Which of the following actions by an acquiring firm signals its belief that postmerger gains will be substantially larger than expected?
A)Acquiring firm makes a stock offer,since its stock value is priced lower than it will be postmerger.
B)Acquiring firm makes a cash offer,since this allows the acquirer to solely benefit from gains not yet reflected in the market.
C)Acquiring firm attempts to gain majority ownership,but not complete ownership.
D)Acquiring firm makes an offer with the condition that management must be replaced.

Question

Quizplus · Accepted Answer

A cash offer signals that the acquiring firm believes that the market undervalues the target firm and that the acquirer will obtain all the postmerger gains, rather than the gains being shared with other shareholders in the form of increased stock value. This suggests that the acquiring firm believes that the postmerger gains will be substantially larger than expected.

Which of the Following Actions by an Acquiring Firm Signals