Which of the following statements is most CORRECTσ
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 a firm merges with another firm to avoid or lessen the possibility of being acquired through a hostile takeover, hence option A is true. Option B is false, as stock as a form of payment in acquisitions is not necessarily a signal that the firm's stock is undervalued. Option C is false, as both cash payments and stock payments are used in both takeovers and mergers. Option D is false, as managers can also be fired in mergers. Option E is false, as the example given is an example of a conglomerate merger, where companies in unrelated businesses come together.

Which of the Following Statements Is Most CORRECTσ