chap 7
Research has shown that approximately what percent of mergers and acquisitions, while not clear failures, produce disappointing results?
60
Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately __________ percent of innovations fail to achieve adequate returns.
88
Ambrose is a scientist working for a pharmaceutical company. His company was acquired by a rival pharmaceutical company, and now it is involved in downsizing and downscoping. Ambrose is concerned about his job security, since he is actively involved in amateur sports in his community and does not wish to disrupt his current lifestyle. Ambrose's job will MOST likely be secure if:
Ambrose is a key employee in the firm's primary business.
TableTop Industries just went through a restructuring and is experiencing reduced labor costs. It is most likely that TableTop just completed what?
An employee buyout
__________ is most often used when the goal is to refocus on the company's business.
Downscoping
__________ refers to divestiture, spin-off, or some other means of eliminating businesses that are unrelated to a firm's core businesses.
Downscoping
. __________ may be necessary because acquisitions create a situation in which the newly formed firm has excess capacity in organizational functions such as sales, manufacturing, distribution, and human resource management.
Downsizing
Which of the following is NOT a characteristic of a successful acquisition?
Investments in advertising and image building are made quickly.
__________ are unsecured obligations that are not tied to specific assets for collateral
Junk bonds
BradyHawk found itself in a bidding war and paid a 32 percent premium to acquire LasLuces in 2017 and issued more stock to raise capital This illustrates what problem associated with acquisitions?
Large or extraordinary debt
What type of buyout is most likely to lead to greater entrepreneurial activity and growth?
Management buyout
Which of the following is NOT a result of overdiversification?
Managers emphasize strategic controls rather than financial controls.
Pappelbon Enterprises recently acquired a chain of convenience stores offering both fuel and food. Pappelbon is now surprised and dismayed to find that the gas pumps have been poorly maintained and will need to be replaced at considerable expense. All of the following statements accurately reflect this EXCEPT:
Pappelbon's management was overly focused on acquisitions.
Which of the following statements is false?
Private synergy is easy for competitors to understand and imitate.
Problems associated with acquisitions include all of the following EXCEPT:
Problems associated with acquisitions include all of the following EXCEPT:
Which of the following is NOT one of the three main restructuring strategies?
Realigning
Which of the following is a reason to pursue an acquisition?
To increase speed to market
A primary reason for a firm to pursue an acquisition is to:
achieve greater market power.
. Without effective due diligence, the:
acquiring firm is likely to overpay for an acquisition.
A(n) __________ occurs when one firm buys a controlling, or 100 percent interest, in another firm.
acquisition
SpeakEasy, a U.S. software company that specializes in voice-recognition software, wishes to rapidly enter the growing technical translation software market. This market is dominated by firms making highly differentiated products. To enter this market, SpeakEasy would be best served if it considers a(n):
acquisition of a highly related firm in the technical translation market.
The term "leveraged" in leveraged buyouts refers to the:
amount of new debt incurred in buying the firm.
The use of high levels of debt in acquisitions has contributed to:
an increased risk of bankruptcy for acquiring firms.
Horizontal, vertical, and related acquisitions to build market power:
are likely to undergo regulatory review by various governmental entities.
When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is intense, the firm may wish to __________ by making an acquisition.
broaden its competitive scope
Thomas is an upper-middle-level manager for a firm that has been actively involved in acquisitions over the last 10 years. The firm has grown much larger as a result. Thomas has been dismayed to find that recently the managerial culture of the firm has been turning more and more to __________ controls.
bureaucratic
Internal product development is often viewed as:
carrying a high risk of failure.
Currently, the rationale for making an acquisition includes all of the following EXCEPT to:
decrease taxes paid by shareholders.
Compared with downsizing, __________ has (have) a more positive effect on firm performance.
downscoping
. An investor is analyzing two firms in the same industry which are basically identical. She is looking for long-term performance from her investment. Both firms are undergoing restructuring. One firm is involved in substantial downsizing, and the other firm is undertaking aggressive downscoping. The investor should invest in the:
downscoping firm because this will cause the firm to refocus on its core business.
Failing to __________ appropriately will result in too many employees doing the same work and prevent the new firm from realizing the cost synergies it anticipated.
downsize
Researchers have found that shareholders of acquired firms often:
earn above-average returns.
. In the current global landscape, firms from North America and Europe use the acquisition strategy more frequently than firms from other nations.
f
. Research suggests that horizontal acquisitions of firms with dissimilar characteristics result in higher performance levels.
f
. 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.
f
A merger is defined as a strategy in which one firm purchases controlling interest in another firm.
f
A related acquisition involves two firms in the same industry.
f
An advantage of using horizontal, vertical, or related acquisitions is that they are not subject to regulatory review.
f
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.
f
Downsizing tends to be of more long-term, or tactical, value than short-term, or strategic, value, making it an optimal restructuring option for managers with a vision for the future.
f
Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the acquiring firm.
f
Firms can increase their speed to market for new products by pursuing an internal product development strategy rather than an acquisition strategy.
f
Horizontal acquisitions and related acquisitions tend to contribute less to a firm's competitiveness than do unrelated acquisitions.
f
Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to integrate the firms.
f
It is relatively common for a firm to develop new products internally to diversify its product lines.
f
Junk bonds are now used more frequently to finance acquisitions primarily because of the belief that debt disciplines managers.
f
Large or extraordinary debt is defined as overpaying for an acquired firm.
f
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.
f
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 five to eight years. This tends to make the managers of the bought-out firm high risk takers, since they will probably not survive the resale and thus have little to lose.
f
The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a market.
f
The post-acquisition integration phase is less important for acquisition success than characteristics of the deal itself.
f
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.
f
Unrelated diversified firms become overdiversified with a smaller number of business units than do firms using a related diversification strategy.
f
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. Because both of these companies have a long, stable history in highly related industries, this acquisition has a high probability of success.
f
A friendly acquisition:
facilitates the integration of the acquired and acquiring firms.
A leveraged buyout will often result in a short-term outcome of __________, which, in turn, leads to a long-term outcome of __________.
high debt costs; higher risk
Cross-border acquisitions are critical to U.S. firms competing internationally:
if they wish to overcome entry barriers to international markets.
Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT:
inefficient operations.
Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for:
innovation.
The fastest and easiest way for a firm to diversity its portfolio of businesses is through acquisition because:
it is difficult and time intensive for companies to develop products that differ from their current product line.
Compared to internal product development, acquisitions allow:
more accurate prediction of return on investment
The presence of barriers to entry in a particular market will generally make acquisitions __________ as an entry strategy.
more likely
Acquisitions can take a lot of time for top level managers for all the following reasons EXCEPT:
only top managers can perform the required due diligence.
Cross-border acquisitions are primarily made to:
overcome barriers to entry in another country.
The __________ phase is probably the single most important determinant of shareholder value creation in mergers and acquisitions.
post-acquisition integration.
When substantial debt is used to finance acquisitions, firms with successful acquisitions:
reduce the debt quickly.
Research has shown that the more __________, the greater is the probability that an acquisition will be successful.
related the acquired and acquiring firms are
Magma, Inc., acquired Vulcan, Inc., three years ago. Effective integration of the two companies' culture was never achieved, and the two firms' assets were not complementary. It is very likely that Magma will:
restructure.
A leveraged buyout refers to a(n):
restructuring action whereby a party buys all of the assets of a business, financed largely with debt, and takes the firm private.
After a leveraged buyout, __________ typically occur(s).
selling of assets
Market power is derived primarily from the:
size of a firm and its resources and capabilities.
Claude holds a large number of shares of Bayou Beauty, a regional brewing company that is considered a likely takeover target by a major international brewer. It would probably be in Claude's financial interest if Bayou Beauty's owners:
sold the company to the larger brewer.
. 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, and human resources management.
t
. In a horizontal acquisition, similarity in characteristics support efforts to integrate the two firms.
t
. 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.
t
. Restructuring strategies are commonly used to correct or deal with the results of ineffective mergers and acquisitions.
t
A horizontal acquisition involves two firms in the same industry.
t
A merger is a strategy through which two firms agree to integrate their operations on a relatively coequal basis.
t
Acquisitions can become a substitute for innovation in some firms and can leave a firm vulnerable.
t
Among the challenges associated with integration processes is the need to link different financial and control systems.
t
An acquisition occurs when one firm buys a controlling, or 100 percent, interest in another firm and the acquired firm becomes a subsidiary business within its portfolio.
t
Company experiences show that 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.
t
Downscoping makes management of the firm more effective because it allows the top management team to better understand and manage the remaining businesses.
t
Firms are more likely to enter a market through acquisition when high product loyalty is present in the industry.
t
In terms of results, one attribute of a successful acquisition is that a firm with strong complementaries is acquired and overpayment is avoided.
t
In the final analysis, firms use merger and acquisition strategies to improve their ability to create value for all stakeholders, including stockholders.
t
Junk bonds are a financing option through which risky acquisitions are financed with debt that provides a large potential return to bondholders.
t
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.
t
One attribute of a successful acquisition is that financing is easier and less costly to obtain
t
One of the attributes of a successful acquisition is that the acquiring firm conducts effective due diligence to select target firms and evaluate the target firm's health.
t
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.
t
One of the potential problems associated with acquisitions is that the additional costs required to manage the larger firm will exceed the benefits of the economies of scale and additional market power.
t
Private synergies are unique to the acquired and acquiring firms and could not be developed by combining either firm's assets with another company.
t
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.
t
Restructuring is a strategy through which a firm changes its set of businesses or its financial structure.
t
Royalware, based in New England, wanted to establish a foothold in the Midwest, so it made an unsolicited bid to purchase TrueBlue, a similar firm based in Indiana. This is an example of a takeover.
t
Synergy is created by the efficiencies derived from economies of scale and economies of scope and by sharing resources across the businesses in the newly created firm's portfolio.
t
The reasons why a firm would overpay for a company that it acquires include inadequate due diligence.
t
Traditionally, leveraged buyouts were used as a restructuring strategy to correct for managerial mistakes or because the firm's managers were making decisions that primarily served their own interests rather than those of shareholders.
t
Transaction costs resulting from an acquisition refer to the direct and indirect costs resulting from the use of acquisition strategies to create synergies.
t
Typical returns on acquisitions for the shareholders of the acquiring firms are close to zero.
t
When a firm becomes highly diversified through acquisitions, managers often focus on financial controls rather than strategic controls.
t
When the actual results of an acquisition strategy fall short of the projected results, firms consider using restructuring strategies.
t
. When the target firm does not solicit the acquiring firm's bid, it is referred to as a(n):
takeover or unfriendly acquisition.
. A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative product, instead of adopting a strategy of developing new products in-house. All of the following arguments are correct EXCEPT:
the acquisition of Taylor should be primarily for defensive rather than strategic reasons.
Due diligence includes all of the following activities EXCEPT assessing:
the level of private synergy between the two firms.
Research results indicate all of the following EXCEPT:
the majority of acquisitions increase long-term value for the acquiring firm.
The expenses incurred by firms trying to create synergy through acquisition are called __________ costs.
transaction
In a merger:
two firms agree to integrate their operations on a relatively coequal basis.
. Sales of watches among teenagers and twenty-somethings are declining rapidly as this age group uses cellphones, iPods, and other devices to tell time. A company that specializes in selling inexpensive watches to this age group may wish to consider __________ in order to develop new products other than watches.
unrelated diversification
One problem with becoming too large is that large firms:
usually increase bureaucratic controls.
Baby Doe's, a designer and manufacturer of children's clothing, has decided to purchase a retail chain specializing in children's clothing. This purchase is a(n):
vertical acquisition.
Manny Inc. recently completed the purchase of its primary supplier. Manny intends to begin expanding the market to which the supplier's products are sold. This purchase is a(n):
vertical acquisition.
The acquisition of Sun Microsystems (a computer hardware producer) by Oracle Corporation (a software firm) is an example of a(n):
vertical acquisition.
When a firm acquires its supplier, it is engaging in a(n):
vertical acquisition.
The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms:
with insufficient diversification
