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- THEORIES Business Combination
100 | THEORIES | TRUE OR FALSE 1, When two entities competing in the same industry combine, {ft Is called a horzontal business combination. . © 2. Horizontal business combinations are likely to occur when management Is attempting to dominate a geographic segment of the market. 7 3. One way that a horizontal business combination can increase sales for an entity is to expand Into new product markets. 4. Avvertical business combination generally involves companies attempting to improve the efficleney of operations by purchasing suppliers of inputs or purchasers of outputs, 5. When a retail clothing store purchases a competitor in another city, a vertical combination has occurred. 6. Avertical combination is one where the entities have a potential buyer-seller relationship, A business combination in which a supplier of raw materials is acquired is a conglomerate combination. A conglomerate combination is often undertaken to help increase income stability due to diversifying aS the asset base of an entity. Conglomerate combinations are easy for the government to challenge in court . If negotiation between management groups leads to a mutually agreeable business combination, the mA process is called a friendly takeover. __ !1. An offer by an acquirer to buy the stock of another company is commonly called a tender offer, . A tender offer that is opposed by the acquiree management is called a hostile bid. . Greenmail exists when a company is encouraged to buy a potential acquiree. . A poison pill is the term used to describe the issuance of a special kind of convertible preferred stock to deter the acquisition of the company. . The sale of the crown jewels defensive maneuver involves the sale of more assets than does the 7 scorched earth defense. . The fatman defensive maneuver involved the acquisition of assets by the potential acquiree, - Golden parachutes give a bonus to all employees if the company is acquired, = 18. The packman defensive maneuver is where a potential acquiree attempts to purchase the acquirer, 7 19. A business combination occurs when one entity gains control over the net assets of another entity. * 20. The only way to attain control over the net assets of another entity is to purchase the net assets. £21. In an acquisition where the acquirer pays cash for the acquiree assets, the book value of the acquirer increases. 7 22. Inan acquisition of assets for assets, the ownership structure of the acquiree does not change, T 23. In an acquisition of assets for assets, the ownership structure of the acquirer changes, J 24. There is an increase in the total capitalization of an acquirer when the acquirer issues stock for acquiree assets. A : 7.25, In. an exchange of stock (acquirer) for assets (acquiree), the ownership structure of the acquiree does not change. ¥26. In an exchange of stock (acquirer) for assets (acquire), the acquiree stockholders become acquirer stockholders. Taz, Control over the acquiree assets is directly achieved in an asset for asset exchange but i Ochieved in an asset (acquirer) for stock (acquiree) exchange. bg, A business combination that occurs where only one of the original entities in existence ae combination is called a statutory consolidation, : : ; E The acquire entity is liquidated in a statutory merger, : ek lia 30, For a business combination to qualify as a statutory consolidation, "$1. Ina statutory consolidation form of tion, the a bala
