Which of the following statements is most CORRECT?
A) A defensive merger is one where the firm's managers decide to merge with another firm to avoid or lessen the possibility of being acquired through a hostile takeover.
B) Acquiring firms send a signal that their stock is undervalued if they choose to use stock to pay for the acquisition.
C) Cash payments are used in takeovers but never in mergers.
D) Managers often are fired in takeovers, but never in mergers.
E) If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger.

Question

Quizplus · Accepted Answer

A defensive merger is one where the firm's management decides to merge with another firm to avoid or lessen the possibility of being acquired through a hostile takeover. This is the most correct statement among the given options. B is incorrect because using stock to pay for an acquisition does not necessarily mean the stock is undervalued. C is incorrect because cash payments can be used in both takeovers and mergers. D is incorrect because managers can be fired in both takeovers and mergers. And E is incorrect because a merger between a military equipment producer and a motel chain manager is an example of a conglomerate merger, not a horizontal merger.

Which of the Following Statements Is Most CORRECT