Q.1 What is a 'merger' in corporate law?
The acquisition of one company by another
The combination of two companies into a single entity
A hostile takeover of a company
The sale of company assets to a third party
Explanation - A merger occurs when two companies combine to form a single entity, usually with shared ownership and management.
Correct answer is: The combination of two companies into a single entity
Q.2 Which of the following is a primary purpose of a due diligence process in M&A?
To determine the market value of competitors
To evaluate the financial, legal, and operational aspects of the target company
To finalize the merger agreement
To restructure the acquiring company
Explanation - Due diligence is a comprehensive appraisal of the target company to assess risks and opportunities before a merger or acquisition.
Correct answer is: To evaluate the financial, legal, and operational aspects of the target company
Q.3 What is a 'hostile takeover'?
A merger approved by both companies' boards
An acquisition opposed by the target company's management
A friendly business collaboration
A government-mandated acquisition
Explanation - A hostile takeover occurs when the acquiring company attempts to take control of the target company against the wishes of its management.
Correct answer is: An acquisition opposed by the target company's management
Q.4 Which regulatory body in India oversees mergers and acquisitions to prevent abuse of market dominance?
SEBI
RBI
Competition Commission of India (CCI)
Ministry of Corporate Affairs
Explanation - The Competition Commission of India reviews mergers and acquisitions to prevent anti-competitive practices and abuse of market power.
Correct answer is: Competition Commission of India (CCI)
Q.5 What is an 'acquisition' in the context of M&A?
A merger of equals between two companies
One company purchases another company
A joint venture between two firms
The sale of company shares on the stock market
Explanation - An acquisition occurs when one company buys another company, either fully or partially.
Correct answer is: One company purchases another company
Q.6 Which of the following is a 'friendly merger'?
When the acquiring company forces the target company to sell
When both companies agree to combine and approve the merger terms
When the government enforces a merger
When shareholders revolt against the merger
Explanation - A friendly merger occurs when both companies' management and boards approve the combination.
Correct answer is: When both companies agree to combine and approve the merger terms
Q.7 Which type of M&A transaction typically involves the purchase of company shares rather than assets?
Asset purchase
Stock purchase
Merger of equals
Leveraged buyout
Explanation - In a stock purchase, the acquiring company buys the shares of the target company, thereby gaining control of its assets and liabilities.
Correct answer is: Stock purchase
Q.8 What is a 'reverse merger'?
A merger where the smaller company becomes the controlling entity
A hostile takeover disguised as a merger
A merger of two equally sized companies
A government-forced acquisition
Explanation - In a reverse merger, a smaller or private company merges with a larger public company and gains control.
Correct answer is: A merger where the smaller company becomes the controlling entity
Q.9 Which document outlines the terms and conditions of a merger or acquisition?
Memorandum of Association
Articles of Association
Shareholders’ Agreement
Merger or Acquisition Agreement
Explanation - The merger or acquisition agreement sets the detailed terms, including purchase price, representations, warranties, and closing conditions.
Correct answer is: Merger or Acquisition Agreement
Q.10 What is a 'leveraged buyout' (LBO)?
Acquisition funded primarily with borrowed money
Merger of two companies without cash exchange
Government-forced acquisition
A cross-border merger
Explanation - A leveraged buyout is a transaction where the acquisition is financed largely through debt, using the target company's assets as collateral.
Correct answer is: Acquisition funded primarily with borrowed money
Q.11 Which of the following is a risk typically assessed during M&A due diligence?
Market trends unrelated to the target
Financial liabilities and ongoing litigation of the target company
Personal preferences of the acquiring company's CEO
Employee dress codes
Explanation - Due diligence examines financial, legal, and operational risks, including liabilities, lawsuits, and regulatory compliance.
Correct answer is: Financial liabilities and ongoing litigation of the target company
Q.12 Which financial metric is most commonly used to value a target company in M&A?
Price-to-earnings ratio
Revenue growth rate
Employee satisfaction index
Market share alone
Explanation - The price-to-earnings ratio is frequently used to estimate the value of a company, alongside other metrics like EBITDA and discounted cash flows.
Correct answer is: Price-to-earnings ratio
Q.13 What is the main difference between an asset purchase and a stock purchase in M&A?
Asset purchase buys only selected assets, stock purchase buys ownership in the company
Asset purchase is always hostile, stock purchase is always friendly
Asset purchase is cheaper, stock purchase is expensive
There is no difference
Explanation - In an asset purchase, the buyer selects specific assets and liabilities, while in a stock purchase, the buyer acquires the company's stock and ownership.
Correct answer is: Asset purchase buys only selected assets, stock purchase buys ownership in the company
Q.14 Which type of M&A can help a company enter new markets quickly?
Horizontal merger
Vertical merger
Conglomerate merger
Friendly merger
Explanation - A conglomerate merger involves combining companies in unrelated businesses, often to diversify and enter new markets.
Correct answer is: Conglomerate merger
Q.15 What is a 'share swap' in a merger?
Exchanging company shares for debt instruments
Exchanging shares of one company for shares of another in the merger
Swapping shares between employees
Trading shares on the stock market post-merger
Explanation - A share swap is a method where shareholders of one company receive shares of the other company as part of the merger consideration.
Correct answer is: Exchanging shares of one company for shares of another in the merger
Q.16 Which of the following is a common reason for companies to pursue mergers?
To reduce operational costs through synergies
To avoid paying taxes indefinitely
To dismiss employees en masse
To eliminate competitors illegally
Explanation - Companies merge to achieve synergies such as cost reduction, increased market share, and operational efficiencies.
Correct answer is: To reduce operational costs through synergies
Q.17 Which of the following is NOT typically part of the M&A process?
Valuation of target company
Due diligence
Negotiation of terms
Issuance of currency by the government
Explanation - Issuing currency is unrelated to mergers and acquisitions. M&A involves valuation, due diligence, negotiation, and regulatory approvals.
Correct answer is: Issuance of currency by the government
Q.18 What is 'synergy' in the context of mergers?
The combined company achieves greater efficiency and value than the sum of individual companies
The merging companies retain their operations independently
A hostile takeover attempt
A legal dispute post-merger
Explanation - Synergy refers to the idea that the merged entity can create more value together than the companies separately due to operational efficiencies, cost reduction, and market expansion.
Correct answer is: The combined company achieves greater efficiency and value than the sum of individual companies
Q.19 What is the role of SEBI in M&A for publicly listed companies in India?
To draft merger agreements
To review and approve takeovers and protect shareholder interests
To fund the acquisition
To manage employee transitions
Explanation - SEBI regulates the acquisition of shares in publicly listed companies to ensure fairness, transparency, and protection of shareholder rights.
Correct answer is: To review and approve takeovers and protect shareholder interests
Q.20 Which type of merger occurs between companies in the same industry and at the same production stage?
Vertical merger
Horizontal merger
Conglomerate merger
Reverse merger
Explanation - A horizontal merger is between companies in the same industry and stage of production, often to increase market share.
Correct answer is: Horizontal merger
Q.21 Which is a common legal challenge in cross-border M&A?
Foreign regulatory approvals
Choosing office furniture
Hiring local employees
Printing annual reports
Explanation - Cross-border M&A often requires compliance with foreign jurisdictions, anti-trust laws, and regulatory approvals, making legal challenges significant.
Correct answer is: Foreign regulatory approvals
Q.22 In an M&A deal, what is a 'breakup fee'?
Fee paid to terminate a merger agreement if one party backs out
Annual maintenance fee for merged companies
Salary paid to the CEO after merger
Tax payable to the government on acquisition
Explanation - A breakup fee is a contractual payment made if one party fails to complete the transaction, compensating the other party for time and costs incurred.
Correct answer is: Fee paid to terminate a merger agreement if one party backs out
Q.23 Which of the following best describes a vertical merger?
A merger of two companies at the same production stage
A merger of companies at different stages of the supply chain
A merger of unrelated businesses
A merger of subsidiaries only
Explanation - Vertical mergers combine companies at different stages of the supply chain to improve efficiency and reduce costs.
Correct answer is: A merger of companies at different stages of the supply chain
Q.24 What is the main purpose of an anti-trust review in M&A?
To maximize the profits of acquiring company
To prevent creation of monopolies and protect competition
To increase company valuation
To negotiate employee salaries
Explanation - Anti-trust or competition reviews ensure that mergers do not reduce market competition or create monopolistic situations.
Correct answer is: To prevent creation of monopolies and protect competition