Question 1

The Coca-Cola acquisition of its bottlers failed because
A) Coca-Cola had valuable competencies.
B) the bottling business required too much capital investment and time.
C) consumers consumed less because the distribution channel changed.
D) Coca-Cola spent less money on the distribution of concentrates and syrups.

Accepted Answer

The bottling business required too much capital investment and time, which made it difficult for Coca-Cola to continue owning its bottlers. The acquisition would have required significant financial resources, and it would have taken a long time for Coca-Cola to see a return on its investment. Additionally, Coca-Cola's core competencies were in concentrate and syrup production, not bottling and distribution, which made it difficult for the company to effectively manage the bottling business.

Question 2

3M leverages its competencies in adhesives technologies to many industries, including automotive, construction, and telecommunications. This is an example of creating value by using
A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) unrelated diversification to financial synergies through portfolio management.
C) related diversification to acquire economies of scope by leveraging core competencies.
D) unrelated diversification to parenting, restructuring, and financial synergies through restructuring and parenting.

Accepted Answer

3M is leveraging its core competencies in adhesives technologies to create value across multiple industries. This is an example of related diversification, as the company is using its existing capabilities to expand into related markets and acquire economies of scope.

Question 3

At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as improvingtheir accounting activities and centralizing union negotiations. This is an example of creating value by using
A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) related diversification to acquire market power by leveraging core competencies.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) unrelated diversification to acquire synergies through corporate restructuring and parenting.

Accepted Answer

In this case, the corporate office of Cooper Industries adds value to its acquired, unrelated businesses by performing such activities as auditing their manufacturing operations, improving their accounting activities, and centralizing union negotiations. The primary potential benefits of this unrelated diversification strategy are derived largely from hierarchical relationships; that is, value creation derived from the corporate office.

Question 4

Many leading high-tech firms such as Google, Apple, and Intel have dramatically enhanced their revenues, profits, and market values through a wide variety of diversification initiatives. Which of the following is not such an initiative?
A) acquisitions
B) strategicalliances
C) stockholder enhancement
D) joint ventures

Accepted Answer

Stockholder enhancement is not a diversification initiative. It focuses on improving the value of the company's stocks through various measures such as dividends, share buybacks, and increasing earnings per share. Acquisitions, strategic alliances, and joint ventures are all diversification initiatives that involve expanding the company's operations by entering new markets or sectors.

Question 5

If a multinational firm paid too high a premium for the common stock of the company, this can lead to
A) divestiture.
B) expansion.
C) cost savings.
D) acquisition.

Accepted Answer

If a multinational firm pays too high a premium for the common stock of the company, it means they have overpaid for the acquisition of the target company. This can result in a divestiture, where the firm sells off or liquidates its newly acquired assets in order to recoup some of the losses.

Question 6

ConAgra, a diversified food producer, increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all its food divisions. This is an example of using
A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) related diversification to acquire market power by leveraging pooled negotiating power.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) unrelated diversification to acquire parenting, restructuring, and financial synergies through restructuring and parenting.

Accepted Answer

ConAgra is using its related diversification strategy to acquire market power by leveraging the pooled negotiating power generated from the centralized purchasing of packaging materials for all its divisions. This strategy allows ConAgra to have more control over suppliers and potentially negotiate better prices, which can ultimately increase their profitability.

Question 7

Firms have several choices of diversification initiatives that can be used to create value. Which of the following is not one of them?
A) using related diversification to acquire economies of scope
B) using related diversification to acquire market power
C) using unrelated diversification to acquire financial synergies
D) using related diversification to acquire parenting and restructuring synergies

Accepted Answer

They can use unrelated diversification to acquire parenting, restructuring, and financial synergies.

Question 8

If a multinational firm is unable to understand how the assets of the acquired company would fit with their own lines of business, this can lead to
A) expansion.
B) divestiture.
C) cost savings.
D) acquisition.

Accepted Answer

If a multinational firm is unable to understand how the assets of the acquired company would fit with their own lines of business, it may lead to divestiture, as the firm may have to sell off or spin off the acquired company as it does not fit with their business strategy. This can be a costly and disruptive process for the firm. Expansion, cost savings, and acquisition are not appropriate choices in this scenario.

Question 9

An acquisition that results in ________ commonly indicates that expectations were not met.
A) expansion
B) divestiture
C) cost savings
D) increased sales

Accepted Answer

A divestiture, which is the sale or disposal of a business unit or asset, is often a sign that the company did not meet its expected goals or that the acquired business was not a good fit. It may also indicate a need to tackle financial issues or shed non-core businesses.

Question 10

Diversification initiatives include all the following except
A) mergers and acquisitions.
B) strategic alliances.
C) shareholder development.
D) joint ventures.

Accepted Answer

Diversification initiatives typically involve mergers and acquisitions, strategic alliances, and joint ventures. Shareholder development, on the other hand, refers to activities aimed at increasing shareholder value through measures such as share buybacks or dividend increases, and is not typically considered a diversification initiative.

Question 11

Polaris, a manufacturer of snowmobiles, motorcycles, watercraft, and off-road vehicles, shares manufacturing operations across its businesses. It also has a corporate research and development facility and staff departments that support all the Polaris operating divisions. This is an example of creating value by using
A) related diversification to acquire market value by leveraging core competencies.
B) related diversification to acquire economies of scope by sharing.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) relateddiversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting.

Accepted Answer

Polaris is utilizing related diversification by sharing manufacturing operations and having a centralized research and development facility and staff departments across its businesses. By doing so, the company is able to acquire economies of scope and create value through operational synergies. It is not unrelated diversification as the businesses are all related to the transportation industry. It is also not utilizing corporate restructuring or parenting.

Question 12

Which of the following is not a reason for merger and acquisition failures?
A) The acquiring company pays a large premium for the common stock of the target company.
B) Top executives act in their best interests rather than those of the shareholders.
C) The acquisition leads to value creation.
D) The acquired company assets are poorly integrated into the acquiring company business lines.

Accepted Answer

The acquisition leading to value creation is a reason for merger and acquisition success, not failure. A, B, and D are all reasons for merger and acquisition failures.

Question 13

The corporate office of Novartis, formerly Ciba-Geigy, acts to improve many key activities, including resource allocation and reward and evaluation systems. This is an example of creatingvalue by using
A) related diversification to achieve value by leveraging pooled negotiating power to attain economies of scope.
B) unrelated diversification to acquire financial synergies through portfolio management.
C) related diversification to acquire market power by leveraging pooled negotiating power.
D) related diversification to acquire parenting synergies through corporate restructuring and parenting.

Accepted Answer

A corporation may diversify into unrelated businesses. Novartis has followed a successful strategy of unrelated diversification. Here, the primary potential benefits are derived largely from hierarchical relationships, that is, value creation derived from the corporate office. Examples of the latter would include leveraging some of the support activities in the value chain. Unrelated diversifiers often benefit from the best practices of sister businesses, even though their products, markets, and technologies may differ dramatically.

Question 14

If a multinational firm fails to effectively integrate their acquisitions, this can result in
A) cost savings.
B) further acquisition.
C) expansion.
D) divestiture.

Accepted Answer

If a multinational firm fails to effectively integrate their acquisitions, it can lead to divestiture, which means the company may have to sell off the acquired businesses to avoid losses or other negative consequences. Thus, D is the best choice. Cost savings, further acquisition, or expansion are unlikely outcomes of failed integration.

Question 15

In 2012, Microsoft admitted to a major ________ mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in2007
A) expansion
B) divestiture
C) acquisition
D) cost savings

Accepted Answer

Microsoft's mistake was a bad acquisition, as it had overpaid for aQuantive and was unable to generate the expected returns on investment.

Question 16

One of the reasons it is said that only the investment banker wins when a company is acquired is that they
A) assure the newly acquired company will be successful.
B) continue to work with the two companies involved.
C) collect huge up-front fees regardless of the outcome afterwards.
D) monitor the progress of both companies for long term growth.

Accepted Answer

Investment bankers typically receive large fees for their role in facilitating mergers and acquisitions, regardless of the long-term outcome for either company. This has led to the perception that investment bankers are the only ones who truly benefit from these deals.

Question 17

AOL purchased Time Warner for 114 billion USD in 2001. By 2003, AOL Time Warner had lost 150 billion USD in market valuation. This is an example of a
A) good expansion.
B) reasonable divestiture.
C) cost savings strategy.
D) failed acquisition.

Accepted Answer

The significant loss in market valuation indicates that the acquisition was a failure.

Question 18

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. Thisis an example of creating value by using
A) related diversification to acquire market power by pooling negotiating power.
B) related diversification to acquire economies of scope by leveraging core competencies.
C) related diversification to acquire market power by integrating vertically.
D) related diversification to acquire economies of scope by integrating vertically to acquire market power.

Accepted Answer

Shaw Industries is using related diversification by integrating vertically to acquire market power. By producing its own polypropylene fiber, it is able to increase its control over raw materials and reduce its dependence on external suppliers, giving it more negotiating power and control in the market.

Question 19

Corporate-level strategy focuses on
A) gaining long-term revenue.
B) gaining short-term profits.
C) decreasing business locations.
D) managing investment bankers and their interests.

Accepted Answer

Corporate-level strategy is concerned with the overall direction and scope of the entire organization to achieve long-term goals and objectives, such as gaining long-term revenue. Therefore, the best choice is A. B, C, and D do not align with the definition of corporate-level strategy.

Question 20

Yahoo purchased Tumblr for 1.1 billion in 2013 but wrote off 80 percent of the investment by the middle of 2016. They considered this to be a poor
A) expansion.
B) divestiture.
C) acquisition.
D) cost savings.

Accepted Answer

Yahoo considered the purchase of Tumblr to be an acquisition, but the fact that they wrote off 80 percent of the investment indicates that it was a poor acquisition.

Quiz 6: Corporate-Level Strategy Creating Value through Diversification

The Coca-Cola acquisition of its bottlers failed because

3M leverages its competencies in adhesives technologies to many industries, including automotive, construction, and telecommunications. This is an example of creating value by using

At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as improvingtheir accounting activities and centralizing union negotiations. This is an example of creating value by using

Many leading high-tech firms such as Google, Apple, and Intel have dramatically enhanced their revenues, profits, and market values through a wide variety of diversification initiatives. Which of the following is not such an initiative?

If a multinational firm paid too high a premium for the common stock of the company, this can lead to

ConAgra, a diversified food producer, increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all its food divisions. This is an example of using

Firms have several choices of diversification initiatives that can be used to create value. Which of the following is not one of them?

If a multinational firm is unable to understand how the assets of the acquired company would fit with their own lines of business, this can lead to

An acquisition that results in ________ commonly indicates that expectations were not met.

Diversification initiatives include all the following except

Which of the following is not a reason for merger and acquisition failures?

The corporate office of Novartis, formerly Ciba-Geigy, acts to improve many key activities, including resource allocation and reward and evaluation systems. This is an example of creatingvalue by using

If a multinational firm fails to effectively integrate their acquisitions, this can result in

In 2012, Microsoft admitted to a major ________ mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in2007

One of the reasons it is said that only the investment banker wins when a company is acquired is that they

AOL purchased Time Warner for 114 billion USD in 2001. By 2003, AOL Time Warner had lost 150 billion USD in market valuation. This is an example of a

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. Thisis an example of creating value by using

Corporate-level strategy focuses on

Yahoo purchased Tumblr for 1.1 billion in 2013 but wrote off 80 percent of the investment by the middle of 2016. They considered this to be a poor