CFA Practice Question

There are 86 practice questions for this study session.

CFA Practice Question

Which of the following statements is (are) true with respect to takeover tactics and the resulting defenses that may be employed.

I. A proxy fight is a means of the acquiring company to completely bypass the target company's managers' opposition to the merger.
II. A tender offer is generally more difficult to win than a proxy fight.
III. A poison pill describes the situation whereby existing shareholders are given the right to purchase additional shares at a discount price if the acquirer's stake in the target company increases beyond a certain point.
IV. Historically, the shareholders of both the acquiring firm and the target firm have yielded roughly the same returns on a post merger basis.
A. II and III
B. I and III
C. III and IV
Explanation: II is incorrect because a proxy fight is generally more difficult to win than a tender offer.

IV is incorrect because historically, the shareholders of the target firm have yielded a much higher rate of return on a post merger basis than the shareholders of the acquiring firm.

User Contributed Comments 2

User Comment
pjdeschenes About I: My understanding is that management will nominate their own BOD candidates and/or oppose the proxy when sent to the S/H to vote. Any thoughts?
harrybay A proxy fight is a campaign from one or more shareholders to gather votes, often to oust directors and make an acquisition easier.
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