Deck 9: Diversifying, Acquiring, and Restructuring

Question 1

The mechanisms needed to obtain financial synergy in diversification are the same as those needed to obtain operational synergy.

Answer 1

False

Question 2

Diversification discount is the situation when unrelated-product diversification enables conglomerate units to beat stand-alone rivals.

Answer 2

False

Question 3

High entry barriers are a main factor in the decision to avoid diversification.

Answer 3

False

Question 4

Firms that excel in postacquisition integration tend to possess hard-to-imitate capabilities.

Question 5

The most straightforward motivation for a firm to diversify is growth opportunities in an industry.

Question 6

A nondiversified single-business firm faces less risk than a diversified firm.

Question 7

Answering why firms choose different diversification strategies does not help answer why firms differ and how they behave.

Question 8

The scope of the firm is thus determined by a comparison between MEB and MBC.

Question 9

The economic benefits of the last unit of growth (such as the last acquisition) can be defined as MBC.

Question 10

In the United States between the 1950s and 1970s MEB decreased, resulting in a decreased scope of the firm into conglomeration.

Question 11

Porter's five forces affect the structural attractiveness of an industry.

Question 12

Firms that engage in product-related diversification as well as far-flung multinational expansion are following a classic conglomerate strategy.

Question 13

Operational synergy involves economies of scale.

Question 14

In diversification, firms benefit from declining unit costs by leveraging product relatedness.

Question 15

Interest in conglomerates has declined in emerging economies due to their developed capital markets.

Question 16

By the 1980s MBC began to decrease.

Question 17

A superior product-related diversification strategy does not require a centralized and cooperative organizational architecture in order to add value.

Question 18

Not all product-related diversifiers outperform product-unrelated diversifiers.

Question 19

Instead of operational synergy, conglomerates focus on financial synergy.

Question 20

Operational synergy is a primary goal of product-unrelated diversification.

Question 21

Horizontal and vertical M&As are typically involve product-related diversification.

Question 22

Gaining access to complementary resources is an institution-based motivation for acquisitions.

Question 23

For definitional purposes, mergers and acquisitions are exactly the same thing.

Question 24

Research shows that the linkage between product diversification and firm performance seems to be inverted-U shaped.

Question 25

Engaging in thorough due diligence concerning both strategic fit and organizational fit will not guarantee successful M&As.

Question 26

Hubris often leads to acquisition premiums.

Question 27

You should understand that the nature of your industry might call for diversification, acquisitions, and restructuring.

Question 28

Traits such as goals, experiences, and behaviors of a target firm that complement those of the acquiring firm lead to good organizational fit.

Question 29

Most cross-border deals are mergers rather than acquisitions.

Question 30

You and your firm need to develop policies that avoid acquisitions and restructuring.

Question 31

Conglomerate M&As are transactions involving firms in product-related industries.

Question 32

High entry barriers often result in green-field entries as opposed to acquisitions.

Question 33

An industry whose products can be easily substituted faces more threats from other firms currently not in the same industry.

Question 34

For firms considering an acquisition, product relatedness is easy to measure.

Question 35

Product relatedness is determined exclusively by visible product linkages.

Question 36

When conglomerate units are better off competing as stand-alone entities, we call it diversification premium.

Question 37

Porter's five forces model can be used in regards to the structural attractiveness of an industry.

Question 38

Compared with acquisitions, alliances cost less and allow for opportunities to learn from working with each other before engaging in full-blown acquisitions.

Question 39

In an acquisition, shareholders of the acquiring firm typically see a greater increase in stock value than do shareholders of the target firm.

Question 40

Although the term mergers and acquisitions (M&As) is often used, in reality, acquisitions dominate the scene.

Question 41

To best add value, a product-unrelated diversifier needs to focus on:

A)​Economies of scale.
B)​Centralization.
C) ​Financial synergy.
D) ​Cooperative organizational culture.

Question 42

Managerial motives for diversification that may advance their personal careers without aligning with the interests of the firm include:

A)​Leveraging connections with foreign governments.
B)​Reducing managers' employment risk.
C) ​A focus on the core competencies of the firm.
D) ​Searching for formal marketing-supporting and marketing-opening policy changes.

Question 43

Conglomeration tends to provide all of the following EXCEPT:

A)Product-unrelated diversification.
B)Financial synergy.
C) Economies of scale.
D) Economies of scope.

Question 44

Diversification premium is the same thing as:

A)Conglomerate advantage.
B)Diversification discount.
C) Measurement of firm performance.
D) Level of product diversification.
E) Measurement of firm performance.

Question 45

A classic conglomerate is characterized by:

A)​Product-related diversification and limited geographic scope.
B)​Product-unrelated diversification and limited geographic scope.
C) ​Product-unrelated diversification and extensive geographic scope.
D) ​Product-related diversification and extensive geographic scope.

Question 46

In combining product and geographic diversification, which is not one of the four possible combinations?

A)Anchored replicators.
B)Multinational replicators.
C) Far-flung conglomerates.
D) Classic replicators.

Question 47

To add maximum value, a product-related diversifier needs to:

A)​Focus primarily on geographic diversification.
B)​Switch to a product-unrelated diversification strategy.
C) ​Foster a centralized organizational structure with a cooperative culture.
D) ​None of the above.

Question 48

In general, the costs associated with doing business abroad but maintaining product-related diversification are:

A)​Greater than the costs of managing a conglomeration while mostly staying at home.
B)​Less than the costs of managing a conglomeration while mostly staying at home.
C) ​About the same as the costs of managing a conglomeration while mostly staying at home.
D) ​Greater than the costs for all other combinations of geographic and product scope.

Question 49

At its core, diversification is essentially driven by all of the following EXCEPT:

A)Economic benefits.
B)MEB.
C) Synergy.
D) Less complicated information systems.

Question 50

One of the dangers of a centralized structure for a product-unrelated diversified conglomerate is:

A)​Information overload.
B)​Inability to spread out risk.
C) The opportunity for financial synergy.
D) ​None of the above.

Question 51

Which would be more characteristic of conglomerates?

A)"Putting one's eggs in one basket."
B)"Putting one's eggs in similar baskets."
C) "Putting one's eggs in different baskets."
D) None of the above..

Question 52

Which of the following statements is TRUE?

A)​Diversification creates value in all circumstances.
B)​Diversification can create value by leveraging certain core competencies and capabilities.
C) ​Compared with diversified firms, non-diversified single-business firms are better able to spread risk.
D) ​Firms that undertake acquisitions have mastered the art of post-acquisition integration.

Question 53

The optimum level for a firm's diversification is where:

A)​Marginal bureaucratic costs are greater than marginal economic benefit.
B)​Marginal economic benefit is less than marginal bureaucratic costs.
C) ​Total bureaucratic costs equal marginal economic benefits.
D) ​Marginal bureaucratic costs equal marginal economic benefits.

Question 54

Research regarding the relationship between product diversification and firm performance indicates that:

A)Putting your eggs in similar baskets," has emerged as a balanced way to both reduce risk and leverage synergy.
B)Performance may decrease as firms change from product-related to -unrelated.
C) The linkage between diversification and performance is inverted U shaped.
D) All of the above.

Question 55

In reality, the need for flexible diversification strategies is because of the static nature of:

A)​Industry dynamics.
B)​Resource repertoires.
C) ​Institutional conditions.
D) None of the above.

Question 56

Among the industry-based considerations that motivate a firm to diversify is:

A)​Substantial growth opportunity in an industry.
B)​Decreased bargaining power of buyers and suppliers.
C) ​Decreased bargaining power of buyers and suppliers.
D) ​Decreased bargaining power of buyers and suppliers.

Question 57

Sources of operational synergy include:

A)Technologies.
B)Marketing.
C) Manufacturing.
D) All of the above.

Question 58

Which is not true regarding geographic diversification and firm performance?

A)U-shaped relationship at low level of internationalization.
B)Initially a negative effect of international expansion on performance.
C) Inverted-U shape at moderate to high levels of internationalization.
D) Positive only at high levels of internationalization.

Question 59

Which geographic diversification is most likely to reduce the liability of foreignness?

A)Culturally adjacent countries.
B)Extensive international scope.
C) Beyond geographically neighboring countries.
D) Beyond culturally neighboring countries.

Question 60

Select the best choice: a company that is engaged in oil production, pipelines and tankers, refining, and gasoline stations has engaged in ______________ expansion.

A)Horizontal
B)Vertical
C) Hostile M&A
D) Friendly M&A

Question 61

To ensure the success of the M&A, managers need to make sure of all the following EXCEPT:

A)Be willing to walk out when premiums are too high.
B)Engage in adequate due diligence concerning strategic fit.
C) Seek organizational contrast and variety rather than organizational fit.
D) Address the concerns of multiple stakeholders.

Question 62

Sources of operation synergy:

A)Technologies.
B)Marketing.
C) Manufacturing.
D) All of the above.
E) None of the above.

Question 63

Product-related diversification involves all of the following EXCEPT:

A)A single business strategy.
B)Synergy.
C) The emphasis is on economies of scale rather than scope.
D) Increases in competitiveness.

Question 64

Which of the following is TRUE regarding restructuring?

A)The two primary ways of restructuring are downsizing and upsizing.
B)Restructuring (downsizing) is used more often by acquiring firms than by seller firms.
C) Corporate restructuring is the primary tool for reducing firm size and scope.
D) Restructuring is easier in knowledge-intensive firms than capital intensive firms.

Question 65

Which of the following is true of mergers?

A)​A new legal entity is established.
B)​A target firm becomes a unit of the acquiring firm.
C) ​Control of assets is turned over from one firm to its partner.
D) ​Mergers are much more common than acquisitions.

Question 66

Which of the following is the most likely reason Firm A would decide to forgo an acquisition and pursue an alliance instead?

A)​It wants learning opportunities without long-term commitment.
B)​It wants greater control of day-to-day operations.
C) ​It wishes to engage in a long-term enduring relationship.
D) ​It wishes to consolidate market power, reduce risks, and leverage economies of scope.

Question 67

Which of the following is true of relatedness?

A)Measurement of product relatedness is no longer debatable.
B)A "product-related" firm will be considered related regardless of the measure used.
C) Product-unrelated conglomerates are not linked by institutional relatedness.
D) Relatedness can be a common underlying dominant logic that connects various businesses in a diversified firm.

Question 68

Which of the following is TRUE regarding M&As?

A)As many as 70 percent of M&As reportedly fail.
B)On average, the acquiring firms' performance improves after acquisitions.
C) The outstanding success of M&As is due to pre- and postacquisition phases.
D) The only identifiable losers are the shareholders of target (acquired) firms.

Question 69

In addition to product relatedness as a factor when considering acquisitions, relatedness can come in the form of:

A)​Hubris.
B)​Dominant logic.
C) ​Bureaucratic costs.
D) ​Acquisition premiums.

Question 70

To improve the odds for success with its acquisitions, a firm should:

A)​Engage its rivals in a bidding war.
B)​Look for potential firms with high acquisition premiums.
C) ​Conduct due diligence concerning strategic and organizational fit.
D) ​Only acquire after participating in an alliance first.

Question 71

Which of the following motives for M&A does NOT necessarily increase shareholder value?

A)Synergy.
B)Hubris.
C) Performance.
D) Marginal economic benefits.

Question 72

Corporate scope is shaped by:

A)Industry conditions.
B)Firm capabilities.
C) Institutional constraints.
D) All of the above.

Question 73

Which of the following managerial motives for conglomerations benefits shareholders?

A)Norms.
B)Reducing managers' employment risk.
C) Organizational stability.
D) Pursuing power, prestige, and income.

Question 74

Among the following synergistic motives for M&As, which is a resource-based consideration?

A)​Learning and developing new skills.
B)​Overcoming entry barriers.
C) ​Responding to formal institutional constraints.
D) ​Reducing risk.

Question 75

With _________ M&As, Firm A, which is a gas and oil company, acquires a chemical company, a transportation company, and a financial services company.

A)​Horizontal.
B)​Vertical.
C) ​Conglomerate.
D) ​Hostile.

Question 76

Firm A is operating in a sunset industry; what is its most prudent strategic move?

A)​Engage in vertical acquisitions.
B)​Diversify out of the industry.
C) ​Acquire its rivals.
D) ​None of the above.

Question 77

Cross-border M&As:

A)​Are rare.
B)​Have increased in the past 20 years.
C) ​Have decreased in the past 20 years.
D) ​Consist mainly of mergers rather than acquisitions.

Question 78

Diversification is beneficial for all of the following situations EXCEPT:

A)Risk is spread over several (product or country) markets.
B)Core resources are leveraged.
C) The art of post-acquisition integration has been mastered.
D) Commonly shared industry skills are used.

Question 79

The manager of Firm X watches the manager of a competing firm (Firm Y) successfully pursue some vertical integration up the supply chain; Firm A's manager immediately begins acquiring companies in its supply chain. At first glance, the manager's motives appear to be:

A)​Synergistic.
B)​Risk reducers.
C) ​Hubris.
D) ​Self-interest.

Question 80

When a firm experiences a failure to integrate its M&As after the acquisition, it is most likely the result of:

A)​An inadequate number of worthy targets.
B)​Poor strategic fit.
C) ​Far-flung conglomerates.
D) ​Poor organizational fit.