2021-05 BB309 Strategic Management - Course Networking Week 10 PDF

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Tutorial Chapter 7

WEE SIONG TOK (WT274)

Showing 43 of 43 Questions

current total score: 82/82 points

Question 1 Without effecve due diligence the ________.

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A. acquiring firm is likely to overpay for an acquisition B. firm may miss its opportunity to buy a well-matched company C. acquisition may deteriorate into a hostile takeover D. firm may be unable to act quickly and decisively in purchasing the target firm 1/1 Points Question 2 An acquision 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

Question 3 One of the potenal problems associated with acquisions is that the addional costs required to manage the larger firm will exceed the benefits of economies of scale and addional market power.

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A. True B. False

Question 4 Firms are more likely to enter a market through acquision when high product loyalty is present in the industry.

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A. True B. False 1/1 Points Question 5 Magma, Inc., acquired Vulcan, Inc., 3 years ago. Effecve integraon of the two companies' culture was never achieved, and the two firms' assets were not complementary. It is very likely that Magma will ________.

A. go public through an IPO B. review the due diligence information C. restructure D. review its tactical-level strategies

Question 6 Cross-border acquisions are primarily made to ________.

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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

Question 7 A merger is defined as a strategy in which one firm purchases controlling interest in another firm.

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A. True B. False

Question 8 One problem with becoming too large is that large firms ________.

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A. tend to have less market power B. have less potential for economies of scale C. become attractive takeover targets D. usually increase bureaucratic controls 1/1 Points Question 9 Most acquisions that are designed to achieve greater market power entail buying a competor, a supplier, a distributor, or a business in a highly related industry.

A. True B. False

Question 10 When the target firm does not solicit the acquiring firm's bid, it is referred to as a(n) ________.

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A. restructuring B. acquisition C. takeover or unfriendly acquisition D. leveraged buyout

Question 11 Currently, the raonale for making an acquision includes each of the following EXCEPT ________.

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A. to increase market power B. to decrease taxes paid by shareholders C. to overcome entry barriers D. to increase diversification

Question 12 One of the most effecve ways to test the feasibility of a future merger or acquision is for the firms to first engage in a strategic alliance.

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A. True B. False 1/1 Points Question 13 Downscoping represents a reducon in the number of a firm's employees and somemes in the number of its operang units, but it may or may not represent a change in the composion of businesses in the corporaon's porolio.

A. True B. False

Question 14 A(n) ________ occurs when one firm buys a controlling, or 100 percent interest, in another firm. A. merger B. acquisition

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C. spin-off D. restructuring

Question 15 When a firm becomes highly diversified through acquisions, managers oen focus on financial controls rather than strategic controls.

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A. True B. False

Question 16 Restructuring refers to changes in the composion of a firm's set of businesses or its financial structure.

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A. True B. False

Question 17 The use of high levels of debt in acquisions has contributed to ________.

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A. the increase in above-average returns earned by acquiring firms B. an increased risk of bankruptcy for acquiring firms C. the confidence of the stock market in firms issuing junk bonds D. an increase in investments that have long-term payoffs

Question 18 Market power is derived primarily from the ________.

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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

Question 19 An acquision of a firm in a highly related industry is referred to as a horizontal acquision.

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A. True B. False

Question 20 Each of the following is a raonale for acquisions EXCEPT ________.

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A. achieving greater market power B. overcoming significant barriers to entry C. increasing speed of market entry D. positioning the firm for a tactical competitive move

Question 21 The reasons why a firm would overpay for a company that it acquires include inadequate due diligence.

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A. True B. False

Question 22

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Acquisitions can contribute to a firm's competitiveness if they have the following attributes: (1) The acquired firm has assets or resources that are complementary to the acquiring firm's core business. (2) The acquisition is friendly. (3) The acquiring firm conducts effective due diligence to select target firms and evaluates the target firm's health (financial, cultural, and human resources). (4) The acquiring firm has financial slack. (5) The merged firm maintains low to moderate debt. (6) The acquiring firm has sustained and consistent emphasis on R&D and innovation. (7) The acquiring firm manages change well and is flexible and adaptable.

Question 23 Downsizing may be necessary because acquisions oen create a situaon in which the newly formed firm has duplicate organizaonal funcons such as sales, manufacturing, distribuon, human resources, and management.

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A. True B. False 1/1 Points Question 24 Tradionally, 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

Question 25 Problems associated with acquisions include all of the following EXCEPT ________.

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A. managers overly focused on acquisitions B. integration difficulties C. large or extraordinary debt D. excessive time spent on the due diligence process

Question 26 Typically, in a failed acquision, the organizaon will ________.

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A. restructure B. go into bankruptcy C. focus on building private synergy D. increase integration

Question 27

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Acquisition strategies present many potential problems. (1) Integration difficulties. It may be difficult to effectively integrate the acquiring and acquired firms due to differences in corporate culture, financial and control systems, management styles, and status of executives in the combined firms. Turnover of key personnel from the acquired firm is particularly negative. (2) Inadequate evaluation of target. Due diligence assesses where, when, and how management can drive real performance gains through an acquisition. Acquirers that fail to perform effective due diligence are likely to pay too much for the target firm. (3) Large or extraordinary debt. Acquiring firms frequently incur high debt to finance the acquisition. High debt may prevent the investment in activities such as research and development, training of employees, and marketing that are required for long-term success. High debt also increases the risk of bankruptcy and can lead to downgrading of the firm's credit rating. (4) Inability to achieve synergy. Private synergy occurs when the acquiring and target firms' assets are complementary in unique ways, making this synergy difficult for rivals to understand and imitate. Private synergy is difficult to create. Transaction costs are incurred when firms seek private synergy through acquisitions. Direct transaction costs include legal fees and investment banker charges. Indirect transaction costs include managerial time to evaluate target firms, time to complete negotiations, and the loss of key managers and employees following an acquisition. Firms often underestimate the indirect transaction costs of an acquisition. (5) Too much diversification. A high level of diversification can have a negative effect on the firm's long-term performance. For example, the scope created by diversification often causes managers to rely on financial controls rather than strategic controls because the managers cannot completely understand the business units' objectives and strategies. The focus on financial controls creates a short-term outlook among managers and they forego long-term investments. Additionally, acquisitions can become a substitute for innovation, which can be negative in the long run. (6) Managers overly focused on acquisitions. Firms that become heavily involved in acquisition activity often create an internal environment in which managers devote increasing amounts of their time and energy to analyzing and completing additional acquisitions. This detracts from other important activities, such as identifying and taking advantage of other opportunities and interacting with importance external stakeholders. Moreover, during an acquisition, the managers of the target firm are hesitant to make decisions with long-term consequences until the negotiations are completed. (7) Growing too large. Acquisitions may lead to a combined firm that is too large, requiring extensive use of bureaucratic controls. This leads to rigidity and lack of innovation, and can negatively affect performance. Very large size may exceed the efficiencies gained from economies of scale and the benefits of the additional market power that comes with size.

Question 28 Restructuring strategies are commonly used to correct or deal with the results of ineffecve mergers and acquisions.

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A. True B. False

Question 29 Which of the following is NOT one of the three main restructuring strategies?

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A. realigning B. downsizing C. downscoping D. leveraged buyouts

Question 30 What is restructuring and what are its common forms?

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Restructuring refers to changes in a firm's portfolio of businesses and/or financial structure. There are three general forms of restructuring: (1) Downsizing involves reducing the number of employees, which may include decreasing the number of operating units. (2) Downscoping entails divesting, spinning-off, or eliminating businesses that are not related to the core business. It allows the firm to focus on its core business. (3) A leveraged buyout occurs when a party (managers, employees, or an external party) buys all the assets of a (publicly traded) business, takes it private, and finances the buyout with debt. Once the transaction is complete, the company's stock is no longer publicly traded.

Question 31 A friendly acquision ________.

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A. raises the price that has to be paid for a firm B. enhances the complementarity of the two firms' assets C. facilitates the integration of the acquired and acquiring firms D. allows joint ventures to be developed

Question 32 When a firm acquires its supplier, it is engaging in a(n) ________.

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A. merger B. unrelated acquisition C. hostile takeover D. vertical acquisition

Question 33

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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 1/1 Points Question 34 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

Question 35 In a merger _________.

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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

Question 36 ________ refers to a divesture, spin-off, or some other means of eliminang businesses that are unrelated to a firm's core business.

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A. Downsizing B. Hostile takeovers C. Acquisitions D. Downscoping

Question 37 ________ typically result(s) in the acquiring firm being able to prevent valuable human resources in the acquired firm from leaving. A. Financial slack

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B. Private synergy C. Friendly acquisitions D. High compensation

Question 38 _________ is oen used when the acquiring firm paid too high a premium to acquire the target firm.

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A. Management buyout B. Leveraged buyout C. Downscoping D. Downsizing

Question 39 Takeovers are unfriendly acquisions where the target firm does not solicit the acquiring firm's bid.

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A. True B. False

Question 40 Large or extraordinary debt is defined as overpaying for an acquired firm.

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A. True B. False

Question 41 A horizontal acquision involves two firms in the same industry.

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A. True B. False

Question 42 In the final analysis, firms use merger and acquision strategies to improve their ability to create value for all stakeholders, including stockholders. A. True

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B. False

Question 43 A merger is a strategy through which two firms agree to integrate their operaons on a relavely coequal basis. A. True B. False

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