Question 1

A horizontal acquisition involves two firms in the same industry.

Accepted Answer

A horizontal acquisition involves the purchase of a company operating in the same industry and at the same stage of production. It is also known as a same-sector acquisition.

Question 2

Takeovers are unfriendly acquisitions where the target firm does not solicit the acquiring firm's bid.

Accepted Answer

A takeover is considered unfriendly if the target firm does not want to be acquired by the acquiring firm and does not solicit their bid.

Question 3

Facebook's acquisition strategy is similar to that of Microsoft and Google in that it allows the acquired companies to survive as independent companies (Chapter 7 Opening Case).

Accepted Answer

This statement is true. Facebook, Microsoft, and Google all use a strategy of acquiring companies but allowing them to continue operating independently. This strategy allows the acquired companies to maintain their unique culture and innovative spirit while still benefiting from the resources and support of the larger parent company.

Question 4

Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the acquiring firm.

Accepted Answer

While acquisitions can result in increased market share and synergies, research has shown that the majority of mergers and acquisitions do not ultimately create value for the acquiring company. Many companies overpay for the target company and struggle with integrating different organizational cultures and systems. As such, mergers and acquisitions often lead to unfavorable financial outcomes for the acquiring firm.

Question 5

Research evidence suggests that horizontal acquisitions result in higher performance when the firms have similar strategies, assets, and capabilities.

Accepted Answer

Research has shown that similarity in strategies, assets, and capabilities between the firms involved in a horizontal acquisition leads to higher performance. This can result in greater cost savings, efficiencies, and synergies. However, if the firms are too similar or there is too much overlap, it may also lead to antitrust concerns.

Question 6

Evidence suggests that returns to shareholders of acquired firms are greater than those for acquiring firms.

Accepted Answer

Studies have shown that, on average, acquiring firms experience a decline in shareholder returns in the years following an acquisition, while acquired firms' shareholders tend to experience a bump in returns.

Question 7

A merger is defined as a strategy in which one firm purchases controlling interest in another firm.

Accepted Answer

The answer of A merger is defined as a strategy...

Question 8

The relatively strong U.S. dollar has increased the interest of firms from other nations to acquire U.S. companies.

Accepted Answer

The answer of The relatively strong U.S. dollar has increased...

Question 9

Although the price Microsoft paid for the acquisition of Skype went up significantly from the earlier acquisition price for Skype paid by Silver Lake, the acquisition price per user went down significantly (Chapter 7 Opening Case).

Accepted Answer

The opening case in Chapter 7 states that the price per user for the Skype acquisition went down significantly from the earlier acquisition price paid by Silver Lake.

Question 10

In the final analysis, firms use merger and acquisition strategies to improve their ability to create value for all stakeholders, including stockholders.

Accepted Answer

Merger and acquisition strategies are often used by firms to increase their scale, geographic reach, or product portfolio, which can ultimately lead to increased profitability and shareholder value. However, successful mergers and acquisitions also involve creating value for other stakeholders such as employees, customers, suppliers, and the broader community.

Question 11

A merger is a strategy through which two firms agree to integrate their operations on a relatively coequal basis.

Accepted Answer

A merger is a type of business combination in which two firms mutually agree to merge and form a new company. The new company is typically a combination of the two firms on a relatively coequal basis.

Question 12

According to the Chapter 7 Opening Case, Google's acquisition strategy is different than Microsoft in that Google usually acquires earlier-stage companies such as YouTube.

Accepted Answer

The Chapter 7 Opening Case states that Google's acquisition strategy differs from Microsoft in that Google tends to acquire earlier-stage companies like YouTube.

Question 13

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.

Accepted Answer

By acquiring a retail chain, Moon-in-June can increase its presence in the bridal wear market and gain more control over the distribution of its products, which can help increase market power.

Question 14

Research evidence suggests that horizontal acquisitions of firms with dissimilar characteristics result in higher performance levels.

Accepted Answer

The answer of Research evidence suggests that horizontal acquisitions of...

Question 15

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.

Accepted Answer

Acquiring a competitor or a related business allows the acquiring company to increase its market share and expand its customer base, thereby achieving greater market power. Similarly, purchasing a supplier or distributor can help the acquiring company to gain greater control over the supply chain and reduce its costs.

Question 16

Typical returns on acquisitions for acquiring firms are close to zero.

Accepted Answer

Studies have shown that, on average, acquiring firms experience little to no return on investment from acquisitions. In fact, some studies suggest that acquiring firms may actually experience negative returns.

Question 17

The recent financial crisis made it difficult for firms to complete "megadeals" and the slowdown in merger and acquisition has continued in 2011.

Accepted Answer

The statement accurately describes the impact of the financial crisis on merger and acquisition activity and notes that the slowdown has continued in 2011.

Question 18

An acquisition occurs when one firm buys a controlling or 100% interest in another firm and the acquired firm becomes a subsidiary business.

Accepted Answer

This is the definition of an acquisition in the business world.

Question 19

An acquisition of a firm in a highly related industry is referred to as a horizontal acquisition.

Accepted Answer

The answer of An acquisition of a firm in a...

Question 20

Restructuring strategies are commonly used to correct or deal with the results of ineffective mergers and acquisitions.

Accepted Answer

The answer of Restructuring strategies are commonly used to correct...

Quiz 7: Merger and Acquisition Strategies