1. Rationale for mergers Aa Aa Academics and practitioners have identified sever

Question

1. Rationale for mergers Aa Aa Academics and practitioners have identified several major reasons that drive firms' merger, acquisition, and breakup decisions. Correctly identify the term or motive for the merger and acquisition with its description. Description Term or Motive for Merger A highly profitable firm in a high tax bracket acquires a firm with substantial accumulated tax losses A firm acquires a foreign subsidiary in an effort to stabilize eamings. Cendant, a huge conglomerate built through several mergers, decided to create four separate companies- Century 21, Avis, Days Inn, and Orbitz-because the managers felt that they would create more value for shareholders as individual companies. A merger is driven by the managers' desire to increase the size of the firm rather than by strict economic analysis. Save & Continue

Explanation / Answer

1. to get tax benefits through acquisition: the profitable firm acquires the firm which runs with huge lossess to get benefited without paying taxes to the government.

2. merger of two firms: here the subsidiary firm is merge witht he parent firm and now the activities were in the hands of parent firm only.

3. breakups: it is the process of dividing the business into different heads and each head will be more focus on their growth and busienss plans. As a group, it will be difficult to manage all businessess on one head, and also difficult to measure its impact in market.

4. to become a big firm in the market. Here they may not have any additiona benefits through merger except becoming a large firm.

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