Question 1

Concern about their fiduciary responsibility to shareholders and shareholder lawsuits often puts pressure on a target firm's board of directors to accept an offer if it includes a significant premium to the target's current share price.

Accepted Answer

This statement is true. The board of directors of a target firm has a fiduciary duty to act in the best interests of shareholders, and may face legal action if they do not. Additionally, a takeover offer that includes a significant premium to the current share price may be seen as a financially attractive option for shareholders, and the board may feel pressure to accept it.

Question 2

Public announcements of a proposed takeover are often designed to put pressure on the board of the target firm.

Accepted Answer

Public announcements of a proposed takeover can generate media attention and create pressure on the board of the target firm from shareholders, analysts, and other stakeholders. The public announcement may also signal to other potential bidders that there is interest in the company, which could lead to a bidding war and a higher offer price.

Question 3

The takeover premium is the dollar or percentage amount the purchase price proposed for a target firm
exceeds the acquiring firm's share price.

Accepted Answer

The takeover premium is the amount by which the purchase price proposed for a target firm exceeds the target firm's share price, not the acquiring firm's share price.

Question 4

Concern about their fiduciary responsibility and about stockholder lawsuits puts pressure on the target's
board to accept the offer.

Accepted Answer

The concern about fiduciary responsibility and stockholder lawsuits can create pressure on the target's board to accept an offer in order to fulfill their obligations to act in the best interest of the company and its shareholders.

Question 5

The shareholder interests theory suggests that shareholders gain when management resists takeover
attempts.

Accepted Answer

The shareholder interests theory suggests that management should resist takeover attempts in order to protect the interests of shareholders. This is because a successful takeover would often result in a change in management, potentially leading to a decrease in shareholder value. Therefore, shareholders would generally benefit if management resists takeover attempts.

Question 6

Dissident shareholders always undertake a tender offer to change the composition of a firm's board of
directors.

Accepted Answer

Dissident shareholders may undertake a tender offer to acquire a controlling ownership stake in the company, but they do not always do so to change the board of directors. The ultimate goal of a tender offer can vary depending on the specific situation and goals of the dissident shareholders.

Question 7

A successful proxy fight may represent a far less expensive means of gaining control over a target than a
tender offer.

Accepted Answer

A proxy fight allows shareholders to vote on who they believe should be on a company's board of directors, which can result in a change of control. This is typically less expensive than a tender offer, which involves a company offering to buy shares directly from shareholders at a premium price. The costs of a tender offer can be much higher due to the need to pay a premium for shares, as well as potential legal fees and other expenses.

Question 8

Most takeover attempts may be characterized as hostile bids.

Accepted Answer

Most takeover attempts are friendly, with both parties agreeing to the terms. Hostile bids, where the target company resists the acquisition, are less common.

Question 9

An astute bidder should always analyze the target firm's possible defenses such as golden parachutes for key employees and poison pills before making a bid.

Accepted Answer

It is important for a bidder to analyze the target firm's possible defenses, such as golden parachutes and poison pills, before making a bid. These defenses can make the acquisition more difficult, expensive, or unattractive, and therefore affect the bidder's strategy and valuation. By identifying and evaluating these defenses in advance, the bidder can adjust its offer accordingly, negotiate with the target firm, or consider alternative acquisition targets.

Question 10

The final outcome of a hostile takeover is rarely affected by the composition of the target's stock
ownership and how stockholders feel about management's performance.

Accepted Answer

The composition of the target's stock ownership and the sentiments of stockholders towards management can affect the outcome of a hostile takeover. For example, if a large percentage of the stock is held by management or loyal shareholders, they may be able to block the takeover attempt. Alternatively, if stockholders are dissatisfied with management's performance, they may be more open to a takeover bid.

Question 11

Friendly takeovers are negotiated settlements that are often characterized by bargaining,which remains undisclosed until the agreement has been signed.

Accepted Answer

Friendly takeovers are often characterized by bargaining and the terms of the negotiation are usually kept confidential until the agreement is reached and signed.

Question 12

A proxy contest is one in which a group of dissident shareholders attempts to obtain representation on a
firm's board by soliciting other shareholders for the right to vote their shares.

Accepted Answer

This statement accurately describes a proxy contest.

Question 13

A hostile tender offer is a takeover tactic in which the acquirer bypasses the target's board and management and
goes directly to the target's shareholders with an offer to purchase their shares.

Accepted Answer

This is an accurate description of a hostile tender offer.

Question 14

A standstill agreement is one in which the target firm agrees not to solicit bids from other potential
buyers while it is negotiating with the first bidder.

Accepted Answer

A standstill agreement is indeed an arrangement where the target company refrains from soliciting bids from other potential buyers while it is in the process of negotiating with the initial bidder. This is usually done to give the first bidder enough time to finalize the deal and complete the transaction without facing competition from other parties.

Question 15

The accumulation of a target firm's stock by arbitrageurs makes purchases of blocks of stock by the bidder easier.

Accepted Answer

The accumulation of a target firm's stock by arbitrageurs can increase the liquidity of the target firm's shares and create a more efficient market for the stock. This can make it easier for the bidder to purchase large blocks of the stock as there are more available sellers, potentially lowering the bid-ask spread and transaction costs.

Question 16

According to the management entrenchment hypothesis,takeover defenses are designed to protect the
target firm's management from a hostile takeover.

Accepted Answer

The management entrenchment hypothesis suggests that takeover defenses are implemented by target firms to protect the current management team from being removed or replaced by the acquiring company in a hostile takeover. This is often done to maintain job security and control over decision-making power within the target company.

Question 17

Litigation is a tactic that is used only by acquiring firms.

Accepted Answer

Litigation can be used by both acquiring firms and target firms in a merger or acquisition deal. Acquiring firms may use litigation as a tactic to initiate or defend against legal challenges related to the deal, whereas target firms may use litigation to resist the acquisition or negotiate better terms.

Question 18

A bear hug involves mailing a letter containing an acquisition proposal to the target's board without warning and demanding an immediate response.

Accepted Answer

A bear hug is a hostile takeover tactic where an acquirer makes an unsolicited offer directly to the target company's shareholders, bypassing the board of directors.

Question 19

Despite the pressure of an attractive purchase price premium,the composition of the target's board
greatly influences what the board does and the timing of its decisions.

Accepted Answer

The sentence explicitly states that the composition of the target's board greatly influences their decisions, despite the pressure of an attractive purchase price premium.

Question 20

A tender offer is a proposal made directly to the target firm's board as the first step leading to a friendly takeover.

Accepted Answer

While a tender offer can lead to a takeover, it is not necessarily the first step in a friendly takeover. In a friendly takeover, the two companies may negotiate directly without the use of a tender offer.

Quiz 3: The Corporate Takeover Market: Common Takeover Tactics, anti-Takeover Defenses, and Corporate Governance

Concern about their fiduciary responsibility to shareholders and shareholder lawsuits often puts pressure on a target firm's board of directors to accept an offer if it includes a significant premium to the target's current share price.

Public announcements of a proposed takeover are often designed to put pressure on the board of the target firm.

The takeover premium is the dollar or percentage amount the purchase price proposed for a target firm exceeds the acquiring firm's share price.

Concern about their fiduciary responsibility and about stockholder lawsuits puts pressure on the target's board to accept the offer.

The shareholder interests theory suggests that shareholders gain when management resists takeover attempts.

Dissident shareholders always undertake a tender offer to change the composition of a firm's board of directors.

A successful proxy fight may represent a far less expensive means of gaining control over a target than a tender offer.

Most takeover attempts may be characterized as hostile bids.

An astute bidder should always analyze the target firm's possible defenses such as golden parachutes for key employees and poison pills before making a bid.

The final outcome of a hostile takeover is rarely affected by the composition of the target's stock ownership and how stockholders feel about management's performance.

Friendly takeovers are negotiated settlements that are often characterized by bargaining,which remains undisclosed until the agreement has been signed.

A proxy contest is one in which a group of dissident shareholders attempts to obtain representation on a firm's board by soliciting other shareholders for the right to vote their shares.

A hostile tender offer is a takeover tactic in which the acquirer bypasses the target's board and management and goes directly to the target's shareholders with an offer to purchase their shares.

A standstill agreement is one in which the target firm agrees not to solicit bids from other potential buyers while it is negotiating with the first bidder.

The accumulation of a target firm's stock by arbitrageurs makes purchases of blocks of stock by the bidder easier.

According to the management entrenchment hypothesis,takeover defenses are designed to protect the target firm's management from a hostile takeover.

Litigation is a tactic that is used only by acquiring firms.

A bear hug involves mailing a letter containing an acquisition proposal to the target's board without warning and demanding an immediate response.

Despite the pressure of an attractive purchase price premium,the composition of the target's board greatly influences what the board does and the timing of its decisions.

A tender offer is a proposal made directly to the target firm's board as the first step leading to a friendly takeover.