Question 1

Which of the following is another term for a "going private" transaction?

Accepted Answer

A "going private" transaction refers to a company's decision to delist from public exchanges and become a privately held company. This can be achieved through an issuer bid, in which the company buys back shares from its public shareholders. Therefore, the correct answer is D, issuer bid.

Question 2

Use the following statements to answer the question:

Accepted Answer

Statement I is correct as a merger involves combining two companies to form a new entity. Statement II is also correct as an amalgamation involves exchanging shares in the old companies for shares in the new entity. Therefore, both statements are true.

Question 3

Moose Travel Inc.(MT)owns 53% of Prairies Airways Inc.(PA)and wishes to make an issuer bid.From what fraction of the PA shareholders does MT require approval for this deal to be successful?

Accepted Answer

MT owns 53% of PA, so it needs approval from 14% of the remaining 47% of PA shareholders, plus a majority of the minority.

Question 4

Securities legislation is a:

Accepted Answer

Securities legislation in Canada is primarily a provincial responsibility, with each province and territory having its own securities regulator.

Question 5

Which of the following is a side effect of the Free Trade Agreement (FTA)?

Accepted Answer

The Free Trade Agreement (FTA) led to U.S. multinationals buying out the Canadian minority shareholders. Option A is incorrect as the FTA led to increased merger and acquisition activity between U.S. and Canadian firms. Option B is also incorrect as there is no direct relationship between the FTA and Canadian firms increasing public float held by Canadian investors.

Question 6

Which of the acquisitions below would be considered a horizontal merger for Mercedes Benz (automobile manufacturer)?

Accepted Answer

A horizontal merger refers to a merger between two companies that are in the same industry and compete directly with each other. BMW is a direct competitor of Mercedes Benz in the automobile manufacturing industry, so acquiring BMW would be a horizontal merger for Mercedes Benz. Firestone is a supplier of tires to Mercedes Benz, Corning Glass is a supplier of glass to Mercedes Benz, and RBC is a bank that provides financial services to Mercedes Benz, but none of these would be considered a horizontal merger.

Question 7

The fraction of shareholders required to approve an amalgamation agreement (assuming no disputes)is at least:

Accepted Answer

In most jurisdictions, a supermajority vote, often two-thirds (66.67%), is required to approve significant corporate changes like an amalgamation agreement.

Question 8

What is the key difference between a merger and an acquisition?

Accepted Answer

In a merger, two companies combine to form a new entity, while in an acquisition, one company buys another and may absorb it into its existing structure or allow it to continue operating as a subsidiary. Therefore, in an acquisition, the target firm ceases to exist as an independent entity, but it can continue operating under the new ownership structure after a merger. Option A is incorrect because the target firm can continue operating after an acquisition, but not after a merger. Option C is not always true since not all acquisitions require approval from both sets of shareholders. Option D is incorrect as there is a clear difference between the two terms.

Question 9

In terms of shareholder approval requirements,the main difference between a cash transaction and a share transaction is:

Accepted Answer

In a share transaction, both the acquiring and target companies' shareholders typically need to approve the deal since the acquiring company is exchanging their shares for the target company's shares. In a cash transaction, only the acquiring company's shareholders need to approve the deal since they are paying cash for the target company.

Question 10

In Canada,what percentage of shares purchased by an investor is considered the early warning threshold signalling that the company is a possible target?

Accepted Answer

In Canada, when an investor acquires 10% or more of the outstanding shares of a Canadian public company, they are required to file an early warning report with the Canadian Securities Administrators (CSA). This threshold provides early warning to the company and the market that the investor may have intentions of acquiring control or influencing the management of the company.

Question 11

A fairness opinion is used most often when:

Accepted Answer

The answer of A fairness opinion is used most often...

Question 12

In Canada,the early warning threshold is hit when an investor purchases what percent of shares?

Accepted Answer

In Canada, the early warning threshold is hit when an investor purchases 10% or more of shares in a company.

Question 13

Which of the following best defines an acquisition?

Accepted Answer

An acquisition is when one firm completely absorbs another firm. Option A defines a merger, and option B defines a regular business transaction.

Question 14

Once an investor has purchased 20% of the outstanding shares of a firm,which of the following is NOT allowed?

Accepted Answer

Once an investor owns 20% of a firm's outstanding shares, further open market share purchases without a takeover bid are typically restricted by securities regulations to prevent stealth takeovers. This ensures transparency and fairness in the market.

Question 15

The Canadian term for a merger process is called a(n):

Accepted Answer

In Canada, the term used for a merger process is amalgamation.

Question 16

A minority squeeze-out occurs when:

Accepted Answer

A minority squeeze-out occurs when an acquirer owns 90% of the shares, and the minority of the shareholders are forced to sell their shares for the takeover price. The other options (A and C) describe different scenarios, but not a minority squeeze-out.

Question 17

In contrast to the question above,in the U.S.what percentage of shares purchased by an investor is considered the early warning threshold signalling that the company is a possible target?

Accepted Answer

In the U.S., the early warning threshold for shares purchased by an investor, indicating a potential takeover target, is 5%. This requires the investor to file a Schedule 13D with the SEC.

Question 18

Use the following statements to answer the question:

Accepted Answer

Both statements are correct. The holdup problem refers to shareholders asking for an excessive price for their shares during mergers or acquisitions, which can cause a deal to fail. When companies sweeten the deal, they increase the price for the remaining shares to encourage those holders to sell their shares and avoid the holdup problem.

Question 19

When a firm's management decides to take on significant debt in order to take the firm private it is called a:

Accepted Answer

A management buy-out (MBO) is when the management of a firm decides to take on debt to purchase the entire company from its shareholders, effectively making the company private. This allows the management team to have complete control over the company and its strategic direction. A circular bid is a bid where several companies each bid to acquire the same target company. A tender bid is an offer made to purchase some or all of the shares of a publicly traded company. A hostile takeover is an acquisition that is opposed by the management and board of the target company.

Question 20

An issuer bid occurs when:

Accepted Answer

An issuer bid occurs when a company wishes to purchase its own shares back from the market. None of the scenarios presented in options I, II, III or IV involve an issuer bid, so they are all incorrect.

Quiz 15: Mergers and Acquisitions

Which of the following is another term for a "going private" transaction?

Use the following statements to answer the question:

Moose Travel Inc.(MT) owns 53% of Prairies Airways Inc.(PA) and wishes to make an issuer bid.From what fraction of the PA shareholders does MT require approval for this deal to be successful?

Securities legislation is a:

Which of the following is a side effect of the Free Trade Agreement (FTA) ?

Which of the acquisitions below would be considered a horizontal merger for Mercedes Benz (automobile manufacturer) ?

The fraction of shareholders required to approve an amalgamation agreement (assuming no disputes) is at least:

What is the key difference between a merger and an acquisition?

In terms of shareholder approval requirements,the main difference between a cash transaction and a share transaction is:

In Canada,what percentage of shares purchased by an investor is considered the early warning threshold signalling that the company is a possible target?

A fairness opinion is used most often when:

In Canada,the early warning threshold is hit when an investor purchases what percent of shares?

Which of the following best defines an acquisition?

Once an investor has purchased 20% of the outstanding shares of a firm,which of the following is NOT allowed?

The Canadian term for a merger process is called a(n) :

A minority squeeze-out occurs when:

In contrast to the question above,in the U.S.what percentage of shares purchased by an investor is considered the early warning threshold signalling that the company is a possible target?

Use the following statements to answer the question:

When a firm's management decides to take on significant debt in order to take the firm private it is called a:

An issuer bid occurs when: