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u plus cash to distribute it to shareholders rather than eared such companies would otherwise channel free cash flow atlive-NPV investments We observed that when the target firm is acquired, Target firms' shareholders earn abnormally roughly break but competition pushes most of the gains toward selling shareholders mergers increase the ciency, and how from mergers ed between rs of the its shareholders typically win: even. This sumaly large returns. The bidding firm's shareholders suggests that the typical merger generates positive net benetits bidders and active defense by management of the target firm returns. most ired and acquiring (LO21-6) UESTIONS AND PROBLEMS onnect 1. Merger Types. Are the following hypothetical mergers horizontal, vertical, or conglomerate? (LO21-1) a. General Motors acquires Ford. b. Ford acquires Walmart. c. Walmart acquires Kraft Heinz. d. Kraft Heinz acquires General Motors. 2. Merger Motives. Do each of the following motives for mergers make economic sense? Answer yes or no. (LO21-1) a. Merging to achieve economies of scale b. Merging to reduce risk by diversification c. Merging to redeploy cash generated by a firm with ample profits but limited growth opportunities d. Merger Motives. Explain why it might or might not make good sense for Northeast Heating nd Northeast Air Conditioning to merge into one company. (L021-1) Merging to increase earnings per share 3. u plus cash to distribute it to shareholders rather than eared such companies would otherwise channel free cash flow atlive-NPV investments We observed that when the target firm is acquired, Target firms' shareholders earn abnormally roughly break but competition pushes most of the gains toward selling shareholders mergers increase the ciency, and how from mergers ed between rs of the its shareholders typically win: even. This sumaly large returns. The bidding firm's shareholders suggests that the typical merger generates positive net benetits bidders and active defense by management of the target firm returns. most ired and acquiring (LO21-6) UESTIONS AND PROBLEMS onnect 1. Merger Types. Are the following hypothetical mergers horizontal, vertical, or conglomerate? (LO21-1) a. General Motors acquires Ford. b. Ford acquires Walmart. c. Walmart acquires Kraft Heinz. d. Kraft Heinz acquires General Motors. 2. Merger Motives. Do each of the following motives for mergers make economic sense? Answer yes or no. (LO21-1) a. Merging to achieve economies of scale b. Merging to reduce risk by diversification c. Merging to redeploy cash generated by a firm with ample profits but limited growth opportunities d. Merger Motives. Explain why it might or might not make good sense for Northeast Heating nd Northeast Air Conditioning to merge into one company. (L021-1) Merging to increase earnings per share 3
