Question 1
Several factors have been proposed as providing a rationale for mergers. Among the more prominent ones are (I) tax considerations, (2) diversification, (3) control, (4) purchase of assets below replacement cost, and (5) synergy. From the standpoint of society, which of these reasons are justifiable? Which are not? Why is such a question relevant to a company like ICI, which is considering a specific acquisition? Explain your answers.
Answer:
From the stand point of society, synergy is the only benefit to the same.
Tax considerations, diversification, control, purchase of assets below replacement cost are not relevant from the standpoint of society.
From the standpoint of ICI, All the above points would be relevant.
Synergy occurs
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Question 6
a. Nero’s management has a substantial ownership interest in the company, but not enough to block a merger. If Nero’s managers want to keep the firm independent, what are some actions they could take to discourage potential suitors?
Answer:
Nero’s management may consider to employ staggered board, Supermajority voting provision for merger, Golden parachute and Fair price amendments etc. as defence strategies’ pre-offer. Post offer, Nero may consider Pac man defence or Litigation, Leveraged recapitalisation, Share repurchase to stop being acquired.
b. If Nero’s managers conclude that they cannot remain independent, what are some actions they might take to help their stockholders (and themselves) get the maximum price for their stock?
Answer:
If Nero’s managers conclude that they cannot remain independent then they should attract many other firms to bid for Nero’s and should also try to raise the offer’s