Deck 8: Going-Private Transactions and Leveraged Buyouts

Question 1

Lehan and Poulson showed that buyout premiums were unrelated to the target's free cash flows.

Answer 1

False

Question 2

In the United States two-tiered tender offers are not that common any more.

Answer 2

True

Question 3

Which of the following are desirable characteristics for LBO candidates? i.

A)Stable cash flows j.
B)Unused debt capacity k.
C)Ability to cut costs l.
D)All of the above m.
E)None of the above

Answer 3

D

Question 4

A study by Travlos and Cornett shows a statistically significant negative correlation between abnormal returns to shareholders and the P/E ratio of the firm relative to the industry

Question 5

In Revlon v.McAndrews and Forbes Holdings, the court held:

A)The bidding process was unfair
B)Pantry Pride's premium was not high enough
C)Forstmann Little's bid was appropriate
D)All of the above

Question 6

Research by Cao and also data from Mergerstat showed that:

A)LBO premiums were less than M&A premiums but increased over time
B)Decreased over time
C)No discernable pattern
D)None of the above

Question 7

In Hansen Trust v.SCM the court concluded: n.

A)Merrill Lynch was given favorable treatment o.
B)Use of lockup option was inappropriate p.
C)An appropriate auction was preempted q.
D)All of the above r.
E)None of the above

Question 8

Kaplan found that the post-buyout investors did not enjoy the tax-related benefits of LBOs.

Question 9

Research by Cao and also data from Mergerstat showed that LBO premiums were less than M&A premiums.

Question 10

Kaplan found that the tax benefits in LBOs were:

A)Predictable
B)Built into the takeover premium
C)Did not affect the premium
D)Both a and c
E)Both a and b

Question 11

Private equity firm is a more modern name for LBO firms.

Question 12

Which of the following is true of senior debt?

A)The rate on senior debt is 2% to 3% above prime
B)Senior debt is usually about a quarter to a third of total LBO debt
C)The term is usually 5 to 10 years
D)All of the above

Question 13

In his study of buyouts in the 1980s, Kaplan found post-buyout CEO ownership percentages:

A)Fell
B)Rose
C)No consistent pattern
D)None of the above

Question 14

Vertical strips:

A)Refers to acquiring targets with whom the bidder has backward relationship
B)Refers to acquiring targets with whom the bidder has forward relationship
C)Refers to participating in several layers of LBO financing
D)None of the above

Question 15

The first LBOs occurred in the fourth merger wave.

Question 16

LBOs began to be a global phenomena starting in the fifth merger wave.

Question 17

Which of the following firms were or are considered "LBO firms"?

A)KKR
B)Forstmann Little
C)Blackstone Group
D)All of the above
E)None of the above

Question 18

Research shows that audit fees constitute what percent of total costs of being public?

A)25% to 35%
B)Approximately 90%
C)50% to 60%
D)Roughly one third

Question 19

Harris, Siegel, and Wright found productivity improvements for European companies that underwent an MBO.

Question 20

Unsecured debt is sometimes also called subordinate debt.