SIKKIM MANIPAL UNIVERSITY - DDE

Master of Business Administration MBA Semester III

MF0011 Mergers & Acquisitions 4 Credits
Book ID B1732
Model Question Paper
Time: 3 hours Max.Marks:140



Section A
ESSAY TYPE QUESTIONS (10 Marks each)
[Please answer Any Four essay type questions in a separate page answer sheet especially
provided for the purpose]
1. Explan the five stage model of mergers and acquisitions.
2. What do you understand by creating synergy? Give the prerequisites for the creation of
synergy.
Describe the important forces contributing to mergers and acquisitions.
3. Explain Employee Stock Ownership Plans (ESOP). Write down the rules of ESOP and
types of ESOP.
4. Explain the factors in Post-merger Integration. Write down the five rules of Integration
Process.
Case Study

The case discusses the merger of one of the largest investment banks in the US - Morgan
Stanley with Dean Witter, Discover & Company, a retail firm specializing in stock brokerage,
asset management and credit cards in 1997. Though analysts raised doubts about the success of
the merger, initially the merger proved to be successful placing Morgan Stanley Dean Witter
among the top investment banking and financial services companies. However, in the early
2000s, with the slowdown in the US economy, the merged entity reported declining revenues
and profits and exodus of key top management personnel. The then CEO of Morgan Stanley
Dean Witter, Phil Purcell forced out President & COO J ohn Mack in 2001.
By 2005, Morgan Stanley was embroiled in governance and legal problems, which affected its
business performance and financial position. A group of eight former executives of Morgan
Stanley campaigned against Purcell leading to its ouster in June 2005. This case illustrates the
role of top management and good governance in the success/failure of a merger.
Questions:
5. Study the role of top management in the success of a merger

6. Examine the synergies of merger between Morgan Stanley and Dean Witter



Section B
Multiple Choice Questions (MCQ)
[Please answer all the following questions]



1. An independent company carved out of another company through a sale is called
___________.

A) merger
B) spin off
C) Takeover
D) None of the above

2. Acquisition is also known as a ______________.

A) Merger
B) Consolidation
C) Takeover
D) Absorption

3. _________________ is considered a dubious reason for merger.

A) Diversification
B) Earnings Growth
C) Lower Financing Costs
D) All of the above

4. Merger through ______________ is grouping of two or more companies into an existing
company.

A) Absorption
B) Consolidation
C) Vertical integration
D) Horizontal integration


5. The first stage of any merger or amalgamation must be a thorough review by each
organization of the other, which is commonly known as the _________________
process.

A) Business valuation
B) Planning Exit
C) Due diligence
D) Business deal


6. The basic purpose of valuation of target companies is to
___________________________.

A) identify a management team
B) locate possibilities of takeover
C) sell-off shares to new company
D) None of the above


7. _____________ approach provides a superior theoretical framework as it also factors the
risk.

A) Present value analysis
B) Capital assets pricing
C) Future value analysis
D) None of the above


8. Share exchange ratio is generally determined by the relative __________ strength of the
two companies.

A) financial
B) bargaining
C) management
D) share value

9. On successful conclusion of negotiations, the two companies announce an agreement to
merge, which leads to the fifth and final phase called ______________.

A) documentation
B) integration
C) negotiation
D) valuation

10. A takeover generally involves the acquisition of a certain block of _____________ which
enables the acquirer to exercise control over the affairs of the company.

A) machinery
B) cash
C) equity capital
D) All of the Above

11. Synergy refers to a situation where the combined value of a merger is more than the
_______ of the values of merging firms

A) product
B) sum
C) difference
D) quotient


12. ___________________________ results from the merger, enabling the combined firm to
become more cost efficient and profitable

A) Greater pricing power
B) Higher growth
C) Economies of Scale
D) Combined functional strengths


13. Greater pricing power resulting from reduced competition and greater market share
should lead to higher profit margins and ________________.

A) operating income
B) managerial strengths
C) dividends
D) equity capital

14. Synergy =Economic Advantage =?

A) Gaining
B) Cost of Merger
C) Value of Combined Firm
D) None of the above

15. Diversifying indicates _____________ of company's business.

A) Expansion
B) Contraction
C) Change of Ownership
D) Change of Corporate Control

16. Refocus refers to concentrating on core business, meaning _____________________.

A) Expansion
B) Contraction
C) Change of Ownership
D) Change of Corporate Control

17. ____________________ is a combination of subsets of assets contributed by two or more
business entities

A) Sell-off
B) Spin-off
C) J oint Venture
D) Divesture

18. In a spin-off there is __________ of control

A) sharing
B) separation
C) independence
D) subsidiary


19. Demerger may allow companies to strengthen their __________________ and realise the
true value of their business.

A) management
B) cash flow
C) core business
D) policies

20. Leveraged buyouts are cash transactions where cash is borrowed by the acquiring firm
and the debt financing represents ______ or more of the purchase price.

A) 70%
B) 51%
C) 75%
D) 50%

21. Although subordinated debt have stringent reporting requirements, they are
_____________ with a looser covenant package in comparison to senior debt

A) fixed rate
B) can be publicly traded
C) offer long term securities
D) All of the above

22. Generally the _________ assets of the target company are used as security for borrowing
by the acquiring firm.

A) transferred
B) intangible
C) tangible
D) unused

23. The debt that is at the topmost rank amongst all the other debts and equity capital in the
business is _____________.

A) loan stock
B) subordinated debt
C) senior debt
D) preference share

24. In a ___________________ the businesses are not in direct competition, but have similar
products or services that are directed towards the same target market.

A) Partnership
B) J oint venture
C) Strategic Alliance
D) Licensing agreement

25. One of joint ventures rationale is to gain ___________ or raw material supply-chains.

A) distribution channels
B) marketing advantage
C) financial goals
D) All of the above

26. J oint ventures are seen as simpler and more _____________ forms of organizing
expansion of business compared to mergers and acquisitions.
A) Fixed
B) Flexible
C) Complex
D) Any of the above

27. The term J oint Venture is an umbrella term which describes the _____________
arrangement between two or more economically independent entities.

A) commercial
B) strategic
C) dubious
D) management


28. Income tax benefits are given to Industries set up as _______ export-oriented units, or in
export processing zones.

A) 100%
B) over 75%
C) over 50%
D) over 25%


29. The joint venture between Walmart Stores and ________________ marked the entry of
Walmart into the Indian retailing industry.

A) Essar Communications
B) Vodafone India
C) Bharti Enterprises
D) Airtel India

30. Absence of excessive fluctuations in the _________ economy is referred as Economic
Stability

A) micro
B) macro
C) mega
D) mixed

31. A ____________________ is a transaction in which an expanding firm buys either a
controlling interest or all of an existing company in a foreign country.

A) foreign investment
B) merger or acquisition
C) cross-border merger
D) cross-border acquisition

32. The internalization decision is similar to a _____________ decision.

A) make-or-buy
B) merger
C) takeover
D) sale-of-assets


33. The ownership decision has two dimensions: asset __________ and asset augmenting.

A) selling
B) buying
C) exploiting
D) financing

34. The lead institutions would be responsible for ensuring compliance with the code related
to a ________ takeover.

A) hostile
B) friendly
C) bailout
D) reverse

35. Exercising the ________ makes the acquisition very expensive to the bidder.

A) White Knight
B) Poison Pill
C) Green mail
D) Lobster Trap

36. ___________acquisitions are normally friendly because boards usually reflect the mind-
set of the shareholders.

A) Public
B) International
C) Private
D) All of the above

37. A share allotted to members of the transferor company does not attract ________Tax.

A) restructuring
B) profit from selling shares
C) capital gains
D) sales

38. Buying back shares from the open market at a premium over the market price is the best
strategy to maintain the share price in a ______ run.

A) bull
B) bear
C) rat
D) tiger

39. In case of buyback of shares, a postal ballot is opted for by a _________ company.

A) listed
B) unlisted
C) Any company registered under Indian Companies Act.
D) Postal ballot cannot be opted for any company


40. Certified true copies of the Court order on amalgamation will be filed with the Company
Law Board.(True/False)

A) True
B) False

41. In amalgamation as merger, all assets and liabilities of the transferor company become or
get transferred as, _______________ of the transferee company.

A) the reserve
B) the assets and liabilities
C) complementary resources
D) Capital Fund

42. Pooling of interests method of accounting refers to the adding together of
_______________ of the merging entities.

A) assets and liabilities
B) synergies
C) interests
D) All of the above

43. In _____________ method, consideration is computed by adding the agreed values of all
the assets taken over by the transferee company and deducting there from the agreed
values of the liabilities taken over by the transferee company.

A) Lump sum method
B) Net assets method
C) Net payment method
D) Intrinsic worth method

44. Purchase consideration implies the value agreed upon for the ____________ taken over.

A) goodwill
B) equities
C) net assets
D) cash reserves

45. Market approach of valuation is similar to the ___________________ method which is
mostly used in real estate appraisal.

A) market-based
B) asset-based
C) comparable sales
D) excess-earnings method

46. Reproduction value is a basis which is a variation of _________, and calculates cost of
constructing a similar block of assets.

A) cost value
B) fair value
C) net book value
D) consideration value


47. ____________ method is good for negotiated bargaining when plant, machinery and
other assets are important considerations in the acquisition.

A) cost value
B) fair value
C) net book value
D) substitution value

48. Focusing on common factors and isolating diversities result in successful integration
strategy. (True/False)

A) True
B) False

49. Alignment of _________ can be achieved through information sharing, emphasizing
similarities and mitigating dissimilarities through effective communication.

A) finances
B) management
C) profits
D) cultures

50. With regard to combinations, if there is no integration plan, it will cause ____________,
both internally and externally.

A) losses
B) demerger
C) uncertainty
D) All of the above


51. Creditors of ________ firms enjoy better protection than those of __________ firms.
A) independent, merged
B) merged, independent
C) demerged, independent
D) independent, demerged

52. ____________ and____________ are the two kinds of vertical integration.
A) Forward, backward
B) Front-end, back-end
C) Dependent, independent
D) None of the above

53. The earnings of the target firm are projected and _______ at the acquirers cost of capital
to obtain a theoretical ___________ of the shares of the target company.
A) discounted, selling price
B) undiscounted, cost price
C) undiscounted, selling price
D) discounted, market price

54. The basic logic behind the model is that if expected rate of return, considering the risk
element, _______ the required rate of return, the target company is a ___________.
A) precede, bad buy
B) exceeds, bad buy
C) exceeds, good buy
D) precedes, good buy

55. Achievement of the objectives depends both on the ____________ and ___________
validity of the strategy.
A) conceptual, empirical
B) cultural, authorized
C) conceptual, authorized
D) cultural, empirical

56. The ____________ perspective is based on hard economic, strategic and ____________
evaluation of the acquisition proposal and the potential value creation.
A) rational, financial
B) process, managerial
C) rational, managerial
D) process, financial

57. In the fragmentation stage, the twin problems of _________ and _________ are
overcome by the entrepreneur.
A) innovation, invention
B) innovation, management team
C) invention, finance
D) finance, management team

58. In the stage of maturity the competition in the industry is rather aggressive because there
are many ____________ and ________________________.
A) competitors, stakeholders
B) decisions, staff
C) decisions, product substitutes
D) competitors, product substitutes

59. Restructuring can be selling or closing of ___________ divisions from its core business,
thereby achieving ______________ and a stronger balance sheet.
A) any, staff reduction
B) random, lower costs
C) unprofitable, lower costs
D) unprofitable, staffing reduction

60. In organizational restructuring, the focus is on _____________ and
______________________ structures.
A) management, internal corporate governance
B) finance, internal corporate governance
C) management, staffing
D) d. finance, staffing

61. No _________________ is involved in a demerger, it is a unique mode of
________________.
A) cash transaction, divesting assets
B) stock transfer, divesting assets
C) cash transaction, profit sharing
D) stock transfer, profit sharing

62. Large institutions are often _________ to hold shares in spin-offs due to the smaller
market capitalization, _________ risk, or poor financials of the new company
A) allowed, decreased
B) forbidden, increased
C) allowed, increased
D) forbidden, decreased

63. In MBO, _____________ of the company buys the company, and they may be joined by
____________in the venture.
A) shareholders, employees
B) management, employees
C) employees, shareholders
D) employees, public

64. LBO is a financing technique of purchasing a __________ company with the help of
_____________.
A) private, debt capital
B) public or private, cash
C) public or private, debt capital
D) public, cash

65. Before embarking upon the joint venture, a __________ owner should examine the
relative advantages and disadvantages of the other methods for _________________
entry.
A) technology owner, foreign market
B) employees, local market
C) technology owner, local market
D) stock holders, local market

66. In is important to distinguish a ______________ from a contractual undertaking by two
or more parties to ____________ on and perform a specific task or one-time project.
A) joint venture, demerge
B) strategic alliance, demerge
C) joint venture, collaborate
D) strategic alliance, collaborate

67. Emirates Telecommunications Corp is popularly known in the corporate world as
_______________. In India largest share of M & A is found in ____________ industry.
A) Essar group, Information Technology
B) Essar group, Telecommunication
C) Etisalat, Information Technology
D) Etisalat, telecommunication

68. The key opportunities can be the rise in ________________ and earnings and the key
threats can be fear of _____________ and cultural dissonance.
A) profits, imbalance
B) productivity, failure
C) profits, failure
D) productivity, imbalance

69. A person, who has more than ________% of the shares, can do a creeping acquisition of
up to _______% per year without triggering open offer requirements.
A) 25, 5
B) 15, 5
C) 25, 10
D) 15, 10

70. Lobster Trap is a method used by a company wherein anyone with more than ____%
ownership is prevented from converting securities into _____ stock.
A) 10, voting
B) 15, selling
C) 10, selling
D) 15, voting

71. In __________ method, the amount at which the asset or the liability appears in the books
of the transferor company is considered to be the _________ value.
A) intrinsic value, market
B) net payment, agreed
C) net assets, agreed
D) lump sum, market

72. In intrinsic worth method, ______ are ownership securities, and if the transferee company
pays for all the shares of the transferor company, it can be said to have paid for ________
business of the transferor company.
A) cash, partial
B) cash, entire
C) shares, partial
D) shares, entire
73. Asset accumulation approach is based on the principle that the property, plant and
equipment of the company can be ___________ and the net proceeds would accumulate
to the _________ of the company once the companys liabilities are paid off.
A) merged, reserves
B) liquidated, equity
C) merged, equity
D) liquidated, reserves

74. Income-based approach determines fair market value by multiplying the
_______________ generated by the target company times a _____________.
A) net profit, capitalization
B) net profit, market value
C) benefit stream, market value
D) benefit stream, capitalization

75. Integration plan can be defined as a strategy with a _______ timeframe to work out the
process and systems of the combination of businesses to realize the optimum value of all
____________ from the collaboration.
A) fixed, synergies
B) variable, goodwill
C) fixed, goodwill
D) variable, synergies

*******************