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Chapter 5: Q2DQ. (page 647)

What is the difference between a merger and a consolidation?

Short Answer

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Answer

Merger is the process of combining two or more companies together, in which resulting company holds the name of the acquiring company. Whereas in case of consolidation, new company is formed after combination.

Step by step solution

01

Step-by-Step-SolutionStep 1: Explanation on Merger

Merger results in combination of two or more companies, in which one company acquires another company and the resultant company runs in the name of the acquirer.

For Example: Company X acquires Company Y, theresultant company is named as Company X.

02

Explanation on Consolidation

Consolidation results in combination of two or more companies, and runs in the name of new company.

For Example: Company X combines with Company Y, theresultant company is named as Company XY.

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Most popular questions from this chapter

A Peruvian investor buys 150 shares of a U.S. stock for \(7,500 (\)50 per share). Over a year, the stock goes up by \(4 per share.

  1. If there is a 10 percent gain in the value of the dollar versus the Peruvian nuevo sol, what will be the total percentage return to the Peruvian investor? First, determine the new dollar value of the investment and multiply this figure by 1.10. Divide this answer by \)7,500 and get a percentage value, and then subtract 100 percent to get the percentage return.
  2. Instead assume that the stock increases by $7, but that the dollar decreases by 10 percent versus the nuevo sol. What will be the total percentage return to the Peruvian investor? Use 0.90 in place of 1.10 in this case.

The Hollings Corporation is considering a two-step buyout of the Norton Corporation. The latter firm has 2.5 million shares outstanding and its stock price is currently \(40 per share. In the two-step buyout, Hollings will offer to buy 51 percent of Norton鈥檚 shares outstanding for \)62 per share in cash and the balance in a second offer of 840,000 convertible preferred stock shares. Each share of preferred stock would be valued at 40 percent over the current value of Norton鈥檚 common stock. Mr. Green, a newcomer to the management team at Hollings, suggests that only one offer for all Norton鈥檚 shares be made at $59.25 per share. Compare the total costs of the two alternatives. Which is better in terms of minimizing costs?

From the base price level of 100 in 1981, Saudi Arabian and U.S. price levels in 2010 stood at 250 and 100, respectively. Assume the 1981 \(/ riyal exchange rate was \)0.46/riyal. suggestion: using the purchasing power parity, adjust the exchange rate to compensate for inflation. That is, determine the relative rate of inflation between the United States and Saudi Arabia and multiply this times $/riyal of f0.46. what would the exchange rate be in 2010?

If a firm wishes to achieve immediate appreciation in earnings per share as a result of a merger, how can this be best accomplished in terms of exchange variables? What is a possible drawback to this approach in terms of long-range considerations?

What is synergy? What might cause this result? Is there a tendency for management to over- or underestimate the potential synergistic benefits of a merger?
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