Deck 9: Diversifying, Acquiring, and Restructuring

Question 1

Porter's five forces model can be used in regards to the structural attractiveness of an industry.

Answer 1

False

Question 2

Instead of operational synergy, conglomerates focus on financial synergy.

Answer 2

True

Question 3

Porter's five forces affect the structural attractiveness of an industry.

Answer 3

True

Question 4

An industry whose products can be easily substituted faces more threats from other firms currently not in the same industry.

Question 5

By the 1980s MBC began to decrease.

Question 6

The economic benefits of the last unit of growth such as the last acquisition) can be defined as MBC.

Question 7

Operational synergy involves economies of scale.

Question 8

Although the term mergers and acquisitions M&As) is often used, in reality, acquisitions dominate the scene.

Question 9

When conglomerate units are better off competing as stand-alone entities, we call it diversification premium.

Question 10

Diversification discount is the situation when unrelated-product diversification enables conglomerate units to beat stand-alone rivals.

Question 11

Not all product-related diversifiers outperform product-unrelated diversifiers.

Question 12

You should understand that the nature of your industry might call for diversification, acquisitions, and restructuring.

Question 13

Answering why firms choose different diversification strategies does not help answer why firms differ and how they behave.

Question 14

Interest in conglomerates has declined in emerging economies due to their developed capital markets.

Question 15

High entry barriers often result in green-field entries as opposed to acquisitions.

Question 16

In the United States between the 1950s and 1970s MEB decreased, resulting in a decreased scope of the firm into conglomeration.

Question 17

Research shows that the linkage between product diversification and firm performance seems to be inverted-U shaped.

Question 18

A superior product-related diversification strategy does not require a centralized and cooperative organizational architecture in order to add value.

Question 19

The scope of the firm is thus determined by a comparison between MEB and MBC.

Question 20

You and your firm need to develop policies that avoid acquisitions and restructuring.

Question 21

Which would be more characteristic of conglomerates?
a. "Putting one's eggs in one basket."
b. "Putting one's eggs in similar baskets."
c. "Putting one's eggs in different baskets."
d. A and B above.
e. B and C above.

Question 22

Research regarding the relationship between product diversification and firm performance indicates that:
a. Performance may increase as firms shift from single business strategies to product-related diversification.
b. Performance may decrease as firms change from product-related to -unrelated.
c. The linkage between diversification and performance is inverted U shaped.
d. "Putting your eggs in similar baskets," has emerged as a balanced way to both reduce risk and leverage synergy.
e. All of the above.

Question 23

Product-related diversification involves all of the following except:
a. A single business strategy.
b. Entries into activities that are related to a firm's existing markets and/or activities.
c. The emphasis is on economies of scale rather than scope.
d. Increases in competitiveness.
e. Synergy.

Question 24

Corporate scope is shaped by:
a. Industry conditions.
b. Firm capabilities.
c. Institutional constraints.
d. Opportunities in both developed and emerging economies.
e. All of the above.

Question 25

In combining product and geographic diversification, which is not one of the four possible combinations?
a. Anchored replicators.
b. Multinational replicators.
c. Far-flung conglomerates.
d. Classic replicators.
e. Classic conglomerates.

Question 26

Which is one motive for M&A which does not necessarily increase shareholder value?
a. Synergistic.
b. Hubris.
c. Performance.
d. A and C above.
e. None of the above.

Question 27

Which is not true regarding geographic diversification and firm performance?
a. U-shaped relationship at low level of internationalization.
b. Initially a negative effect of international expansion on performance.
c. Affected by the liability of foreignness.
d. Inverted-U shape at moderate to high levels of internationalization.
e. Positive only at high levels of internationalization.

Question 28

Diversification premium is the same thing as:
a. Conglomerate advantage.
b. Diversification discount.
c. Conglomerate disadvantage.
d. Level of product diversification.
e. Measurement of firm performance.

Question 29

Diversification can pay off in all of the following situations except:
a. Risk is spread over several product or country) markets.
b. Core resources are leveraged.
c. The art of post-acquisition integration has been mastered.
d. Commonly shared industry skills are used.
e. Firms are organized to minimize the costs.

Question 30

To ensure the success of the M&A, managers need to make sure of all the following except:
a. Be willing to walk out when premiums are too high.
b. Engage in adequate due diligence concerning strategic fit.
c. Seek organizational contrast and variety rather than organizational fit.
d. Address the concerns of multiple stakeholders.
e. Recognize that that integration management is a fulltime job.

Question 31

Which is true of relatedness?
a. Measurement of product relatedness is no longer debatable.
b. A "product-related" firm will be considered related regardless of the measure used.
c. Some argue that product relatedness refers specifically to the visible product linkages.
d. Relatedness can be a common underlying dominant logic that connects various businesses in a diversified firm.
e. Product-unrelated conglomerates are not linked by institutional relatedness.

Question 32

At its core, diversification is essentially driven by all of the following except:
a. Economic benefits.
b. Bureaucratic costs.
c. Synergy.
d. Less complicated information systems.
e. MEB.

Question 33

The following managerial motives for conglomerations do not benefit shareholders except:
a. Norms.
b. Reducing managers' employment risk.
c. Organizational stability.
d. Pursuing power, prestige, and income.
e. Empire building.

Question 34

Select the best choice: a company that is engaged in oil production, pipelines and tankers, refining, and gasoline stations has engaged in ______________ expansion.
a. Horizontal
b. Vertical
c. Conglomerate
d. Friendly M&A
e. Hostile M&A

Question 35

Sources of operation synergy:
a. Technologies.
b. Marketing.
c. Manufacturing.
d. All of the above.
e. None of the above.

Question 36

Which of the following is true regarding M&As?
a. As many as 70 percent of M&As reportedly fail.
b. On average, the acquiring firms' performance improves after acquisitions.
c. Target firms, after being acquired and becoming internal units, often perform better than when they were independent, stand-alone firms.
d. The only identifiable losers are the shareholders of target acquired) firms.
e. The outstanding success of M&As is due to pre- and post acquisition phases.

Question 37

Conglomeration tends to provide all of the following except:
a. Product-unrelated diversification.
b. Financial synergy.
c. Economies of scale.
d. Economies of scope.
e. Internal capital market.

Question 38

Which geographic diversification is most likely to reduce the liability of foreignness?
a. Culturally adjacent countries.
b. Extensive international scope.
c. Beyond geographically neighboring countries.
d. Beyond culturally neighboring countries.
e. All of the above

Question 39

Sources of operational synergy include:
a. Technologies.
b. Marketing.
c. Manufacturing.
d. All of the above.
e. None of the above.

Question 40

Which is true regarding restructuring?
a. There are two primary ways of restructuring namely downsizing and upsizing.
b. A rising level of competition within an industry normally prevents restructuring.
c. Corporate restructuring is not widely embraced around the world.
d. Restructuring is one of the first things to consider when trying to improve profitability.
e. Restructuring is easier in knowledge-intensive firms than capital intensive firms.

Question 41

In that same blog another person stated: "Decisions about diversification and acquisition are not based on the well being of the shareholder but instead on the needs of the CEO such as ego and job security. As a result, all such decisions should be submitted to a government agency for approval." Do you agree? Why or why not?

Question 42

You recently noticed a comment in a blog which stated: "By its very nature, restructuring is a violation of CSR!" How do you feel about that?

Question 43

Other comments you saw in the blog are less hostile to business. In one, the person was claiming that recent developments in financial markets suggest that it is time to revive the use of conglomerates. Based on what is happening now, do you agree? Why or why not?

Question 44

You are the CEO of International Widget and you are contemplating expanding into Lower Slobovia. You have the resources needed to start from scratch in that country but it would be possible to acquire the company that dominates the Lower Slobovian Widget industry. Which do you think would be best: start from scratch or an acquisition?

Question 45

You are the CEO of Mega Global Corporation and you are weighing a number of decisions involving diversification, acquisition, and restructuring. Long ago you were the manager of a mutual fund and you decide to make your decisions using the same approach as you used in managing that fund. How would that affect your decisions and decision process?