Two firms merge and no synergies occur. Which of the following statements best describes the result?
A) The reduction in risk in the combined firm benefits the bondholders at the expenses of the shareholders.
B) The value of the debt in the combined firm will likely be greater than the value of the debt in the two separate firms.
C) The size of the gain to the bondholders depends on the specific reductions in bankruptcy probabilities after the merger.
D) All of the above.

Question

Quizplus · Accepted Answer

When two firms merge without synergies, the combined firm may have a lower risk profile, benefiting bondholders due to reduced bankruptcy risk, potentially increasing the value of the debt.

Two Firms Merge and No Synergies Occur