2. Merger activity is greater during economic expansions than during contractions, and mergers are more likely in bull markets – markets where stock prices are rising and lots of buying occurs. However, unless we believe that companies buy other companies just because they are in a position to do so, this alone cannot explain the phenomenon. I believe merger waves occur as a result of industry shocks (regulatory changes, technological developments, etc.) . However, mergers can only happen if there is liquidity in the markets and capital is easily available, so this is why we see mergers mostly during times of economic prosperity. Industry shocks and economic conditions that lead to bull markets can also be reasons for companies to separate or seek different divisions to adapt to new market environments. These factors together are what drive mergers and cause them to occur in waves.3. Horizontal mergers are likely to create value for shareholders because they bring together companies in the same industry, so the opportunities for synergies are very high. When competition decreases, market share and pricing power increase. Horizontal mergers often create economies of scale, allowing companies to offer the same product at a lower production cost.4. The acquiring company is forced to compete with other companies, which reduces the gains its shareholders can realize from the deal. At the same time, shareholders of target companies benefit from the competition by receiving higher bids for their company.5. When acquiring intangible assets, such as intellectual capital, it is difficult to motivate the target company's employees to stay after the merger. Target employees may feel alienated or threatened…middle of the paper…ffer of $3,000,000/1 million shares = $3 per share. Compared to the current per share price of $2.50, this represents a 20% premium. The price per share of XYZ at the time of the announcement will therefore be $3, and the price per share of ABS at the time of the announcement will be $20 – 20% x $2.50 = $19.50.b. ABC's stock price would equal the combined companies' stock price, which can be calculated as ($20 + $2.50)/1.15 = $19.57. XYZ's stock price would be 0.15 x $19.56 = $2.94. The premium is therefore $2.94/$2.50 = 17.38%.c. No, that doesn't mean my answers have to be identical. The actual premium in the stock offering is lower because market prices adjust to show that ABC shareholders are paying a premium to XYZ. The announcement in part B would cause XYZ's stock price to rise and ABC's stock price to fall, so the premium falls.