Question

In a merger or acquisition, an asset should be acquired if it: is a firm in the same line of business in which the acquirer has expertise. generates a positive net present value to the shareholders of the acquiring firm. increases the firm's market share. pays a large dividend which will provide a cash pass through to the acquirer. is a firm in a totally different line of business which will diversify the firm.

Answer 1

It generates a positive net present value to the shareholders of an acquiring firm.

Why Do Companies Merge With or Acquire Other Companies?

Mergers and acquisitions (M&As) are the acts of combining two or more companies or assets in order to stimulate growth, gain a competitive advantage, increase market share, or influence supply chains.

KEY LESSONS

• Mergers and acquisitions (M&As) are the acts of combining two or more companies or assets in order to stimulate growth, gain a competitive advantage, increase market share, or influence supply chains.

• A merger is the joining of two companies in which one of the companies ceases to exist after being absorbed by the other.

• A merger occurs when one company acquires a majority stake in the target company, which keeps its name and legal structure.

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