Why Is It Not Sufficient to State That a Merger

question 107

Multiple Choice

Why is it not sufficient to state that a merger should occur simply because the economic gains are positive?

• A) Gains are typically of an accounting nature.
• B) Shareholders of the target may capture all gains.
• C) Merger cost should be negative after discounting.
• D) The merger's gain must also exceed its NPV.

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Definitions:

Long Call Option

An investment strategy involving the purchase of a call option, giving the buyer the right, but not the obligation, to buy a specified quantity of a security at a specified price within a certain time period.

Call Option Contract

An agreement in finance that grants the individual holding it the freedom, but not the duty, to buy various assets like stocks, bonds, or commodities at a fixed price before the deadline expires.

Buyer

An individual or entity that purchases goods or services from another party.

Seller

An individual or entity that is offering a product or service for sale.