Question

1. an equity carve out divests a business unit with new common stock prorated to the current stock holder.

True or false?

2. One motive for a merger is arbitrage, that is, to buy a company to sell its parts.

True or false?

3. An unfriendly or hostile merger is one where the target management declares bankruptcy rather than allow the merger to take place.

True or false?

Answer 1

1. False

In a carve-out, the parent company sells some or all of the shares in its subsidiary to the public (new shareholders) through an initial public offering (IPO).Since shares are sold to the public, a carve-out also establishes a net set of shareholders in the subsidiary. In this the business is sold to outside investors not current stock holders.Therefore, the answer is false.

2. True

One of the motive for a merger is arbitrage, that is, to buy a company to sell its parts.A merger arbitrage takes advantage of market inefficiencies surrounding mergers and acquisitions.

Merger arbitrage involves simultaneously purchasing and selling the stocks of two merging companies to create "riskless" profits.

3. False

A hostile takeover occurs when one corporation, the acquiring corporation, attempts to take over another corporation, the target corporation, without the agreement of the target corporation’s board of directors.

In this, the company being purchased (Target Company) does not want to be purchased at all, or does not want to be purchased by a particular buyer (Acquirer) that is making a bid. In other words, the Acquirer intends to gain control of the Target Company and force it to agree to the sale.