Deck 10: Studying Merges and Acquisitions

Question 1

Diversification of a firm's revenue stream creates immense value for shareholders.

Answer 1

False

Question 2

Revenue-enhancement opportunities are known as synergies.

Answer 2

True

Question 3

The terms mergers and acquisitions are synonymous and may be used interchangeably

Answer 3

False

Question 4

Managers may willingly overpay in mergers and acquisitions in order to maximize their own interests.

Question 5

Managers may be willing to compromise shareholder interests and make acquisitions that do nothing more than increase the size of the firm.

Question 6

Most of the motives behind mergers and acquisitions reflect shareholders' best interests.

Question 7

Hubristic managers may underestimate their own abilities to implement potential synergies.

Question 8

Acquiring firms is more likely to realize synergies when managerialism and hubris are kept in check.

Question 9

As a firm increases in size, shareholder wealth automatically increases as well.

Question 10

eBay generates revenues only through charging listing and selling fees.

Question 11

Mergers of equals are typically between firms of relatively equal size and influence.

Question 12

Executive compensation tends to be linked to firm size.

Question 13

After PayPal was acquired by eBay, it became the de facto payment standard on the biggest locus of small business in the world.

Question 14

The motives behind mergers and acquisitions can fall into a basic category called synchronicity.

Question 15

Managers may make acquisitions in order to increase earnings by diversifying the firm's revenue stream.

Question 16

When a merger takes place, there is a transfer of ownership.

Question 17

Strategy is important to every firm, but the Internet changes quarterly, which elevates strategy to a mission-critical task.

Question 18

Managers often have unsound confidence in both their valuations of acquisitions and in their ability to create value.

Question 19

Sometimes senior managers make decisions based on personal, and not shareholder, interest.

Question 20

A merger is the consolidation of one firm with another.

Question 21

Sometimes a supplier cannot or will not make an investment that is specific to an exchange with one buyer.

Question 22

Synergy occurs when the value of two firms combined is greater than the sum of the values of the two firms independently.

Question 23

If a company improves its competitive position by means of a merger or acquisition, it may be possible to derive potential market power from the deal.

Question 24

Firms have synergy when they can control prices.

Question 25

When a publicly traded firm is acquired by another firm, the purchase price is almost always less than the target firm's market value.

Question 26

Various tax benefits may provide unique financial synergies.

Question 27

If the cost of the acquisition exceeds the cost to other firms of accumulating comparable resource stocks, the transferring of resources and capabilities will not create long-term competitive advantage.

Question 28

Financial markets tend to not accept cost savings as a rationale and are less likely to reward savings-motivated mergers and acquisitions with higher stock prices.

Question 29

Transferring best practices and core competencies can create value.

Question 30

An acquisition can raise the financing costs of the target firm when the two firms' respective credit ratings are markedly different.

Question 31

Cost savings are the most common synergy.

Question 32

Mergers and acquisitions are recognized as strategies in and of themselves.

Question 33

If a target company in an acquisition has operating loss carry-forwards that cannot be fully utilized, the acquiring company can use them to reduce the tax bill of the combined firm.

Question 34

Through a merger or acquisition, firms may be able to create a bundle of resources that is unavailable to competitors.

Question 35

Primary sources of competitive advantage include resources, knowledge, and capabilities.

Question 36

If the combined resources and capabilities resulting from a merger or acquisition are complementary, the competitive advantage is usually short term in nature.

Question 37

Acquisitions increase the risk associated with entering new markets.

Question 38

Mergers may be designed to improve market access for both companies in geographic markets where individually they are weak.

Question 39

The resource-based view of competitive advantage says that one reason for acquiring another firm would be to absorb and assimilate the target's real estate holdings.

Question 40

Price competition increases when rivalry is reduced.

Question 41

In a product-expansion acquisition, one company buys another that offers essentially the same products but that has a presence in a geographic market in which the buyer has no presence.

Question 42

In a market-expansion acquisition, the acquiring company expands its product line by purchasing another company.

Question 43

A geographic roll-up occurs when a firm acquires firms that are in the same industry segment but in many different geographic arenas.

Question 44

The greater the cost in capital and time, the more synergies managers need to create from the acquisition.

Question 45

Acquisitions enable companies to accelerate their strategies.

Question 46

With a roll-up, the acquiring company is trying to maintain the nature of industry competition.

Question 47

Through acquisition, the buyer firm eliminates a competitor that would otherwise remain in the market.

Question 48

Vertical acquisitions help fill out the company's product offerings.

Question 49

A complementary acquisition increase involves a complementary business.

Question 50

Divestiture is a simple form of acquisition.

Question 51

Cultural clashes can facilitate the integration of two firms.

Question 52

Acquisitions are generally regarded as a means of managing competitive uncertainty.

Question 53

Acquisitions are typically all-or-nothing propositions.

Question 54

Acquisitions that result in diversification are used in the staging of corporate strategies.

Question 55

An acquisition ensures that a firm enters a new business with viable competitive strength.

Question 56

Upstream acquisitions are acquisitions that result when companies buy some of their customers.

Question 57

One of the primary advantages of internal development over acquisitions is speed.

Question 58

The financial success of any acquisition has a significant effect on the overall economic logic of a firm's strategy.

Question 59

Internal development is typically more expensive than acquisitions.

Question 60

Even though the logic behind each form of acquisition varies, the criteria for judging their success are the same.

Question 61

Serial acquirers are companies that engage in frequent acquisitions.

Question 62

Acquisitions are common in industries in which technology advances slowly and methodically.

Question 63

In most cases of overcapacity mergers, both companies are usually already large enough to be operating at a minimum efficient scale.

Question 64

Integration problems can arise during the idea generation and justification stages.

Question 65

An integration manager is appointed to oversee the merger of two firms.

Question 66

Mergers and acquisitions in converging industries will put firms at a disadvantage when industry boundaries erode.

Question 67

Escalation of commitment can lead to an overestimation of the value believed to be derived from the acquisition.

Question 68

When two organizations have a lot in common, cultural differences are limited.

Question 69

When integrating acquisitions, most managers tend to focus on personnel issues.

Question 70

The purchase price is almost always greater than current market value.

Question 71

The purpose of a geographic roll-up is achieving economies of scope and scale.

Question 72

Technological integration is critical in most acquisitions because of the time value of money.

Question 73

In a roll-up, the acquiring company usually replaces the management of acquired companies.

Question 74

In investor/holding company transactions, independent investors or holding companies purchase existing firms.

Question 75

Synergy value is a function of the strategic fit of the acquiring and the target firms.

Question 76

Many acquisitions fail during the integration stage.

Question 77

Executives decrease their commitment to an initiative as they proceed through a transaction.

Question 78

When industries overlap, there is a reduction in the level of mergers and acquisitions in the intersecting industries.

Question 79

The larger the target firm, the shorter the time it will take to absorb it.

Question 80

Some firms use acquisitions instead of internal research and development.