Question 1

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

Accepted Answer

Downscoping refers to the process of divestiture, spin-off, or elimination of businesses that are unrelated to a firm's core business. Downscoping allows the firm to focus on its core competencies and improve efficiency and profitability.

Question 2

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

Accepted Answer

The answer of Identify and explain the seven reasons firms...

Question 3

Describe how an acquisition program can result in managerial time and energy absorption.

Accepted Answer

The answer of Describe how an acquisition program can result...

Question 4

After a leveraged buyout, ____ typically occur(s).

Accepted Answer

After a leveraged buyout, selling of assets typically occur as the acquired company needs to generate cash to pay down the debt used to buy it.

Question 5

The term "leverage" in leveraged buyouts refers to the

Accepted Answer

The term "leverage" in leveraged buyouts refers to the amount of new debt incurred in buying the firm. The acquisition is financed largely by borrowing, which creates leverage or financial risk for the acquiring firm.

Question 6

An investor is analyzing two firms in the same industry. She is looking for long term performance from her investment. Both firms are basically identical except one firm is involved in substantial downsizing and the other firm is undertaking aggressive downscoping. The investor should invest in the

Accepted Answer

The investor should invest in the downscoping firm because this strategy involves focusing on the firm's core businesses, which will result in reduced debt costs and the emphasis on strategic controls. This will improve the long term performance of the firm and benefit the investor. Additionally, downsizing is a short-term strategy focused on reducing costs and may not result in the same long term gains as downscoping.

Question 7

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

Accepted Answer

The answer of Which of the following is NOT one...

Question 8

___________ is often used when the acquiring firm paid too high a premium to acquire the target firm.

Accepted Answer

The answer of ___________ is often used when the acquiring...

Question 9

Describe the seven problems in achieving a successful acquisition.

Accepted Answer

The answer of Describe the seven problems in achieving a...

Question 10

How have changing conditions in the external environment influenced the type of M & A activity firms pursue?

Accepted Answer

The answer of How have changing conditions in the external...

Question 11

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

Accepted Answer

The answer of How difficult is it for merger and...

Question 12

What are the attributes of a successful acquisition program?

Accepted Answer

The answer of What are the attributes of a successful...

Question 13

___________ may be necessary because acquisitions create a situation in which the newly formed form has duplicate organizational functions such as sales, manufacturing, distribution, and human resource management.

Accepted Answer

Downsizing may be necessary because acquisitions create a situation in which the newly formed form has duplicate organizational functions such as sales, manufacturing, distribution, and human resource management. Downscoping is the divestiture or spin-off of a company's unrelated businesses rather than downsizing. Management buyout and leveraged buyout refer to the way in which a company is acquired rather than the post-acquisition organizational changes needed.

Question 14

What is restructuring and what are its common forms?

Accepted Answer

The answer of What is restructuring and what are its...

Question 15

A leveraged buyout refers to

Accepted Answer

A leveraged buyout is where a party buys all of the assets of a business, financed largely with debt, and takes the firm private. It is a restructuring action that aims to maximize financial returns by using borrowed capital to buy the company's outstanding shares, taking it off the public market, and restructuring it to make it more profitable. Therefore, option C is the best answer.

Question 16

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

Accepted Answer

Ambrose's job will be most secure if he is a key employee in the firm's primary business, as this indicates that his skills and work are essential to the company's core operations. If he is working in a non-core activity, his position may be more easily eliminated. If the acquisition has been financed by junk bonds, the company may be financially unstable and more likely to downsize. The option of taking a poison pill (a defensive strategy to deter hostile takeovers) is not relevant to job security.

Question 17

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

Accepted Answer

The answer of Whole-firm LBOs tend to result in all...

Question 18

Failing to ____________ appropriately will result in too many employees doing the same work and prevent the new firm from realizing the cost synergies it anticipated.

Accepted Answer

The answer of Failing to ____________ appropriately will result in...

Question 19

Compared with downsizing, ____ has (have) a more positive effect on firm performance.

Accepted Answer

The answer of Compared with downsizing, ____ has (have) a...

Question 20

Magma, Inc., acquired Vulcan, Inc., three years ago. Effective integration of the two companies' culture was never achieved, and the two firms' assets were not complementary. It is very likely that Magma will

Accepted Answer

Given the lack of successful integration and complementary assets, it is most likely that Magma will need to restructure in order to achieve greater efficiency and profitability. This may involve downsizing or reorganizing certain departments or business units, as well as changing the overall strategy of the company. Reviewing due diligence information or tactical-level strategies may be part of this restructuring process, but the primary focus should be on finding a more effective way to merge the two companies and create a stronger and more competitive business. Going public through an IPO is unlikely to be a viable option unless the restructuring efforts are successful and the company can demonstrate a track record of profitability and growth.

Quiz 7: Strategic Acquisition and Restructuring