Question 1

The downsides or limitations of mergers and acquisitions include all of the following except

Accepted Answer

There are several limitations of mergers and acquisitions, including that takeover premiums paid for acquisitions are typically very high, competing firms often can imitate any advantages or copy synergies that result from the merger or acquisition, manager egos sometimes get in the way of sound business decisions, and cultural issues may doom the intended benefits from merger and acquisition endeavors.

Question 2

According to Michael Porter,there is a tremendous allure to ________.It is the big play,the dramatic gesture.With one stroke of the pen,you can add billions to size,get a front-page story,and create excitement in markets.

Accepted Answer

There is an excitement and associated recognition of making a major acquisition. Michael Porter of Harvard University noted that there is a tremendous allure to mergers and acquisitions. It is the big play, the dramatic gesture. With one stroke of the pen, you can add billions to size, get a front-page story, and create excitement in markets.

Question 3

________ is an antitakeover tactic in which existing shareholders have the option to buy additional shares of stock at a discount to the current market price.

Accepted Answer

Poison pills are an antitakeover tactic used by a company to give shareholders certain rights in the event of a takeover by another firm. They are also known as shareholder rights plans.

Question 4

According to BNP Paribas chief economist,Julia Coronado,when businesses feel confident about the future they are more aggressive in looking for ways to grow and expand their operations.You would expect the volume of mergers and acquisitions to ________ during this period.

Accepted Answer

Exhibit 6.5 illustrates the volatility in worldwide mergers and acquisitions activity over the last several years. Several factors influence mergers and acquisitions activity. Julia Coronado, the chief economist at the investment bank BNP Paribas, highlights two of the key determinants, stating that when mergers and acquisitions pick up, that is a good sign that businesses are feeling confident enough about the future that they are willing to become aggressive, look for deals, look for ways to grow and expand their operations.

Question 5

Antitakeover tactics include all the following except

Accepted Answer

Antitakeover tactics are common, including greenmail, golden parachutes, and poison pills.

Question 6

Academic research indicates that on average acquisitions do not create shareholder value for acquiring firms.Using examples to support your response,give some explanations for this observation.

Accepted Answer

The answer of Academic research indicates that on average acquisitions...

Question 7

Which of the following statements regarding internal development as a means of diversification is false?

Accepted Answer

Potential disadvantages to internal development include that it may be time consuming and that firms may forfeit the benefits of speed that growth through mergers can provide. This may be important to a high-tech or a knowledge-based organization in fast-paced environments in which being an early mover is critical.

Question 8

Factors that directly affect the merger and acquisition environment include all the following except

Accepted Answer

The general economic conditions and level of optimism about the future influence manager willingness to take on the risk of acquisitions. Additionally, the availability of financing can influence acquisition activity. During boom periods, financing is typically widely available. In contrast, during recessionary periods, potential acquirers typically find it difficult to borrow money to finance acquisitions. Governmental policies such as regulatory actions and tax policies can also make the environment of mergers and acquisitions more or less favorable. For example, increased antitrust enforcement will decrease the ability of firms to acquire their competitors or possibly firms in closely related markets. In contrast, increased regulatory pressures for good corporate governance may leave boards of directors more open to acquisition offers. Finally, currency fluctuations can influence the rate of cross-border acquisitions, with firms in countries with stronger currencies being in a stronger position to acquire.

Question 9

The term "golden parachute" refers to

Accepted Answer

A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package.

Question 10

The antitakeover tactic,________,is when a firm offers to buy shares of their stock from a company (or individual)planning to acquire their firm at a higher price than the unfriendly company paid for it.

Accepted Answer

Greenmail is an effort by the target firm to prevent an impending takeover. When a hostile firm buys a large block of outstanding target company stock and the target company management feels that a tender offer is impending, they offer to buy the stock back from the hostile company at a higher price than the unfriendly company paid for it.

Question 11

Cooperative relationships such as ________ have potential advantages such as entering new markets,reducing manufacturing (or other)costs in the value chain,and developing and diffusing new technologies.

Accepted Answer

Strategic alliances and joint ventures have many potential advantages. Among these are entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

Question 12

Divesting of businesses can accomplish many different objectives,except

Accepted Answer

Divesting a business can accomplish many different objectives including:enabling managers to focus their efforts more directly on the core businesses of the firm, providing the firm with more resources to spend on more attractive alternatives, and raising cash to help fund existing businesses.

Question 13

Discuss and explain the three criteria that a core competence must meet if it is to create value and to provide a viable basis for synergy among the businesses in a corporation.

Accepted Answer

The answer of Discuss and explain the three criteria that...

Question 14

Which of the following is not part of a good guideline list for managing strategic alliances?

Accepted Answer

Strategic alliances and joint ventures should ensure the strengths contributed by the partners are unique; thus, synergies created can be more easily sustained over the longer term. The goal is to develop synergies between partner contributions, resulting in a win-win situation. Moreover, the partners must be compatible and willing to trust each other. These partnerships may be undertaken with or without a contract.

Question 15

In 2014,Apple purchased Beats Electronics for billion USD.While Apple valued the product portfolio of Beats,its primary aim was to pull the founders of Beats,Jimmy Iovine and Dr.Dre (aka Andrew Young),into the Apple family.This is an example of acquiring firms using acquisitions to acquire

Accepted Answer

In 2014, Apple purchased Beats Electronics for 3 billion USD. While Apple valued the product portfolio of Beats, its primary aim was to pull the founders of Beats, Jimmy Iovine and Dr. Dre (aka Andrew Young), into the Apple family. With the Apple iTunes business having hit a wall in growth, experiencing a 1 percent decline in 2013, Apple wanted to acquire new management talent to turn this business around.

Question 16

Firms that choose to diversify through internal development must develop ________ that allow them to move ________ from initial opportunity recognition to market introduction.

Accepted Answer

Firms that choose to diversify through internal development must develop capabilities that allow them to move quickly from initial opportunity recognition to market introduction.

Question 17

Internal development may be time consuming and,therefore,firms may forfeit the benefits of speed that growth through ________ and ________ can provide.

Accepted Answer

There are potential disadvantages to internal development. It may be time consuming; firms may forfeit the benefits of speed that growth through mergers or acquisitions can provide. This may be important among high-tech or a knowledge-based organization in fast-paced environments, where being an early mover is critical.

Question 18

Explain potential benefits that can be gained from vertical (or hierarchical)relationships when corporations use unrelated diversification to increase value.

Accepted Answer

The answer of Explain potential benefits that can be gained...

Question 19

Cisco Systems,a computer networking firm,has undertaken over 80 acquisitions in the last decade.It uses these acquisitions to acquire ________ that will permit it to expand its product offerings and services through the addition of the acquired technologies.

Accepted Answer

Cisco Systems, a computer networking firm, has undertaken over 80 acquisitions in the last decade. Cisco uses these acquisitions to quickly add new technology to its product offerings to meet changing customer needs. Then it uses its excellent sales force to market the new technology to its corporate customers. Cisco also provides strong incentives to the staff of acquired companies to stay on. To realize the greatest value from its acquisitions, Cisco also has learned to integrate acquired companies efficiently and effectively.

Question 20

Why do some diversification efforts pay off and others produce poor results? Why should companies even bother with diversification initiatives?

Accepted Answer

The answer of Why do some diversification efforts pay off...

Quiz 6: Corporate-level Strategy: Creating Value Through Diversification