1. After operating for 10 years, Zipcar, earlier this year (2013), was bought for $500 million by Avis, a leader in the car rental industry. With the acquisition of Zipcar, Avis will now surpass its direct competitors, Hertz and Enterprise.The deal is expected to be finalized in spring of this year, and it will add between $50 million and $70 million in annual synergies. This would best be described as:
Question 1 options:
a.sale to a financial buyer.
b.sale to a strategic buyer.
c.an IPO
d.distributing the cash flows
2.Richard keeps things small at his company, takes out a big salary and a large bonus each year, and issues a special class of shares that only he owns that gives him ten times the dividends the other shareholders receive. It would appear Richard is following which harvesting strategy?
Question 2 options:
a.sale to employees
b.sales to financial buyers
c.an IPO
d.distributing the firms cash flows
3.Potbelly Sandwich Works LLC is preparing to go public. Potbelly Corporation (Nasdaq: PBPB) filed a registration with the U.S. Securities and Exchange Commission. The proposed maximum offering price is $75 million. The company plans to list on the Nasdaq Global Select market under the ticker, "PBPB."The offering is being made through BofA Merrill Lynch, Goldman, Sachs and Co., Baird, William Blair, and Piper Jaffray. Potbelly is using which method of harvesting?.
Question 3 options:
a.an IPO
b.a sale to a strategic buyer
c.a bust-up LBO
d.distribution of cash flows
4.In January 2013,a group of investors acquired Happy Greetings, a producer of greeting cards, for $80 million, of which only $1 million was rumored to have been contributed by the investors. What best describes what strategy Happy Greetings participated in?
Question 4 options:
a.a bust-up LBO
b.a leveraged buyout
c.an IPO
d.a build-up LBO
1. To determine the answer to this question, we need to understand the terms and concepts mentioned in the scenario.
First, let's identify the key information:
- Zipcar was bought by Avis for $500 million.
- Avis is a leader in the car rental industry.
- The deal is expected to add between $50 million and $70 million in annual synergies.
Based on this information, we can deduce that Avis is acquiring Zipcar to gain a competitive advantage over its direct competitors, Hertz and Enterprise. A strategic buyer refers to a company acquiring another company to achieve specific strategic goals. In this case, Avis acquiring Zipcar aligns with the definition of a sale to a strategic buyer. Therefore, the correct answer is b. sale to a strategic buyer.
2. To answer this question, we need to understand the actions taken by Richard at his company.
The key information provided:
- Richard keeps things small at his company.
- He takes out a big salary and a large bonus each year.
- He issues a special class of shares that only he owns, giving him ten times the dividends the other shareholders receive.
Based on this information, Richard seems to be maximizing his personal benefits from the company. This aligns with the concept of harvesting strategies. One particular harvesting strategy is when the owner extracts value from the company by issuing special shares with higher dividends for themselves. This allows them to benefit more than other shareholders. Therefore, the correct answer is d. distributing the firm's cash flows.
3. To determine the answer to this question, we need to understand the method that Potbelly Sandwich Works LLC is using for its initial public offering (IPO).
The key information provided:
- Potbelly Sandwich Works LLC is preparing to go public.
- The offering is being made through BofA Merrill Lynch, Goldman, Sachs and Co., Baird, William Blair, and Piper Jaffray.
Based on this information, an IPO refers to the process of a private company selling its shares to the public for the first time. Since Potbelly Sandwich Works LLC is planning to go public and is using investment banks to facilitate the offering, the correct answer is a. an IPO.
4. To answer this question, we need to identify the relevant information about Happy Greetings' acquisition and determine the strategy used.
The key information provided:
- A group of investors acquired Happy Greetings for $80 million.
- Only $1 million was rumored to have been contributed by the investors.
Based on this information, it can be inferred that Happy Greetings participated in a leveraged buyout (LBO) strategy. In an LBO, a company is acquired using a significant amount of borrowed money, often with a small equity contribution from the buyers. The fact that only $1 million was contributed by the investors indicates a high level of leverage. Therefore, the correct answer is b. a leveraged buyout.