Which one of the following statements accurately describes a merger?
A) A merger transforms the target firm into a new entity which necessarily becomes a subsidiary of the acquiring firm
B) A new firm is created from the assets and liabilities of the acquirer and target firms
C) The acquiring firm absorbs only the assets of the target firm
D) The target firm is absorbed entirely into the acquiring firm and ceases to exist as a separate legal entity.
E) A new firm is created holding the assets and liabilities of the target firm and its former assets only.

Question

Quizplus · Accepted Answer

In a merger, the target firm is absorbed entirely into the acquiring firm and ceases to exist as a separate legal entity. Therefore, the correct statement is D. Option A is incorrect as not all mergers result in the creation of a new entity, and even if it does, it may not become a subsidiary of the acquiring firm. Option B is incorrect as it implies the creation of a brand new firm, which is not always the case in a merger. Option C is inaccurate, as the acquiring company does not absorb only the assets of the target company. Finally, option E is also incorrect as the new firm created would hold the assets of both firms, not just the target firm.

Which One of the Following Statements Accurately Describes a Merger