The Synergies of a Merger Add So Much Value to the Combined

question 42

True/False

The synergies of a merger add so much value to the combined firm that, upon announcement of a merger, the stock prices of both the target and the acquirer increase substantially.

---

Definitions:

Cost Economies

Refers to economies of scale where the average cost per unit of production decreases as the volume of production increases.

Horizontal Differentiation

Products differ in ways that make them better for some people and worse for others.

Vertical Differentiation

A product difference that, from everyone’s perspective, makes a product better than rival products.

Vertical Differentiation

A market condition in which products are differentiated based on quality and features, where the products are ranked from best to worst by consumers.