Question 1

Through joint ventures, firms can directly acquire the assets and competencies of other firms.

Accepted Answer

Joint ventures represent a special case of alliances, wherein two (or more) firms contribute equity to form a new legal entity.

Question 2

What is Real Options Analysis (ROA) and how can it be used by strategic decision makers?

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Question 3

What are the primary benefits associated with unrelated diversification?

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Question 4

Strategic alliances are arrangements in which two firms join forces and form a cooperative partnership. Discuss the potential advantages of strategic alliances.

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Question 5

Upon the acquisition of Microcell, Rogers was able to immediately obtain savings.

Accepted Answer

Upon acquisition of Microcell, Rogers was able to obtain savings in several areas such as network sharing, advertising, and customer service. This was one of the main reasons for the acquisition.

Question 6

Briefly explain the advantages of vertical integration.

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Question 7

A golden parachute is a prearranged contract with managers specifying that in the event of a hostile takeover, the target firm's managers will be paid a significant severance package.

Accepted Answer

This statement is true. A golden parachute is a contractual agreement designed to protect executives and senior management members in the event of a hostile takeover or change in control. They typically involve significant payouts, benefits, and stock options that are triggered if the executives lose their jobs due to a takeover or merger.

Question 8

Greenmail is an offer by a company, threatened by takeover, to offer its stock at a reduced price to a third party.

Accepted Answer

Greenmail is actually the opposite - it is when a company being threatened by takeover buys back its own stock at a higher price than the hostile bidder is offering, in order to make the takeover less attractive.

Question 9

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

Accepted Answer

Internal development allows firms to focus solely on their own value chain without having to deal with the complexities and potential conflicts that can arise from merging multiple value chains and company cultures.

Question 10

Summarize the disadvantages of mergers and acquisitions as a means of diversification.

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Question 11

What are the primary benefits associated with related diversification?

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Question 12

Explain how transaction cost analysis can provide insights into vertical integration decisions.

Accepted Answer

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Question 13

Real options analysis helps managers make investment decisions involving large irreversible commitments of financial resources.

Accepted Answer

ROA is appropriate to use when investments can be staged whereby a smaller investment up front can be followed by subsequent investments. Real options can be applied to an investment decision that gives the company the right, but not the obligation, to make follow-on investments.

Question 14

For strategic alliances to be effective, reliance on written contracts to delimit responsibilities and enforce compliance is vital.

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Question 15

Explain the limitations of portfolio management matrices such as the growth-share matrix developed by the Boston Consulting Group (BCG).

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Question 16

An advantage of mergers and acquisitions is that they can enable a firm to rapidly enter new product markets.

Accepted Answer

Mergers and acquisitions can allow a firm to enter new product markets quickly by acquiring the resources and knowledge of another company that already operates in those markets.

Question 17

The potential advantages of strategic alliances and joint ventures include entering new markets as well as developing and diffusing new technologies.

Accepted Answer

Strategic alliances and joint ventures allow companies to share expertise, resources, and risks, which can facilitate entry into new markets and accelerate the development and diffusion of new technologies.

Question 18

What are some of the key issues to take into account when considering whether or not to vertically integrate?

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Question 19

Discuss how the potential benefits of diversification may be adversely affected by conflicts between managers' interests and shareholders' interests.

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Question 20

Risk reduction in and of itself is rarely a viable way to create shareholder value.

Accepted Answer

Risk reduction may be necessary for the long-term sustainability of a company, but it does not typically generate direct shareholder value. Shareholder value is created through revenue growth, profitability, and other positive financial performance metrics.

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