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