Question

Methods of changing corporate control

When two companies get involved in each other’s business in any form, there are structural changes that take place in both companies. The following is one of the ways in which companies join forces:

A private group acquires a firm using a large amount of borrowed funds and sets guidelines for better management of the firm.

This statement best describes a   .

Digicon Inc. has been a leading producer of computer hardware, including hard drives and CD-ROM drives, for a couple of decades. More recently, Digicon entered the software market, and this division has grown to be a major part of Digicon’s overall corporate structure. The hardware and software markets are very different lines of business, and the firm has struggled at times when making strategic decisions that affect both lines. Digicon is now in the process of carving out its software division. Which method of changing corporate control does this example illustrate?

Leveraged buyout

Divestiture

Merger or acquisition

Corporate alliance

If Digicon proceeds with this carve-out, how will shares in the new software company likely be apportioned?

Shares in the new company will be distributed to shareholders in Digicon.

Shares in the new company will be sold in a public offering.

Answer 1

1]

A private group acquires a firm using a large amount of borrowed funds and sets guidelines for better management of the firm.

This statement best describes a   Leveraged buyout.

2]

Digicon is now in the process of carving out its software division. Which method of changing corporate control does this example illustrate?

Divestiture

3]

If Digicon proceeds with this carve-out, how will shares in the new software company likely be apportioned?

Shares in the new company will be sold in a public offering.