Certified Financial Management Specialist Practice Exam

What is the main characteristic of consolidation mergers?

1. A brand new company is formed.

2. They primarily focus on reducing competition.

3. They are always friendly transactions.

4. They only involve financial institutions.

The correct answer is: A brand new company is formed.

The main characteristic of consolidation mergers is that a brand new company is formed. This type of merger occurs when two or more companies come together to create a completely new entity, which often results in the dissolution of the original companies. In this process, shareholders of the merging companies typically receive shares in the new company, and the original businesses cease to exist as separate legal entities. This distinct formation of a new company allows for combined resources, expertise, and capabilities, which can lead to operational efficiencies and increased market share. The integration of the businesses into one new organization is a primary goal, which serves to streamline operations and enhance competitiveness in the marketplace. The other options do not capture the essence of consolidation mergers effectively. Reducing competition is often a consideration in mergers and acquisitions more generally, but it isn't the defining feature of consolidation mergers. While many consolidation mergers are friendly, they aren't always so and can involve contentious negotiations. Furthermore, while financial institutions may engage in consolidation, this type of merger is not limited to them and can occur across various industries, making the focus on financial institutions too narrow.