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A takeover is fundamentally defined as one company purchasing another, gaining control through shares or assets.
Answer: True
Explanation: The fundamental definition of a takeover involves one company acquiring control over another through the purchase of its shares or assets.
Takeovers are classified based solely on the financial instruments used to fund the acquisition.
Answer: False
Explanation: Takeovers are primarily classified based on the target company's management agreement, distinguishing between friendly, hostile, reverse, and back-flip acquisitions, not solely on financing methods.
A friendly takeover is characterized by the bidder informing the target company's board of directors before making a formal offer, ensuring cooperation.
Answer: True
Explanation: A friendly takeover is defined as an acquisition approved by the target company's management, typically involving prior notification to the board to ensure cooperation.
Acquisitions of private companies are usually hostile because their shareholders and board of directors are often distinct entities with conflicting interests.
Answer: False
Explanation: Acquisitions of private companies are typically friendly because the shareholders and board of directors are often the same individuals or closely connected, leading to alignment in the decision to sell.
An opportunistic takeover strategy involves acquiring a target company primarily to eliminate competition in a specific market.
Answer: False
Explanation: An opportunistic takeover strategy is characterized by acquiring a target company simply because it is considered reasonably priced, with the expectation of long-term profitability, rather than for competitive elimination.
What is the fundamental definition of a 'takeover' in a business context?
Answer: The purchase of one company by another, involving one entity gaining control over the target's shares or assets.
Explanation: A takeover is fundamentally defined as one company purchasing another, gaining control over the target's shares or assets.
Which of the following is NOT a main classification of takeovers based on the target company's management agreement?
Answer: Leveraged
Explanation: Takeovers are primarily classified as friendly, hostile, reverse, or back-flip based on management agreement, while 'leveraged' refers to a financing method.
What is a key characteristic of a 'friendly takeover'?
Answer: It is an acquisition that has been approved by the management of the target company.
Explanation: A friendly takeover is characterized by the target company's management approving the acquisition, often after prior communication with the bidder.
Why are private company acquisitions typically considered friendly takeovers?
Answer: The shareholders and the board of directors are often the same individuals or closely connected.
Explanation: Private company acquisitions are typically friendly because the shareholders and the board of directors are often the same individuals or closely connected, ensuring alignment on the sale decision.
What characterizes an 'opportunistic' takeover strategy?
Answer: Acquiring a target company simply because it is considered very reasonably priced.
Explanation: An opportunistic takeover strategy is characterized by the acquisition of a target company primarily because it is deemed to be very reasonably priced, with the expectation of future profitability.
Which company is provided as an example of successfully using an opportunistic takeover strategy?
Answer: Berkshire Hathaway
Explanation: Berkshire Hathaway is cited as a company that has successfully employed an opportunistic takeover strategy, acquiring many companies when they were considered reasonably priced.
A 'bear hug' is a type of hostile takeover bid that is so financially appealing that shareholders are likely to accept it, even if management initially resists.
Answer: True
Explanation: A 'bear hug' is characterized as an unsolicited, financially generous takeover bid designed to be highly appealing to shareholders, often bypassing initial management resistance.
A hostile takeover occurs when the acquiring party directly approaches the target company's management to gain control, bypassing shareholders.
Answer: False
Explanation: A hostile takeover is defined by the bidder approaching shareholders directly to gain control, specifically when the target company's management is unwilling to agree to the acquisition.
Louis Wolfson is recognized for his contributions to the development of the friendly takeover strategy.
Answer: False
Explanation: Louis Wolfson is credited with the development of the hostile takeover, known for his aggressive acquisition strategies, not friendly ones.
Hostile takeovers are a very common occurrence, representing the majority of corporate acquisitions annually.
Answer: False
Explanation: Historical estimates suggest that hostile takeovers are relatively rare, representing a small fraction of total corporate acquisitions.
A creeping tender offer, also known as a dawn raid, involves quietly purchasing a significant amount of stock on the open market to effect a change in management.
Answer: True
Explanation: A creeping tender offer, or dawn raid, is a method of hostile takeover where a bidder accumulates a substantial stake in the target company through open market purchases to influence management.
The Clayton Act in the United States can be used as a defense tactic against hostile takeovers by arguing the acquisition would violate anti-monopoly laws.
Answer: True
Explanation: Section 16 of the Clayton Act allows for seeking an injunction against an acquisition by arguing it would substantially lessen competition or create a monopoly, serving as a defense against hostile takeovers.
When a takeover is hostile, the bidder typically gains extensive access to the target company's internal financial information to assess hidden risks.
Answer: False
Explanation: In a hostile takeover, the target company's board typically does not cooperate, severely limiting the bidder's access to internal financial information and increased exposure to hidden risks for the bidder.
Under Delaware law, boards of directors are required to take any defensive action necessary to prevent a hostile takeover, regardless of proportionality.
Answer: False
Explanation: Delaware law mandates that boards of directors undertake defensive actions against hostile takeovers only if they are proportional to the threat posed to the target company.
Oracle's bid to acquire PeopleSoft is cited as a well-known example of an extremely hostile takeover.
Answer: True
Explanation: Oracle's contentious acquisition bid for PeopleSoft is recognized as a prominent instance of an extremely hostile takeover.
What is a 'bear hug' in the context of takeovers?
Answer: A type of unsolicited takeover bid that is so financially generous shareholders are likely to accept.
Explanation: A 'bear hug' is an unsolicited takeover bid that is so financially attractive that shareholders are likely to accept it, even if management initially resists.
Who is credited with the development of the hostile takeover?
Answer: Louis Wolfson
Explanation: Louis Wolfson, an American businessman and corporate raider, is credited with developing the hostile takeover strategy.
According to historical estimates from 1986, approximately how many out of 3,300 takeovers were classified as hostile?
Answer: Only 40
Explanation: Historical data from 1986 indicates that only 40 out of 3,300 takeovers were classified as hostile, highlighting their relative rarity.
Which of the following is NOT a primary method used to conduct a hostile takeover?
Answer: Management buyout (MBO)
Explanation: Primary methods for hostile takeovers include tender offers, proxy fights, and creeping tender offers, while a management buyout (MBO) is a different type of transaction where existing management acquires the company.
In the United States, which act can be used as a defense tactic against hostile takeovers by arguing the acquisition would lessen competition?
Answer: The Clayton Act
Explanation: The Clayton Act, specifically Section 16, can be invoked to seek an injunction against a hostile takeover by asserting that the acquisition would violate anti-monopoly provisions.
What is a practical consequence for a bidder when a takeover is considered hostile?
Answer: The bidder has limited access to the target's internal financial information, relying only on public data.
Explanation: A significant consequence of a hostile bid is the target board's non-cooperation, leading to limited access to internal financial information and increased exposure to hidden risks for the bidder.
Under Delaware law, what is the obligation of boards of directors regarding defensive actions against hostile takeovers?
Answer: To engage in defensive actions that are proportional to the threat posed by the bidder.
Explanation: Delaware law requires boards of directors to implement defensive actions against hostile takeovers that are proportional to the perceived threat to the target company.
Which company's bid to acquire PeopleSoft is cited as a well-known example of an extremely hostile takeover?
Answer: Oracle
Explanation: Oracle's protracted and contentious bid to acquire PeopleSoft is a widely recognized example of an extremely hostile takeover.
A reverse takeover is primarily used by public companies to acquire private companies and expand their market share.
Answer: False
Explanation: A reverse takeover is primarily a strategy for a private company to become publicly traded by acquiring a public company, thereby avoiding a conventional IPO.
Under UK AIM rules, a reverse takeover is defined as an acquisition that results in a fundamental change in the company's business, board, or voting control.
Answer: True
Explanation: UK AIM rules define a reverse takeover by criteria such as exceeding 100 percent in class tests or causing a fundamental change in the company's business, board, or voting control.
A corporate raider can facilitate a reverse takeover by purchasing a large fraction of the target company's stock and replacing its management.
Answer: True
Explanation: Corporate raiders can facilitate a reverse takeover by acquiring a significant stock fraction to gain voting power, enabling them to replace management and potentially increase the stock's attractiveness.
A backflip takeover occurs when the acquiring company sells off its own brand to adopt the less recognized brand of the purchased company.
Answer: False
Explanation: A backflip takeover involves the acquiring company becoming a subsidiary of the purchased company, often to leverage the acquired company's more recognized brand, rather than selling off its own brand.
The acquisition of Continental Airlines by Texas Air Corporation is an example of a backflip takeover where Texas Air adopted the Continental name.
Answer: True
Explanation: Texas Air Corporation's acquisition of Continental Airlines, followed by the adoption of the Continental name, serves as a clear example of a backflip takeover in the airline industry.
SBC's acquisition of AT&T, followed by SBC rebranding as AT&T, is a notable example of a backflip takeover in the telecommunications sector.
Answer: True
Explanation: SBC's acquisition of AT&T and subsequent rebranding as AT&T is a prominent example of a backflip takeover, leveraging the acquired company's strong brand legacy.
Westinghouse's 1995 purchase of CBS led to CBS renaming itself Westinghouse Corporation in 1997.
Answer: False
Explanation: Following Westinghouse's 1995 acquisition of CBS, Westinghouse itself was renamed CBS Corporation in 1997, with Westinghouse becoming a brand name under the new entity, not the other way around.
What is the primary purpose of a 'reverse takeover'?
Answer: For a private company to effectively become publicly traded, avoiding a conventional IPO.
Explanation: The primary purpose of a reverse takeover is for a private company to achieve public trading status by acquiring a public company, thereby circumventing a traditional IPO process.
Under UK AIM rules, which of the following criteria would NOT define a reverse takeover?
Answer: An acquisition where the private company pays cash for the public company.
Explanation: UK AIM rules define a reverse takeover by criteria such as exceeding 100 percent in class tests, fundamental business change, or substantial departure from investing strategy, but not by the private company paying cash for the public company.
How can a corporate raider facilitate a reverse takeover?
Answer: By purchasing a large fraction of the target company's stock to replace the board and CEO.
Explanation: A corporate raider can facilitate a reverse takeover by acquiring a substantial portion of the target company's stock to gain control and replace its management, thereby making the stock more attractive.
What is the primary reason a company might pursue a 'backflip takeover'?
Answer: To leverage the well-known brand recognition of the purchased company.
Explanation: A company might pursue a backflip takeover to leverage the established and well-known brand recognition of the purchased company, even if the acquirer is larger but less recognized.
Which of the following is an example of a backflip takeover in the airline industry?
Answer: Texas Air Corporation's acquisition of Continental Airlines, adopting the Continental name.
Explanation: Texas Air Corporation's acquisition of Continental Airlines, followed by Texas Air adopting the Continental name, is a cited example of a backflip takeover in the airline sector.
What was a notable backflip takeover in the telecommunications sector?
Answer: SBC's acquisition of AT&T, after which SBC rebranded as AT&T.
Explanation: SBC's acquisition of AT&T, and its subsequent rebranding as AT&T, stands as a notable backflip takeover in the telecommunications industry, capitalizing on AT&T's established brand.
How did Westinghouse implement a backflip takeover in the media industry?
Answer: By acquiring CBS in 1995 and then renaming itself CBS Corporation in 1997.
Explanation: Westinghouse implemented a backflip takeover by acquiring CBS in 1995 and subsequently renaming itself CBS Corporation in 1997, with Westinghouse becoming a brand under the new entity.
High-yield bonds are never used to finance takeovers due to their inherent risk.
Answer: False
Explanation: Financing a takeover can involve various methods, including bond issues, which may sometimes comprise high-yield or 'junk bonds,' indicating their use despite inherent risks.
Acquiring companies typically use their existing cash reserves to fund takeovers, avoiding external borrowing.
Answer: False
Explanation: It is more common for acquiring companies to finance takeovers by borrowing from banks or issuing bonds, rather than solely relying on existing cash reserves.
In a leveraged buyout, the debt incurred for the acquisition is usually paid back by the acquiring company, not transferred to the acquired company.
Answer: False
Explanation: In a leveraged buyout, the debt used to finance the acquisition is typically transferred onto the balance sheet of the acquired company, making the target responsible for its repayment.
A 'loan note alternative' in cash offers is designed to make the offer more attractive for shareholders by deferring capital gains tax.
Answer: True
Explanation: The primary purpose of a 'loan note alternative' in cash offers is to provide tax advantages to shareholders, allowing for the deferral of capital gains tax.
An all-share deal involves the bidder paying money to the target company's shareholders, who then use that money to buy shares in the bidding company.
Answer: False
Explanation: An all-share deal involves the bidder issuing new shares in its own company directly to the shareholders of the acquired company, rather than a cash payment followed by share purchase.
An all-cash deal for a company takeover means the offer consists solely of a specified amount of money per share, without any shares or loan notes.
Answer: True
Explanation: An all-cash deal is characterized by an offer consisting exclusively of a specified monetary amount per share, with no equity or loan note components.
What financial instrument is explicitly mentioned as sometimes including 'high-yield' or 'junk bonds' when financing a takeover?
Answer: Loans or bond issues
Explanation: Loans or bond issues are financial instruments commonly used to finance takeovers, and these can sometimes include high-yield or 'junk bonds'.
What is a common way for an acquiring company to raise the necessary cash for a takeover, aside from using cash on hand?
Answer: Borrowing from a bank or by issuing bonds.
Explanation: Beyond existing cash reserves, acquiring companies commonly raise funds for takeovers by borrowing from banks or issuing bonds.
In a leveraged buyout, what typically happens to the debt incurred for the acquisition?
Answer: It is transferred onto the balance sheet of the acquired company.
Explanation: In a leveraged buyout, the debt used for the acquisition is typically transferred to the balance sheet of the acquired company, making it responsible for repayment.
What is the primary purpose of a 'loan note alternative' in cash offers for public companies?
Answer: To make the offer more attractive in terms of taxation for shareholders.
Explanation: The primary purpose of a 'loan note alternative' in cash offers is to provide tax benefits to shareholders, particularly by deferring capital gains tax.
What defines an 'all-share deal' in a takeover?
Answer: The bidder issues new shares in its own company to the shareholders of the company being acquired.
Explanation: An all-share deal is a takeover method where the bidder issues new shares in its own company to the shareholders of the acquired company, rather than providing cash.
In the UK, the term 'takeover' is exclusively used for the acquisition of private companies, while public company acquisitions are called 'mergers.'
Answer: False
Explanation: In the UK, the term 'takeover' specifically refers to the acquisition of a public company, whereas the acquisition of a private company is generally termed an 'acquisition.'
The City Code on Takeovers and Mergers in the UK initially operated as a statutory set of rules from its inception.
Answer: False
Explanation: The City Code on Takeovers and Mergers initially functioned as a non-statutory set of rules, becoming statutory only in 2006 as part of UK compliance with the European Takeover Directive.
The City Code on Takeovers and Mergers requires that all shareholders in a company be treated equally and sets minimum bid levels.
Answer: True
Explanation: Key requirements of the City Code include ensuring equal treatment for all shareholders, regulating information disclosure, setting timetables, and establishing minimum bid levels.
How does the UK's definition of a 'takeover' specifically differ from the general business definition?
Answer: In the UK, 'takeover' specifically refers to the acquisition of a public company whose shares are publicly listed.
Explanation: In the UK, 'takeover' specifically refers to the acquisition of a public company with publicly listed shares, distinguishing it from the acquisition of a private company.
What regulatory framework governs takeovers of public companies in the United Kingdom?
Answer: The City Code on Takeovers and Mergers
Explanation: Takeovers of public companies in the United Kingdom are governed by the City Code on Takeovers and Mergers, also known as the 'City Code' or 'Takeover Code'.
When did the City Code on Takeovers and Mergers in the UK transition from a non-statutory set of rules to a statutory footing?
Answer: 2006
Explanation: The City Code on Takeovers and Mergers transitioned to a statutory footing in 2006, aligning with the European Takeover Directive.
According to the City Code on Takeovers and Mergers, what percentage of a target company's holding, including parties acting in concert, requires a shareholder to make an offer?
Answer: 30%
Explanation: The City Code stipulates that a shareholder, along with parties acting in concert, must make an offer if their combined holding reaches 30% of the target company.
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