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QUESTION 3 [30 MARKS] The question regarding market efficiency is whether investors can earn abnormal risk- adjusted profits. If the stock price run-up occurs when only insiders are aware of the coming dividend increase, then it is a violation of strong-form, but not semistrong-form, efficiency. If the public already knows of the increase, then it is a violation of semistrong-form efficiency. (a) Explain the relevance of the efficient market hypothesis. (b) Describe the 3 forms of efficient market hypothesis. (c) How is the Efficient Market Hypothesis used in the real world? [5 marks] [9 marks] [4 marks] Example of Biggest Mergers and Acquisitions of The Decade (2010-2020) Heinz merged with Kraft The merger of H.J. Heinz Co. and Kraft Foods Group created a new company called The Kraft Heinz Company. The company is expected to be the fifth-largest food company in respect of sales. As per the agreement, Heinz will hold 51% of the stake in the freshly formed company and the remainder will go to Kraft. The agreement to form the new company was adopted unanimously by both of them. The deal costs approximately $100 billion. Disney buys 21st Century Fox This was the biggest buy out in the history of the entertainment industry. Walt Disney Co. acquired famous 21st Century Fox with $85 billion. The intention behind the deal is to become a major player in video entertainment on the internet. Disney over the year focused on a bigger screen to distribute its product, but millennials are watching less TV and consuming more content from the internet. This saw the rise of video streaming providers such as Netflix, Amazon, and Hulu. (d) With the use of examples, explain the common motivations behind M&A activity. [6 marks] (e) Discuss the challenges in mergers and acquisitions. [6 marks]