post-merger is greater than the cost of the acquisition and associated costs. Choices A and B only focus on the standalone value of the target firm and do not consider potential synergies or transaction-related expenses. Choice D is incorrect as a positive NPV is required for the acquirer to create value, not a negative NPV. Therefore, choice C is the best answer.

A Takeover Creates Value for the Acquirer as Long as Which