Question

Subject: Merger and Acquisition What are the financial characteristics that make a firm vulnerable to takeover?

Subject: Merger and Acquisition

What are the financial characteristics that make a firm vulnerable to takeover?

Homework Answers

Answer #1

The financial characteristics that make firm vulenerable.

  • Low or negative earnings, making stock prices less and shares can be easily bought by the firm taking over. However is is less possible as other firm do not target firms with low earnings until and unless they beleive that they can turn them around.
  • The firms with high growth rate and small market value with high potential are mostly the target. They have a good producta nd high expected rate of return
  • The firms which are in industries that have undergone deregulation. This will lead to more flexibility na dmay translate in higher earnings, so large firms may take over these firms.
  • Liquid firms with stable cash flows
  • Firms that have low P/E ratio and positive earnings will make for value investment for the acquirer
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