Question 1

When large, incumbent firms buy startup companies, the transaction is generally described as a(n)_____.

Accepted Answer

A large difference in firm size is one key distinction between mergers and acquisitions. When large, incumbent firms such as the Tata Group, GE, or Microsoft buy startup companies, the transaction is generally described as an acquisition.

Question 2

Which of the following is a result of horizontal integration in terms of Porter's five forces model?

Accepted Answer

Horizontal integration changes the underlying industry structure in favor of the surviving firms. Excess capacity is taken out of the market, and competition tends to decrease as a consequence of horizontal integration, assuming no new entrants.

Question 3

Which of the following is a disadvantage of a horizontal integration corporate strategy?

Accepted Answer

Disadvantages of horizontal integration include reduced flexibility and increased potential for legal repercussions.

Question 4

Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures.It did this in order to:

Accepted Answer

Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures to fill gaps in its competency lineup.

Question 5

Which of the following scenarios best illustrates horizontal integration?

Accepted Answer

The scenario that best illustrates horizontal integration is Regal Autos Inc. joining with Marcus Motors Inc., one of its direct competitors. Horizontal integration is the process of merging with a competitor at the same stage of the value chain.

Question 6

PureSource Pharma Inc.recently acquired BioChem Pharmaceuticals Inc.It now sells its own products along with the products originally sold by BioChem Pharmaceuticals.As a result, PureSource Pharma's sales force will also be marketing the acquired company's products.How will this horizontal integration most likely affect PureSource Pharma?

Accepted Answer

This horizontal integration will help PureSource Pharma lower its costs through economies of scale. Research provides empirical evidence that firms use horizontal integration to lower costs through economies of scale, enhance their economic value creation, and in turn their performance. In industries that have high fixed costs, achieving economies of scale through large output is critical in lowering costs.

Question 7

Titan Autos Inc.merged with its competitor, Cadvia Autos Inc.This allowed Titan Autos to use its technological competencies along with Cadvia Autos's marketing capabilities to capture a larger market share than what the two entities individually held.What does this scenario best illustrate?

Accepted Answer

The scenario best illustrates horizontal integration. Horizontal integration is the process of merging with a competitor at the same stage of the value chain.

Question 8

How does horizontal integration within an industry affect the surviving firms?

Accepted Answer

Horizontal integration can favorably affect several of Porter's five forces for the surviving firms: strengthening bargaining power vis-à-vis suppliers and buyers, reducing the threat of entry, and reducing rivalry among existing firms.

Question 9

The Hershey Company, the largest U.S.chocolate manufacturer, decided to enter the Chinese market in 2013 because:

Accepted Answer

As mentioned in Strategy Highlight 9.1, with the U.S. population growing slowly and becoming more health conscious, Hershey decided to enter the Chinese market in 2013, the world's fastest growing candy market.

Question 10

It is necessary for government authorities such as the Federal Trade Commission (FTC)and/or the European Commission to approve any large horizontal integration activity because:

Accepted Answer

Because of the potential to reduce competitive intensity in an industry, government authorities such as the FTC and/or the European Commission usually must approve any large horizontal integration activity.

Question 11

Which of the following is true of acquisitions?

Accepted Answer

Acquisitions can be friendly or unfriendly. When a target firm does not want to be acquired, the acquisition is considered a hostile takeover.

Question 12

When does a merger between companies typically occur?

Accepted Answer

In defining mergers and acquisitions, size can matter as well. The combining of two firms of comparable size is often described as a merger even though it might in fact be an acquisition.

Question 13

The success of the Pixar-Disney strategic alliance demonstrated that:

Accepted Answer

As discussed in Chapter Case 9, the success of the Pixar-Disney alliance demonstrated that the two entities' complementary assets matched, and gave Disney an inside perspective on the value of Pixar's core competencies in the creation of computer-animated features.

Question 14

The main reason behind Google's decision to acquire the Israeli startup company Waze for $1 billion was to:

Accepted Answer

Google is already the leader in online maps and wanted to extend this capability to mobile devices by purchasing Waze. Perhaps even more importantly, Google's intent was to preempt its competitors Apple and Facebook from buying Waze.

Question 15

Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion in 2012?

Accepted Answer

Motivated by the desire to gain a new capability, Facebook acquired Instagram, a photo and video-sharing social media site, for $1 billion in 2012.

Question 16

Which of the following best illustrates a merger between the two companies GD Inc.and VS Inc.?

Accepted Answer

GD Inc. and VS Inc. joining together to form a single new company called GDVS Inc. best illustrates a merger. A merger describes the joining of two independent companies to form a combined entity. Mergers tend to be friendly; in mergers, the target firm would like to be acquired.

Question 17

How does Kraft Foods benefit from its hostile takeover of Cadbury PLC in 2010?

Accepted Answer

As mentioned in Strategy Highlight 9.1, in the U.S. market, the Cadbury acquisition allows Kraft greater access to convenience stores, gives it a new distribution channel, and opens a market for it that is growing fast and tends to have high profit margins.

Question 18

The Mansion Hotel Group purchased Red Brick Hotels for an estimated value of $120 billion.All the hotels previously owned by Red Brick Hotels are now managed by the Mansion Hotel Group and are known as Mansion hotels.What does this scenario best illustrate?

Accepted Answer

The scenario best illustrates an acquisition. An acquisition describes the purchase or takeover of one company by another. Acquisitions can be friendly or unfriendly.

Question 19

How did the recent horizontal integration in the U.S.airline industry provide benefits to the surviving carriers?

Accepted Answer

Recent horizontal integration in the U.S. airline industry, for example, provided several benefits to the surviving carriers. By reducing excess capacity, the mergers between Delta and Northwest Airlines (in 2008), United Airlines and Continental (in 2010), Southwest and AirTran (in 2010), and American and U.S. Airways (proposed in 2013 but put on hold by the U.S. Department of Justice) lowered competitive intensity in the industry overall.

Question 20

Disney became the world's leading media company to a large extent by pursuing a corporate strategy of _____.

Accepted Answer

Disney became the world's leading media company to a large extent by pursuing a corporate strategy of related-linked diversification. This is because some, but not all, of Disney's business activities share some common resources, capabilities, and competencies.

Quiz 9: Corporate Strategy: Strategic Alliances, Mergers and Acquisitions

When large, incumbent firms buy startup companies, the transaction is generally described as a(n) _____.