Which of the following statements is most CORRECT?
A) A conglomerate merger is one where a firm combines with another firm in the same industry.
B) Regulations in the United States prohibit acquiring firms from using common stock to purchase another firm.
C) Defensive mergers are designed to make a company less vulnerable to a takeover.
D) The equity residual method values a target firm by discounting residual cash flows at the acquiring firm's overall cost of capital reflecting the combined firm's post-merger capital structure.
E) A financial merger occurs when the operations of the firms involved are integrated in the hope of achieving synergistic benefits.

Question

Quizplus · Accepted Answer

Defensive mergers are designed to make a company less vulnerable to a takeover. They are initiated by the target company to protect themselves from hostile takeovers by making their stock less attractive to potential acquirers. The other options in the question are incorrect. Option A describes a horizontal merger, not a conglomerate merger. Option B is not completely true. Acquiring firms can use common stock, but there are limitations and regulations surrounding their use. Option D refers to the discounted cash flow method, not the equity residual method. Option E describes an operational merger, not a financial merger.

Which of the Following Statements Is Most CORRECT