Deck 8: Strategic Acquisition and Restructuring Emea Edition

Question 1

A goal of Pfizer's proposed acquisition of Wyeth, discussed in the chapter Strategic Focus, was that Wyeth could contribute to Pfizer's revenue which was expected to decline when Lipitor came off patent.

Answer 1

True

Question 2

Firms are more likely to enter a market through acquisition when high product loyalty is present in the industry.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

The post-acquisition integration phase is less important for acquisition success than characteristics of the deal itself.

Question 5

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

Question 6

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

Question 7

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

Question 8

Junk bonds are a financing option through which risky acquisitions are financed with debt that provides a large potential return to bondholders.

Question 9

The chapter Strategic Focus illustrates the use of cross-border acquisitions by Chinese companies in the oil industry for the purpose of gaining market power.

Question 10

Horizontal acquisitions and related acquisitions tend to contribute less to a firm's competitiveness than do unrelated acquisitions.

Question 11

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

Question 12

P&G's acquisition of Gillette reshaped its competitive scope by giving P&G a stronger presence in some products for whom men are the target market.

Question 13

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

Question 14

An advantage of using horizontal, vertical, or related acquisitions is that they are not subject to regulatory review.

Question 15

The acquisition of Caremark Rx, Inc., (a pharmacy benefits manager) by CVS Corporation (a retail pharmacy) is an example of a horizontal acquisition.

Question 16

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

Question 17

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.

Question 18

United Technologies Corp. (UTC) uses acquisitions of firms such as Otis Elevator Company (elevators, escalators, and moving walkways) and Carrier Corporation (heating and air conditioning systems) as the foundation for implementing its related diversification strategy.

Question 19

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

Question 20

Because high debt increases the likelihood of bankruptcy, it can lead to a downgrade in the firm's credit rating by agencies such as Moody's and Standard & Poor's.

Question 21

When the target firm does not solicit the acquiring firm's bid, it is referred to as a(an)

A) stealth raid.
B) adversarial acquisition.
C) hostile takeover.
D) leveraged buyout.

Question 22

Top managers typically become overly focused on acquisitions because only they can perform most of the tasks involved, such as performing due diligence on the target firm.

Question 23

Top manager participation in and overseeing the activities required for making acquisitions can divert managerial attention from other matters that are necessary for long-term competitive success.

Question 24

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.

Question 25

Horizontal, vertical, and related acquisitions to build market power

A) are likely to undergo regulatory review and analysis by financial markets.
B) are rarely permitted to occur across international borders.
C) typically involve a firm purchasing one of its suppliers or distributors.
D) concentrate on capturing value at more than one stage in the value chain.

Question 26

The outcome of downsizing, downscoping, and leveraged buyouts is higher performance.

Question 27

A leveraged buyout by a third party is often the result of managerial mistakes or management that has operated in its own self-interest rather than the firm's interest.

Question 28

With an interest of refocusing on technologies that can grow its businesses, Motorola is divesting assets that are not related to its core businesses. This is an example of a downscoping strategy.

Question 29

Unrelated diversified firms become overdiversified with a smaller number of business units than do firms using a related diversification strategy.

Question 30

The intent of the owners in a whole-firm leveraged buyout may be to increase the efficiency of the bought-out firm and resell it in five to eight years. This tends to make the managers of the bought-out firm high-risk takers, since they will probably not survive the resale and thus have little to lose.

Question 31

Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to integrate the firms.

Question 32

According to analysts, the core problem of the Pfizer acquisition of Wyeth was that

A) Wyeth had been investing heavily in biotechnology and vaccines for about three decades.
B) Pfizer wanted to gain access to new products that might flow from Wyeth's biotechnology-oriented R&D investments.
C) Lipitor was a failure for Pfizer and Wyeth did not have the potential to contribute a top-selling drug.
D) it did not deal with the fact that Pfizer was struggling to develop new products in-house.

Question 33

Currently, the rationale for making an acquisition includes each of the following EXCEPT

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

Question 34

Internal product development is often viewed as

A) carrying a high risk of failure.
B) the only reliable method of generating new products for the firm.
C) a quicker method of product launch than acquisition of another firm.
D) critical to the success of biotech and pharmaceutical firms.

Question 35

Researchers have found that shareholders of acquired firms often

A) earn above-average returns.
B) earn below-average returns.
C) earn close to zero as a result of the acquisition.
D) are not affected by the acquisition.

Question 36

Market power is derived primarily from the

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 37

When the actual results of an acquisition strategy fall short of the projected results, firms consider using restructuring strategies.

Question 38

Cross-border acquisitions are typically made to

A) increase a firm's market power.
B) reduce the cost of new product development.
C) take advantage of higher education levels of labor in developed countries.
D) circumvent barriers to entry in another country.

Question 39

All of the following are correct about cross-border acquisitions EXCEPT

A) global M&A activity declined in the first half of 2009.
B) there was a significant increase in cross-border activity during the 1990s.
C) cross-border acquisitions remain popular as a viable path to firm growth and strategic competitiveness.
D) global M&A activity grew in the first half of 2009.

Question 40

When a firm acquires its supplier, it is engaging in a(an)

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

Question 41

The fastest and easiest way for a firm to diversity its portfolio of businesses is through acquisition because

A) of barriers to entry in many industries.
B) it is difficult and time intensive for companies to develop products that differ from their current product line.
C) innovation in both the acquired and the acquiring firm is enhanced by the exchange of competencies resulting from acquisition.
D) unrelated acquisitions are usually uncomplicated because the acquired firm is allowed to continue to function independently as it did before acquisition.

Question 42

Research shows that about ____ percent of mergers and acquisitions are successful.

A) 20
B) 40
C) 60
D) 80

Question 43

Evidence suggests that firms using acquisitions as a substitute for internally developed innovations

A) are able to offset the loss of research and development competencies by competencies in other areas.
B) extend their time-to-market for new product launches.
C) eventually encounter performance problems.
D) can leverage their core competencies across a broader range of products.

Question 44

A leveraged buyout refers to

A) a firm restructuring itself by selling off unrelated units of the company's portfolio.
B) a firm pursuing its core competencies by seeking to build a top management team that comes from a similar background.
C) a restructuring action whereby a party buys all of the assets of a business, financed largely with debt, and takes the firm private.
D) an action where the management of the firm and/or an external party buy all of the assets of a business financed largely with equity.

Question 45

According to the chapter Strategic Focus, the use of acquisition strategies by Chinese energy companies was primarily to

A) achieve increased market power.
B) achieve lower risk compared to developing new products.
C) achieve increased diversification.
D) reshape the firm's competitive scope.

Question 46

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

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

Question 47

Research has shown that the more ____, the greater is the probability that an acquisition will be successful.

A) related the acquired and acquiring firms are
B) diverse the resulting portfolio of competencies
C) disparate the corporate cultures
D) involved investment banking firms are in the due diligence process

Question 48

Problems associated with acquisitions include all of the following EXCEPT

A) Managers overly focused on acquisitions.
B) Integration difficulties.
C) Large or extraordinary debt.
D) Excessive time spent on the due diligence process.

Question 49

Ambrose is a scientist working for a pharmaceutical company. His company was acquired by a rival pharmaceutical company, and now it is involved in downsizing and downscoping. Ambrose is concerned about his job security, since he is actively involved in amateur sports in his community and does not wish to disrupt his current lifestyle. Ambrose's job will be most likely to be secure if

A) Ambrose's research is in a non-core activity.
B) the acquisition has been financed by junk bonds.
C) Ambrose is in a position to take a poison pill.
D) Ambrose is a key employee in the firm's primary business.

Question 50

Without effective due diligence the

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, reducing the value creating potential of the action.
D) firm may be unable to act quickly and decisively in purchasing the target firm.

Question 51

Which of the following statements is FALSE?

A) Synergy resulting from an acquisition generates gains in shareholder wealth beyond what they could achieve through diversification of their own portfolios.
B) Private synergy results when the combination of two firms yields competencies and capabilities that could not be achieved by combining with any other firm.
C) Private synergy is easy for competitors to understand and imitate.
D) Private synergy is more likely when the two firms in an acquisition have complementary assets.

Question 52

Acquisitions can become a time sink for top level managers for all the following reasons EXCEPT

A) the integration process after acquisition requires managerial attention.
B) they must prepare for acquisition negotiations.
C) managers are involved in the search for viable acquisition candidates.
D) only top managers can perform the required due diligence.

Question 53

_________ refers to a divestiture, spin-off, or some other means of eliminating businesses that are unrelated to a firm's core business.

A) Downsizing
B) Hostile takeovers
C) Shakeouts
D) Downscoping

Question 54

Typically, in a failed acquisition, the organization will

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

Question 55

How difficult is it for merger and acquisition strategies to create value and which firms benefit the most from M & A activity?

Question 56

A friendly acquisition

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 57

The expenses incurred by firms trying to create synergy through acquisition are called ____ costs.

A) differentiation
B) diversification
C) transaction
D) interaction

Question 58

South Korea's Kimbo Asiana Group's decision to divest its Daewoo Engineering & Construction Co. because its liquidity was being questioned illustrates the acquisition problem of

A) integration difficulties.
B) inability to achieve synergy.
C) large or extraordinary debt.
D) managers overly focused on acquisitions.

Question 59

Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT

A) large debt and increased financial risk.
B) failure to invest in R&D.
C) risk-averse management.
D) inefficient operations.

Question 60

The use of high levels of debt in acquisitions has contributed to

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 61

What are the differences between downscoping and downsizing and why are each used?

Question 62

What is an LBO and what have been the results of such activities?

Question 63

What is restructuring and what are its common forms?

Question 64

Identify and explain the seven reasons firms engage in an acquisition strategy.