Question 1

An anti-takeover tactic called a ___________ is when a firm offers to buy shares of their stock from a company planning to acquire their firm at a higher price than the unfriendly company paid for it.
A) golden parachute
B) greenmail
C) poison pill
D) scorched earth

Accepted Answer

The anti-takeover tactic described is known as greenmail. A golden parachute involves offering lucrative benefits to top executives in the event of an acquisition or merger, while a poison pill is a measure that makes the target company less attractive to the acquirer. Scorched earth involves drastic actions, such as selling off valuable assets, to make the target company less attractive to the acquirer.

Question 2

Options exist when the owner of the option has
A) the obligation, but not the right to engage in a transaction.
B) the right, but not the obligation to engage in a transaction.
C) the right and obligation to engage in a transaction.
D) neither the right nor the obligation to engage in a transaction.

Accepted Answer

Options give the owner the right, but not the obligation, to engage in a transaction. Therefore, option B is the correct choice. The owner can choose whether or not to exercise the option, depending on the market conditions at the time. This flexibility makes options a valuable tool for hedging against market risk.

Question 3

Which of the following statements regarding internal development as a means of diversification is false?
A) Many companies use internal development to extend their product lines or add to their service offerings.
B) An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services.
C) The firm is able to capture the wealth created without having to "share the wealth" with alliance partners.
D) Firms can often develop products or services at a lower cost if they rely on their own resources instead of external funding.

Accepted Answer

Internal development as a means of diversification is generally slower than other means such as acquisitions or alliances. This is because the firm has to develop its own capabilities, create and test prototypes, and build distribution channels from scratch. Therefore, B is the false statement.

Question 4

A company offering local telecommunications service combines resources with an international company that manufactures digital switching equipment to research a new type of telecommunications technology. This is an example of
A) joint diversification.
B) strategic alliance.
C) divestment.
D) global integration.

Accepted Answer

The combination of resources between the local telecommunications service company and the international company that manufactures digital switching equipment represents a strategic alliance, which is a cooperative agreement between multiple firms to pursue a specific objective or set of objectives. This alliance is focused on the development of a new type of telecommunications technology. Joint diversification would involve both companies expanding into new market areas together, while divestment would involve one or both companies selling off assets or operations. Global integration would involve the coordination and consolidation of operations and resources across multiple international locations.

Question 5

Real options analysis is most appropriate when
A) the total investment required is small, but the environment is uncertain.
B) the investment required can be justified by Discounted Cash Flow (DCF) techniques.
C) a small investment up front can be followed by a series of subsequent investments.
D) there is no prospect of obtaining additional knowledge before making subsequent investments.

Accepted Answer

Real options analysis is most appropriate when a small investment up front can be followed by a series of subsequent investments. Real options analysis helps in evaluating investments with multiple decision points and the ability to modify the investment decision over time. This means that subsequent investments can be made based on the outcome of previous investments, providing flexibility and adaptability in an uncertain environment. Real options analysis is not suitable when the total investment required is small, but the environment is uncertain, as other investment evaluation techniques such as DCF can be used in such cases.

Question 6

An anti-takeover tactic called greenmail is
A) encouraged in Canada.
B) prohibited in Canada.
C) only allowed in Quebec.
D) borrowed from NAFTA.

Accepted Answer

Greenmail, which involves a company buying back its own stock at a premium price to thwart a hostile takeover bid, is prohibited in Canada as per the country's securities regulations.

Question 7

The two principal means by which firms achieve synergy through market power are: pooled negotiating power and corporate parenting.

Accepted Answer

The two principal means by which firms achieve synergy through market power are pooled negotiating power (the improvement in bargaining position relative to suppliers and customers) and vertical integration (an expansion or extension of the firm by integrating preceding or successive production processes).

Question 8

When Canadian family-controlled firm Schneider's wanted to block Maple Leaf Foods, they looked to Springfield as a
A) greenmail.
B) golden parachute.
C) white knight.
D) poison pill.

Accepted Answer

A white knight is a friendly or rival company that comes to the rescue of a target company that is facing a hostile takeover or acquisition. In this case, Schneider's looked to Springfield as a white knight to prevent the acquisition by Maple Leaf Foods, which was considered hostile.

Question 9

Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

Accepted Answer

This statement is true. Portfolio management matrices, such as the Boston Consulting Group matrix (BCG matrix), typically have two axes: market growth rate (reflecting industry or market growth) and relative market share (reflecting a business's share of the market). These two factors are used to classify a company's products or services into one of four categories: stars, question marks, cash cows, or dogs, which help guide portfolio management decisions.

Question 10

Sharing activities across business units can provide two primary benefits: cost savings and revenue enhancements.

Accepted Answer

Sharing activities across business units can lead to cost savings by avoiding duplication of efforts and resources. It can also lead to revenue enhancements by leveraging the strengths and capabilities of different units to create new products or enter new markets.

Question 11

The term "golden parachute" refers to
A) a clause requiring that huge dividend payments be made upon takeover.
B) financial inducements offered by a threatened firm to stop a hostile suitor from acquiring it.
C) managers of a firm involved in a hostile takeover approaching a third party about making the acquisition.
D) pay given to executives fired because of a takeover.

Accepted Answer

A golden parachute is typically an agreement in which an executive is promised compensation or benefits if they are fired or lose their job as a result of a takeover or merger. The purpose of the golden parachute is to provide financial security for the executive and to incentivize them to remain with the company during a potentially tumultuous acquisition period.

Question 12

Similar businesses working together or the affiliation of a business with a strong parent can strengthen a firm's bargaining position relative to suppliers and customers.

Accepted Answer

When businesses work together or are affiliated with a strong parent company, they can negotiate better terms and prices with suppliers and customers, increasing their bargaining power.

Question 13

Vertical integration is attractive when market transaction costs are higher than internal administrative costs.

Accepted Answer

Vertical integration involves bringing multiple stages of production or distribution under a single ownership structure. This can be attractive when market transaction costs, such as those associated with contracting and monitoring transactions with external parties, are higher than the administrative costs of managing the various stages of production or distribution internally. This can lead to increased efficiency and profitability.

Question 14

A newly acquired business must always have products that are similar to the existing businesses' products to benefit from the corporation's core competence.

Accepted Answer

It is not necessary for a newly acquired business to have similar products to benefit from the corporation's core competence. The new business can also have complementary products or services that can leverage the existing business's strengths and expertise.

Question 15

A publishing company that purchases a chain of bookstores to sell its books is an example of unrelated diversification.

Accepted Answer

This is an example of vertical integration, specifically forward integration, where a company expands its operations into an area that is closer to the end consumer (in this case, retailing) to sell its own products.

Question 16

Restructuring requires the corporate office to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.

Accepted Answer

Restructuring typically involves identifying and addressing issues within a company or its portfolio of businesses, often by divesting underperforming units or investing in areas with growth potential. This may involve targeting firms in struggling industries or those that have the potential to benefit from new technology or market trends.

Question 17

Loblaw, with a strong presence in Ontario and Western Canada, gained a footprint into the Quebec market by
A) establishing a clear understanding between partners.
B) acquiring Provigo.
C) not shortchanging your partner.
D) working hard to ensure a collaborative relationship between partners.

Accepted Answer

Loblaw gained a footprint into the Quebec market by acquiring Provigo.

Question 18

According to the text, the main source of synergy in unrelated diversification is the value created by the knowledge and expertise of the corporate office.

Accepted Answer

The text states that the main source of synergy in unrelated diversification is the value created by the knowledge and expertise of the corporate office. This implies that unrelated businesses can benefit from the management expertise, financial resources, and strategic planning of the corporate office, which can lead to improved performance and competitiveness.

Question 19

Portfolio management should be considered as the primary basis for formulating corporate-level strategies.

Accepted Answer

Portfolio management helps achieve a better understanding of the competitive position of an overall portfolio of businesses, to suggest strategic alternatives for each of the businesses, and to identify priorities for the allocation of resources.

Question 20

One of the risks of vertical integration is that there may be problems associated with unbalanced capacities or unfilled demands along a firm's value chain.

Accepted Answer

Unbalanced capacities or unfilled demands within a firm's value chain can result in inefficiencies, higher costs, and reduced profits, which are potential risks of vertical integration.

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

An anti-takeover tactic called a ___________ is when a firm offers to buy shares of their stock from a company planning to acquire their firm at a higher price than the unfriendly company paid for it.

Options exist when the owner of the option has

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

A company offering local telecommunications service combines resources with an international company that manufactures digital switching equipment to research a new type of telecommunications technology. This is an example of

Real options analysis is most appropriate when

An anti-takeover tactic called greenmail is