Solutions Manual For

Solutions Manual For Essentials of Financial Management 5 th Edition By Eugene Brigham, Joel Houston, Jun-Ming Hsu, Yoon Kee Kong, Bany-Ariffin (All Chapters 1-21, 100% Original Verified, A+ Grade) All Chapters Arranged

Reverse: 21-1

This is The Original Solutions Manual For 5 th Edition, All other Files in The Market are Fake/Old/Wrong Edition. 1 / 4

Chapter 21 Mergers and Acquisitions Learning Objectives

After reading this chapter, students should be able to do the following:

Identity the different types of mergers and the various rationales for mergers.Conduct a simple analysis to evaluate the potential value of a target firm and discuss the various considerations that influence the bid price.Explain whether the typical merger creates value for the participating shareholders.Discuss the value of other transactions such as leveraged buyouts (LBOs), corporate alliances, and divestitures.© 2023 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2 / 4

Lecture Suggestions In this chapter we discuss mergers, LBOs, merger rationales, classifications, merger regulation, and merger analysis. In addition, we discuss corporate alliances and private equity investments. Finally, we talk about divestitures and the rationale behind them.What we cover, and the way we cover it, can be seen by scanning the slides and Integrated Case solution for Chapter 21, which appears at the end of this chapter solution. For other suggestions about the lecture, please see the “Lecture Suggestions” in Chapter 2, where we describe how we conduct our classes.© 2023 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3 / 4

Answers to End-of-Chapter Questions 21-1Horizontal and vertical mergers are most likely to result in governmental intervention, but mergers of this type are also most likely to result in operating synergy. Conglomerate and congeneric mergers are attacked by the government less often, but they also are less likely to provide any synergistic benefits.21-2A tender offer might be used. Although many tender offers are made by surprise and over the opposition of the target firm’s management, tender offers can and often are made on a “friendly” basis. In this case, management (the board of directors) of the target company endorses the tender offer and recommends that shareholders tender their shares.21-3An operating merger involves integrating the company’s operations in hopes of obtaining synergistic benefits, while a pure financial merger generally does not involve integrating the merged company’s operations.21-4Disney’s management could (and did) argue that its stock was worth more than $4.22 per share, and that if Steinberg had taken control, the remaining stockholders would be out in the cold and exploited by Steinberg. Perhaps so, but most nonmanagement stockholders (1) would prefer $4.22 to $2.875, (2) were upset at having management give away $60 million of their value to Steinberg, (3) believed that by no means could Steinberg treat them worse than did the current management, and (4) were more than a little suspicious that management’s primary motive was to keep their jobs and perks.Personally, we regarded the Disney affair as a flagrant abuse of outside stockholders by a management desperate to keep control. However, we must note that Disney’s stock is selling for around $119.93 in October 2020 (even after a 3-for-one split in July, 1998 and a 1,014 for 1,000 split in June 2007), so perhaps management was right. Also, though, Disney’s old management is largely gone, and a new and perhaps better group now has control. Perhaps Steinberg was right about the value of the assets, and perhaps his actions forced a desirable management change.Still, and if so, Disney’s stockholders paid a steep price ($60 million) to get the management change.Legislation might be desirable, but there is a danger that legislation will help incompetent managers fight off legitimate and desirable efforts to put corporate assets into more effective hands. Markets work reasonably well, but the Disney situation does make it clear that a manager really can threaten to commit corporate suicide and use this tactic to fend off proposed takeovers.Still, a balanced package of legislation would, in our judgment, do more good than harm in preserving the efficiency of our capital markets.21-5Academicians have long argued that conglomerate mergers that produce no synergy are not economically efficient because (1) overhead costs are incurred in managing the combined enterprise, thus lowering earnings; and (2) relevant risk is not reduced, because the combined firm’s beta is a weighted average of the betas of the merged firms. In other words, investors could, individually, get whatever benefits of diversification there are by buying the stocks of the two firms without incurring unnecessary overhead. The recent state of corporate divestitures attests to the merits of this position. The only logical rationale for nonsynergistic conglomerate mergers is that debt capacity may be increased by lowering the risk of bankruptcy. This would increase the value of the merged company. In general, it is safe to conclude that one should be wary of nonsynergistic mergers.© 2023 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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