Series 79 practice questionmediumPrecedent Transactions - Premiums
If the average premium paid in precedent transactions is 30% and a current deal is announced at a 50% premium, which of the following is a possible implication?
- AThe target is undervalued relative to peers
- BThe buyer may be overpaying relative to market precedent✓ Correct answer
- CThe deal is likely to face no regulatory scrutiny
- DThe premium is not relevant to shareholders
Explanation
Why B — The buyer may be overpaying relative to market precedent
A premium far above the precedent average may indicate the buyer is overpaying. Premiums are very relevant to shareholders and can raise regulatory concerns if excessive (not remove them).
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