When two firms merge and there is no synergy gain but the only change is a reduction in risk:
A) there is no effect on the bondholders or stockholders.
B) both the bondholders and stockholders are made better off.
C) the bondholders gain in value while the stockholders lose value.
D) the stockholders gain in value while the bondholders lose value.

Question

Quizplus · Accepted Answer

When two firms merge and there is a reduction in risk with no synergy gain, the bondholders gain in value because the risk of default decreases, making their bonds more valuable. However, this does not necessarily benefit the stockholders, who might lose value if the market perceives the merger as not creating additional value or growth opportunities.

When Two Firms Merge and There Is No Synergy Gain