Which of the following statements is most CORRECT?
A) A conglomerate merger is one where a firm combines with another firm in the same industry.
B) Regulations in the United States prohibit acquiring firms from using common stock to purchase another firm.
C) Defensive mergers are designed to make a company less vulnerable to a takeover.
D) The equity residual method values a target firm by discounting residual net cash flows at the acquiring firm's overall cost of capital reflecting the combined firm's post-merger capital structure.
E) A financial merger occurs when the operations of the firms involved are integrated in the hope of achieving synergistic benefits.

Question

Quizplus · Accepted Answer

Defensive mergers are designed to make a company less vulnerable to a takeover. This can be achieved by merging with another firm to create a larger and stronger entity or by acquiring a company that is threatening to acquire the target firm. Option A is incorrect as a conglomerate merger involves firms from different industries. Option B is incorrect as common stock is a commonly used tool in mergers and acquisitions. Option D and E are incorrect as they do not reflect correct valuation methods for mergers and acquisitions.

Which of the Following Statements Is Most CORRECT