Two firms merge and no synergies occur.Which statement best explains this unlikely result?
A)The reduction in risk in the combined firm benefits the bondholders at the expense of the shareholders.
B)The value of the debt in the combined firm will likely be greater than the value of the debt in the two separate firms.
C)The size of the gain to the bondholders depends on the specific reductions in bankruptcy probabilities after the merger.
D)The share price of the acquiring or combined company increases substantially.

Question

Quizplus · Accepted Answer

The Answer of Two firms merge and no synergies occur.Which statement best explains this unlikely result?
A)The reduction in risk in the combined firm benefits the bondholders at the expense of the shareholders.
B)The value of the debt in the combined firm will likely be greater than the value of the debt in the two separate firms.
C)The size of the gain to the bondholders depends on the specific reductions in bankruptcy probabilities after the merger.
D)The share price of the acquiring or combined company increases substantially.

Two Firms Merge and No Synergies Occur