Chapter 7
Citigroup's acquisitions and mergers were driven by the concept of a "financial supermarket" (Chapter 7 Strategic Focus) and was a success since very little or restructuring was later required.
False
The acquisition of Sun Microsystems (a computer hardware producer) by Oracle (a software firm) is an example of a horizontal acquisition.
False
The intent of the owners in a whole-firm leveraged buyout may be to increase the efficiency of the bought-out firm and resell it in 5-8 years. This tends to make the managers of the boughtout firm highrisk takers, since they will probably not survive the resale and thus have little to lose.
False
The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a market.
False
China remains a challenging environment for investors and political and legal obstacles make acquisitions in China risky and difficult.
True
Research shows that in times of high or increasing stock prices, due diligence is relaxed and firms often overpay for acquisitions and the long-run performance of the newly formed form suffers.
True
Research suggests that emerging economy firms pay a higher premium than other firms when making cross-border acquisitions (Chapter 7 Strategic Focus).
True
A merger is defined as a strategy in which one firm purchases controlling interest in another firm.
False
A related acquisition involves two firms in the same industry.
False
An acquisition of a firm in a highly related industry is referred to as a horizontal acquisition.
False
An advantage of using horizontal, vertical, or related acquisitions is that they are not subject to regulatory review.
False
As noted in the Chapter 7 Strategic Focus, the current Chinese cross-border strategy is to focus on buying global brands, sales networks, and goodwill in in branded products.
False
Citigroup's acquisition strategy (Chapter 7 Strategic Focus) was effective in that it created a firm that was not overdiversified or too large, and that was able to realize synergies between its units.
False
Downscoping represents a reduction in the number of a firm's employees and sometimes in the number of its operating units, but it may or may not represent a change in the composition of businesses in the corporation's portfolio.
False
Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the acquiring firm.
False
Firms can increase their speed to market for new products by pursuing an internal product development strategy rather than an acquisition strategy.
False
Horizontal acquisitions and related acquisitions tend to contribute less to a firm's competitiveness than do unrelated acquisitions.
False
Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to integrate the firms.
False
In the current global landscape, firms from North America and Europe use the acquisition strategy more frequently than firms from other nations.
False
It is relatively common for a firm to develop new products internally to diversify its product lines.
False
Junk bonds are now used more frequently to finance acquisitions primarily because of the belief that debt disciplines managers.
False
Large or extraordinary debt is defined as overpaying for an acquired firm.
False
Private synergies exist between a potential acquisition target and all firms seeking to acquire it.
False
Research evidence suggests that horizontal acquisitions of firms with dissimilar characteristics result in higher performance levels.
False
Research has shown that the more different the acquired firm is in terms of competencies and resources than the acquiring firm, the more likely the acquisition is to be successful.
False
The outcome of downsizing, downscoping, and leveraged buyouts is higher performance.
False
The post-acquisition integration phase is less important for acquisition success than characteristics of the deal itself.
False
The relatively strong U.S. dollar has increased the interest of firms from other nations to acquire U.S. companies.
False
Top managers typically become overly focused on acquisitions because only they can perform most of the tasks involved, such as performing due diligence on the target firm.
False
United Technologies Corp. (UTC) uses acquisitions of firms such as Otis Elevator Company (elevators, escalators, and moving walkways) and Carrier Corporation (heating and air conditioning systems) as the foundation for implementing its related diversification strategy.
False
Unrelated diversified firms become overdiversified with a smaller number of business units than do firms using an related diversification strategy.
False
Wilberforce Press is a small book publishing firm in Iowa that has been owned by the same family since 1895. It is being purchased by Ozarka Publishing, another family-run business in Nebraska, which has been a specialty publisher for 77 years. Each company is known for its unique culture passed down from its founders. Executives and employees in both firms have "grown up" with their companies. Since both these companies have a long, stable history in highly related industries, this acquisition has a high probability of success.
False
A horizontal acquisition involves two firms in the same industry.
True
A major problem with buying other companies in order to gain access to their product lines is that the acquiring firm may lose its own ability to innovate.
True
A merger is a strategy through which two firms agree to integrate their operations on a relatively coequal basis.
True
Acquisitions can become a substitute for innovation in some firms and trigger future rounds of acquisitions.
True
Although Citigroup (Chapter 7 Strategic Focus) is still involved in many financial services sectors, those that will remain after its restructuring will be more solidly focused on its main business, consumer, and investment banking.
True
An acquisition occurs when one firm buys a controlling or 100 percent interest in another firm and the acquired firm becomes a subsidiary business.
True
Downscoping makes management of the firm more effective because it allows the top management team to better understand the remaining businesses.
True
Downsizing may be necessary because acquisitions often create a situation in which the newly formed firm has duplicate organizational functions such as sales, manufacturing, distribution, human resources, and management.
True
Evidence suggests that returns to shareholders of acquired firms are greater than those for acquiring firms.
True
Firms are more likely to enter a market through acquisition when high product loyalty is present in the industry.
True
Firms often use the downscoping and downsizing strategies simultaneously as did Citigroup in its restructuring (Chapter 7 Strategic Focus).
True
In the final analysis, firms use merger and acquisition strategies to improve their ability to create value for all stakeholders, including stockholders.
True
Junk bonds are a financing option through which risky acquisitions are financed with debt that provides a large potential return to bondholders.
True
Moon-in-June, a designer and manufacturer of wedding dresses, has decided to purchase a retail chain specializing in bridal wear. This purchase will be useful in gaining more market power for Moon-in-June.
True
Most acquisitions that are designed to achieve greater market power entail buying a competitor, a supplier, a distributor, or a business in a highly related industry.
True
One of the most effective ways to test the feasibility of a future merger or acquisition is for the firms to first engage in a strategic alliance.
True
One of the potential problems associated with acquisitions is that the additional costs required to manage the larger firm will exceed the benefits of economies of scale and additional market power.
True
P&G's acquisition of Gillette reshaped its competitive scope by giving P&G a stronger presence in some products for whom men are the target market.
True
Private synergies are unique to the acquired and acquiring firms and could not be developed by combining either firm's assets with another company.
True
Research evidence suggests that horizontal acquisitions result in higher performance when the firms have similar strategies, assets, and capabilities.
True
Research has shown that maintaining a low or moderate level of firm debt is critical to the success of an acquisition, even when substantial leverage was used to finance the acquisition itself.
True
Research suggests (Chapter 7 Strategic Focus) that government ownership of emerging economy firms leads to overpayment in cross-border acquisitions and that overpayment reduces value for minority shareholders (nongovernment shareholders).
True
Restructuring refers to changes in the composition of a firm's set of businesses or its financial structure.
True
Restructuring strategies are commonly used to correct or deal with the results of ineffective mergers and acquisitions.
True
Synergy is created by the efficiencies derived from economies of scale and economies of scope and by sharing resources across the businesses in the merged firm.
True
Takeovers are unfriendly acquisitions where the target firm does not solicit the acquiring firm's bid.
True
The Chapter 7 Strategic Focus shows that the first attempts at cross-border acquisitions by Chinese companies ended in failure.
True
The quickest and easiest way for a firm to diversify its portfolio of businesses is to make acquisitions.
True
The reasons why a firm would overpay for a company that it acquires include inadequate due diligence.
True
The recent financial crisis made it difficult for firms to complete "megadeals" and the slowdown in merger and acquisition has continued in 2011.
True
Top manager participation in and overseeing the activities required for making acquisitions can divert managerial attention from other matters that are necessary for long-term competitive success.
True
Traditionally, leveraged buyouts were used as a restructuring strategy to correct managerial mistakes or because the firm's managers were making decisions that primarily served their own interests rather than those of the shareholders.
True
Transaction costs resulting from an acquisition refer to the direct and indirect costs resulting from the use of acquisition strategies to create synergies.
True
Typical returns on acquisitions for acquiring firms are close to zero.
True
When a firm becomes highly diversified through acquisitions, managers often focus on financial controls rather than strategic controls.
True
When the actual results of an acquisition strategy fall short of the projected results, firms consider using restructuring strategies.
True