creation
During the recent financial crisis, M&A activity ___ , whereas in 2011, M&A activity ____. a. declined; increased. b. declined; declined. c. increased; increased. d. increased; declined.
a
Acquisitions can become a substitute for innovation in some firms and trigger future rounds of acquisitions. a. True b. False
a
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. a. True b. False
a
An acquisition occurs when one firm buys a controlling or 100 percent interest in another firm and the acquired firm becomes a subsidiary business. a. True b. False
a
Evidence suggests that returns to shareholders of acquired firms are greater than those for acquiring firms. a. True b. False
a
Firms are more likely to enter a market through acquisition when high product loyalty is present in the industry. a. True b. False
a
Firms often use the downscoping and downsizing strategies simultaneously as did Citigroup in its restructuring (Chapter 7 Strategic Focus). a. True b. False
a
China remains a challenging environment for investors and political and legal obstacles make acquisitions in China risky and difficult. a. True b. False
a
Downscoping makes management of the firm more effective because it allows the top management team to better understand the remaining businesses. a. True b. False
a
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. a. True b. False
a
Horizontal, vertical, and related acquisitions to build market power a. are likely to undergo regulatory review and analysis by financial markets. b. are rarely permitted to occur across international borders. c. typically involve a firm purchasing one of its suppliers or distributors. d. concentrate on capturing value at more than one stage in the value chain.
a
In the final analysis, firms use merger and acquisition strategies to improve their ability to create value for all stakeholders, including stockholders. a. True b. False
a
Internal product development is often viewed as a. carrying a high risk of failure. b. the only reliable method of generating new products for the firm. c. a quicker method of product launch than acquisition of another firm. d. critical to the success of biotech and pharmaceutical firms
a
Junk bonds are a financing option through which risky acquisitions are financed with debt that provides a large potential return to bondholders. a. True b. False
a
The acquisition of Sun Microsystems (a computer hardware producer) by Oracle Corporation (a software firm) is an example of a(n) a. vertical acquisition. b. unrelated acquisition. c. horizontal acquisition. d. merger of equals.
a
The quickest and easiest way for a firm to diversify its portfolio of businesses is to make acquisitions. a. True b. False
a
The reasons why a firm would overpay for a company that it acquires include inadequate due diligence. a. True b. False
a
The recent financial crisis made it difficult for firms to complete "megadeals" and the slowdown in merger and acquisition has continued in 2011. a. True b. False
a
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. a. True b. False
a
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. a. True b. False
a
Transaction costs resulting from an acquisition refer to the direct and indirect costs resulting from the use of acquisition strategies to create synergies. a. True b. False
a
Typical returns on acquisitions for acquiring firms are close to zero. a. True b. False
a
When a firm becomes highly diversified through acquisitions, managers often focus on financial controls rather than strategic controls. a. True b. False
a
When the actual results of an acquisition strategy fall short of the projected results, firms consider using restructuring strategies. a. True b. False
a
A merger is defined as a strategy in which one firm purchases controlling interest in another firm. a. True b. False
b
A primary reason for a firm to pursue an acquisition is to a. avoid increased government regulation. b. achieve greater market power. c. exit a hyper-competitive market. d. achieve greater financial returns in the short run.
b
A related acquisition involves two firms in the same industry. a. True b. False
b
A(n) _____ occurs when one firm buys a controlling, or 100 percent interest, in another firm. a. merger b. acquisition c. spin-off d. restructuring
b
Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the acquiring firm. a. True b. False
b
Firms can increase their speed to market for new products by pursuing an internal product development strategy rather than an acquisition strategy. a. True b. False
b
Horizontal acquisitions and related acquisitions tend to contribute less to a firm's competitiveness than do unrelated acquisitions. a. True b. False
b
Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to integrate the firms. a. True b. False
b
The presence of barriers to entry in a particular market will generally make acquisitions ______ as an entry strategy. a. less likely b. more likely c. prohibitive d. illegal
b
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. a. True b. False
b
All of the following statements are correct EXCEPT a. immediately after the announcement of a planned acquisition, the stock price of the majority of acquiring firms declines. b. shareholders of acquired firms often earn above-average returns from an acquisition. c. the majority of acquisitions increase long-term value for the acquiring firm. d. shareholders of acquiring firms typically earn returns from the transaction that are close to zero.
c
Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately ______ percent of innovations are imitated within 4 years after patents are obtained. a. 5 b. 10 c. 60 d. 20
c
Some research findings have shown that acquisitions typically _____ for shareholders in the acquiring firm. a. result in above-average returns b. provide approximately average returns c. result in returns near zero d. take some time to achieve private synergy, but eventually result in above-average returns
c
There are few true mergers because a. few firms have complementary resources. b. integration problems are more severe than in outright acquisitions. c. one firm usually dominates in terms of market share, size, or value of assets. d. of managerial resistance. True mergers result in significant managerial-level layoffs.
c
When the target firm does not solicit the acquiring firm's bid, it is referred to as a(n) a. stealth raid. b. adversarial acquisition. c. takeover or unfriendly acquisition. d. leveraged buyout.
c
When a firm acquires its supplier, it is engaging in a(n) a. merger. b. unrelated acquisition. c. hostile takeover. d. vertical acquisition.
d
According to the Chapter 7 Strategic Focus, research suggests that emerging market firms tend to ______ than other firms and that government ownership of those firms leads to ______ for the acquisition. a. pay a higher premium; overpayment b. pay a lower premium; overpayment c. pay a lower premium; underpayment d. pay a higher premium; underpayment
a
A horizontal acquisition involves two firms in the same industry. a. True b. False
a
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. a. True b. False
a
A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative product instead of a strategy of developing new products in-house. All of the following arguments are correct EXCEPT a. the acquisition of Taylor should be primarily for defensive rather than strategic reasons. b. research suggests that acquisition strategies are a common means of avoiding risky internal ventures. c. the outcomes of acquisitions can be estimated more easily and accurately than the outcomes for an internal product development process. d. acquisitions could become a substitute for innovation within your firm.
a
A merger is a strategy through which two firms agree to integrate their operations on a relatively coequal basis. a. True b. False
a
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. a. True b. False
a
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. a. True b. False
a
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. a. True b. False
a
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. a. True b. False
a
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. a. True b. False
a
Private synergies are unique to the acquired and acquiring firms and could not be developed by combining either firm's assets with another company. a. True b. False
a
Research evidence suggests that horizontal acquisitions result in higher performance when the firms have similar strategies, assets, and capabilities. a. True b. False
a
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. a. True b. False
a
Research has shown that the more ______, the greater is the probability that an acquisition will be successful. a. related the acquired and acquiring firms are b. diverse the resulting portfolio of competencies c. disparate the corporate cultures d. involved investment banking firms are in the due diligence process
a
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. a. True b. False
a
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). a. True b. False
a
Research suggests that emerging economy firms pay a higher premium than other firms when making cross-border acquisitions (Chapter 7 Strategic Focus). a. True b. False
a
Researchers have found that shareholders of acquired firms often a. earn above-average returns. b. earn below-average returns. c. earn close to zero as a result of the acquisition. d. are not affected by the acquisition.
a
Restructuring refers to changes in the composition of a firm's set of businesses or its financial structure. a. True b. False
a
Restructuring strategies are commonly used to correct or deal with the results of ineffective mergers and acquisitions. a. True b. False
a
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. a. True b. False
a
Takeovers are unfriendly acquisitions where the target firm does not solicit the acquiring firm's bid. a. True b. False
a
The Chapter 7 Strategic Focus shows that the first attempts at cross-border acquisitions by Chinese companies ended in failure. a. True b. False
a
According to the Chapter 7 Opening Case, the difference between Facebook's acquisition approach and the approaches of Microsoft and Google is that a. Facebook tends to acquire earlier-stage companies, whereas Microsoft and Google tend to acquire later- stage companies. b. none of Facebook's acquisitions have survived as independent companies, whereas those of Microsoft and Google have continued to operate as subsidiaries. c. Facebook's approach is to acquire earlier-stage companies, whereas Microsoft and Google tend to acquire later-stage companies. d. Microsoft's and Google's acquisitions have all been friendly, whereas Facebook's have all been hostile.
b
An acquisition of a firm in a highly related industry is referred to as a horizontal acquisition. a. True b. False
b
An advantage of using horizontal, vertical, or related acquisitions is that they are not subject to regulatory review. a. True b. False
b
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. a. True b. False
b
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. a. True b. False
b
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. a. True b. False
b
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 a. resisted selling at any price. b. sold the company to the larger brewer. c. designed a poison pill to discourage a takeover. d. looked for smaller brewers to acquire instead of selling to the larger brewer
b
Compared to internal product development, acquisitions allow a. immediate access to innovations in mature product markets. b. more accurate prediction of return on investment. c. slower market entry. d. more effective use of company core competencies
b
Currently, the rationale for making an acquisition includes each of the following EXCEPT a. to increase market power. b. to decrease taxes paid by shareholders. c. to overcome entry barriers. d. to increase diversification.
b
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. a. True b. False
b
Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for a. market discipline. b. innovation. c. risk analysis. d. international diversification
b
In a merger a. one firm buys controlling interest in another firm. b. two firms agree to integrate their operations on a relatively coequal basis. c. two firms combine to create a third separate entity. d. one firm breaks into two firms.
b
In the current global landscape, firms from North America and Europe use the acquisition strategy more frequently than firms from other nations. a. True b. False
b
It is relatively common for a firm to develop new products internally to diversify its product lines. a. True b. False
b
Junk bonds are now used more frequently to finance acquisitions primarily because of the belief that debt disciplines managers. a. True b. False
b
Large or extraordinary debt is defined as overpaying for an acquired firm. a. True b. False
b
Market power is derived primarily from the a. core competencies of the firm. b. size of a firm and its resources and capabilities. c. quality of a firm's top management team. d. depth of a firm's strategy.
b
Private synergies exist between a potential acquisition target and all firms seeking to acquire it. a. True b. False
b
Research evidence suggests that horizontal acquisitions of firms with dissimilar characteristics result in higher performance levels. a. True b. False
b
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. a. True b. False
b
The post-acquisition integration phase is less important for acquisition success than characteristics of the deal itself. a. True b. False
b
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(an) a. vertical acquisition of a firm that uses technical translation products. b. acquisition of a highly related firm in the technical translation market. c. cross-border merger, preferably with an Indian or Chinese company. d. strategy of internally developing the technical translation products needed to compete in this market.
b
The March 2011 announcement that AT&T was acquiring T-Mobile USA from Deutsche Telekom is a ________ acquisition and is intended to ______. a. vertical; increase diversification. b. horizontal; increase market power. c. vertical; overcome entry barriers. d. related; increase speed to market.
b
The acquisition of Sun Microsystems (a computer hardware producer) by Oracle (a software firm) is an example of a horizontal acquisition. a. True b. False
b
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. a. True b. False
b
The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a market. a. True b. False
b
The outcome of downsizing, downscoping, and leveraged buyouts is higher performance. a. True b. False
b
The relatively strong U.S. dollar has increased the interest of firms from other nations to acquire U.S. companies. a. True b. False
b
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. a. True b. False
b
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. a. True b. False
b
Unrelated diversified firms become overdiversified with a smaller number of business units than do firms using an related diversification strategy. a. True b. False
b
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. a. increase new product speed to market b. broaden its competitive scope c. increase its economies of scale d. overcome entry barriers
b
According to the Chapter 7 Strategic Focus, China's recent approach to acquisitions has been to focus on hard assets (e.g., mineral deposits or R&D facilities) instead of established branded products because a. China's initial acquisition activities in branded products was highly successful and it wanted to apply those successful techniques to hard assets that would create more value for Chinese firms. b. hard assets around the world had appreciated rapidly and China wanted to take advantage of that appreciation. c. China's currency had depreciated relative to currencies in developed countries making acquisition of hard assets in those countries cheaper. d. it did not always have the managerial capability to realize successful performance of branded products.
d
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) a. merger. b. unrelated acquisition. c. horizontal acquisition. d. vertical acquisition.
d
Cross-border acquisitions are critical to U.S. firms competing internationally a. if they are to develop differentiated products for markets served. b. when market share growth is the focus. c. where consolidated operations are beneficial. d. if they wish to overcome entry barriers to international markets.
d
Cross-border acquisitions are primarily made to a. reshape the firm's competitive scope. b. reduce the cost of new product development. c. take advantage of higher education levels of labor in developed countries. d. overcome barriers to entry in another country.
d
Manny Inc. recently completed the purchase of its primary supplier. Manny intends to begin expanding the market to which the suppliers' products are sold. This purchase is a(n) a. merger. b. unrelated acquisition. c. horizontal acquisition. d. vertical acquisition.
d