Chapter 6

Over the past decade, approximately _____ percent of mergers/acquisitions have failed or significantly underperformed within three years of the deal. 40 50 60 70 80

60

In a licensing arrangement, a firm agrees to pay a firm for the right to do what? To buy the firm To manufacture or sell the firm's product To outsource To form an alliance To informally work together

To manufacture or sell the firm's product

A firm can gain access to external technological capabilities through joint ventures and/or mergers with companies who possess the desired technology. True False

True

A strategic alliance is defined as a partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial. True False

True

An acquisition refers to the outright purchase of a firm or some part of a firm, whereas a merger occurs when two firms combine as relative equals. True False

True

An example of a formal form of alliance is a franchise agreement. True False

True

Franchising is one of the most rapidly growing business arrangements in the global economy. True False

True

In general, firms that pursue related mergers or acquisitions perform better than those that pursue unrelated mergers or acquisitions. True False

True

The development and maintenance of alliances have monitoring costs. True False

True

The goal in forming a strategic alliance is to develop relationships where the strategic advantages outweigh the transaction costs involved with the alliance. True False

True

Relatedness is decided by whether the firms: have the same SIC code. are in the same value chain. share managerial backgrounds. appear to be from the same industry. require similar skills to operate key functions.

require similar skills to operate key functions.

The franchisor typically provides all of the following except the: directions on running the business. operating systems. inputs into the product produced. standards for operations. royalty fee.

royalty fee.

The keys in planning for a merger or acquisition includes all of the following except: whether the merger and acquisition creates value. the evaluation of whether the technology has the ability to maintain competitive advantage. compatibility. the immediate ability to be profitable. the design of organizational systems, structures and processes.

the immediate ability to be profitable.

Second movers are successful when: the industry grows slowly. there is high a customer loyalty. there is low a customer loyalty. the technology changes quickly. the industry is fragmented.

there is low a customer loyalty.

There is always value created in a merger and an acquisition. True False

False

Which are examples of intermediate alliances? Consortia and franchises Franchises and subcontracting Joint ventures and franchising Subcontracting and joint ventures Consortia and licensing agreements

Consortia and licensing agreements

Mergers and acquisitions can allow a firm to accomplish a variety of strategic goals. Which one is not associated with the purchasing of a firm? Enter a market quickly or increase speed to market Avoid costs and risks of new product development Gain market power Earn premiums from the stock market Acquire knowledge

Earn premiums from the stock market

Franchises are typically short-term alliances. True False

False

In mergers, the parties are not considered equal partners. True False

False

In recent years, the number and amounts of mergers and acquisitions in the U.S. and around the world have leveled off. True False

False

Success rates for franchisees are slightly lower than most other forms of start-up businesses. True False

False

Which of the following is not a concern when forming an alliance? Losing your employees to the other company Finding the proper partner Getting the timing right Measuring real costs and profits from the alliance Protecting intellectual property

Losing your employees to the other company

A merger is: a combination of equals. when one firm dominates the combination. an informal arrangement. typically a better approach. the typical format of most combinations in the United States.

a combination of equals.

Market power refers to: the market demand for the product. a firm when it is large enough to shape a market's actions. the ability to advertise a product actively. the ability to attract key employees. the gathering of key resources for the firm.

a firm when it is large enough to shape a market's actions.

The outright purchase of a firm or some part of that firm is known as a(n): acquisition. merger. joint venture. franchising. alliance.

acquisition.

The duration of a subcontract is: long-term. short-term. term mixed. as long as either party finds it a benefit. as long as a contract is in force.

as long as a contract is in force.

In managing a merger or acquisition, the _____ should be involved. accounting department engineering department marketing department legal department expertise throughout the organization

expertise throughout the organization

Joint ventures and franchise agreements are both examples of: formal alliances. informal alliances. semiformal alliances. intermediate alliances. temporary alliances.

formal alliances.

The party that sells the concept of the franchise to the entrepreneur is the: franchisee. franchise broker. franchisor. corporate entrepreneur. franchise connector.

franchisor.

International alliances are: easier to successfully implement. harder to successfully implement. rare. difficult only if it involves an emergent market. only now occurring in great numbers.

harder to successfully implement.

The success of franchisees is: very risky. not used in technology focused firms. a small proportion of the United States economy. higher than most small business. not likely in international settings.

higher than most small business.

Alliances that are _____ in their formality have agreements that include clear documentation but where less interaction and agreement is required of each party in the alliance. advanced intermediate sophisticated strong strategic

intermediate

Franchising: is growing at a very slow pace. is one of the most rapidly growing business arrangements in the global economy. is very hard to get into. can be a large liability to you. requires little paperwork.

is one of the most rapidly growing business arrangements in the global economy.

Agency theory is grounded in the belief that: managers emphasize their own self-interest. managers are resources. resources are the key reason for the success of firms. relatedness is the key to success in acquisitions. technology is grounded by the founding agent.

managers emphasize their own self-interest.

Subcontracting is an example of a(n): informal alliance. formal alliance. mixture of formal and informal alliance. joint venture. licensing agreement.

mixture of formal and informal alliance.

A consortia is described as _____. organizations that invest together to create a third entity organizations joining together to share expertise and funding for development of new products or processes an organization that sells the model to conduct a business to another entity an ownership in a firm that is transferred to a new party an organization created based on the direction of the government

organizations joining together to share expertise and funding for development of new products or processes

All of the following are part of the three broad categories that Kogut summarized as the reasons for alliances except: organizational learning. cost savings. strategic behavior. profit maximization. all of these choices

profit maximization.

Firms that pursue _____ perform better than firms that pursue _____. related acquisitions; unrelated acquisitions unrelated acquisitions; related acquisitions informal alliances; acquisitions formal alliances; informal alliances licensing; informal alliances

related acquisitions; unrelated acquisitions

A(n) _____ is defined as a partnership of two more corporations to achieve strategically significant objectives that are mutually beneficial. limited partnership strategic partnership strategic alliance limited alliance informal alliance

strategic alliance

Subcontracting of a firm's activities should focus on those: that are strategically the most critical. that are the most expensive. that are the smallest part of the organization. the firm does not like to do. that concern things which do not concern the firm's competitive advantage.

that concern things which do not concern the firm's competitive advantage.

All of the following are concerns in forming an alliance except: finding the proper partner. the lack of shared vision. the allocation of resources. the timing. the communication.

the allocation of resources.

The strategic reasons a firm would look to use a merger or acquisition include all of the following except when: the firm's current product line is falling quickly behind that of its competitors. a new competitor is about to enter the market and the dynamics of the industry will change. the firm discoveries its processes are not as efficient or effective as competitors'. the firm believes its current products or processes are not going to be successful in the long run. the firm wishes to eliminate all potential competitors.

the firm wishes to eliminate all potential competitors.

In a strategic alliance, the firm must evaluate whether the strategic benefits outweigh the _____. time lost opportunities ideas not pursued value destruction transaction costs

transaction costs

A firm that is a supplier to a firm that is acquired would be a(n): related acquisition. vertical acquisition. horizontal acquisition. unrelated acquisition. joint venture.

vertical acquisition.