Define each of the following terms:
a. Synergy; merger
b. Horizontal merger; vertical merger; congeneric merger; conglomerate merger
c. Friendly merger; hostile merger; defensive merger; tender offer; target company;
breakup value; acquiring company
d. Operating merger; financial merger; equity residual method; market multiple analysis
e. White knight; white squire; poison pill; golden parachute; proxy fight
f. Joint venture; corporate alliance
g. Divestiture; spin-off; leveraged buyout (LBO); carve-out; liquidation
h. Arbitrage
i. Goodwill; purchase method
ST-2 Merger value Pizza Place, a national pizza chain, is considering purchasing a smaller chain, Western Mountain Pizza. Pizza Place’s analysts project that the merger will result in incremental net cash flows of $1.5 million in Year 1, $2 million in Year 2, $3 million in Year 3, and $5 million in Year 4. In addition, Western’s Year 4 cash flows are expected to grow at a constant rate of 5 percent after Year 4. Assume all cash flows occur at the end of the year. The acquisition would be made immediately, if it were undertaken. Western’s post-merger beta is estimated to be 1.5, and its post-merger tax rate would be 40 percent
