Which of the following statements best describes mergers?
A) If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger.
B) A defensive merger is one where the firm's managers decide to merge with another firm to avoid or lessen the possibility of being acquired through a hostile takeover.
C) Acquiring firms send a signal that their stock is undervalued if they choose to use stock to pay for the acquisition.

Question

Quizplus · Accepted Answer

A defensive merger is a type of merger where the company merges with another company to avoid a hostile takeover. The other two options are incorrect. A merger between a military equipment company and a hotel chain is an example of a conglomerate merger, not a horizontal merger. Lastly, using stock to pay for an acquisition does not necessarily signal that the stock is undervalued.

Which of the Following Statements Best Describes Mergers