Question 1

At Cooper Industries,there are few similarities in the products it makes or the industries in which it completes.The corporate office adds value through such activities as improving their accounting activities and centralizing union negotiations.This is an example of creating value by using

Accepted Answer

In this case, the corporate office of Cooper Industries adds value to its acquired, unrelated businesses by performing such activities as auditing their manufacturing operations, improving their accounting activities, and centralizing union negotiations. The primary potential benefits of this unrelated diversification strategy are derived largely from hierarchical relationships; that is, value creation derived from the corporate office.

Question 2

Which of the following is not a reason for merger and acquisition failures?

Accepted Answer

Research shows that the vast majority of acquisitions result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the target company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business. At times, top executives may not have acted in the best interests of shareholders. The motive for the acquisition may have been to enhance the power and prestige of the executive rather than to improve shareholder returns.

Question 3

3M leverages its competencies in adhesives technologies to many industries,including automotive,construction,and telecommunications.This is an example of creating value by using

Accepted Answer

Firms may diversify into related businesses. Here, the primary potential benefits to be derived come from horizontal relationships, that is, businesses sharing intangible resources (e.g., core competencies such as marketing) and tangible resources (e.g., production facilities, distribution channels). In this case, 3M leverages its core competencies in adhesives technologies in many industries to attain economies of scope.

Question 4

In 2012,Microsoft admitted to a major ________ mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm,aQuantive,that it purchased in 2007.

Accepted Answer

In 2012, Microsoft admitted to a major acquisition mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in 2007.

Question 5

Diversification initiatives include all the following except

Accepted Answer

Diversification initiatives, whether through mergers and acquisitions, strategic alliances and joint ventures, or internal development, must be justified by the creation of value for shareholders.

Question 6

Shaw Industries,a giant carpet manufacturer,increases its control over raw materials by producing much of its own polypropylene fiber,a key input to its manufacturing process.This is an example of creating value by using

Accepted Answer

In this case, Shaw Industries uses related diversification to achieve value by integrating vertically to acquire market power.

Question 7

If a multinational firm fails to effectively integrate their acquisitions,this can result in

Accepted Answer

Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business.

Question 8

An acquisition that results in ________ commonly indicates that expectations were not met.

Accepted Answer

Many acquisitions ultimately result in divestiture, which is an admission that things did not work out as planned. In fact, some years ago, a writer for Fortune lamented that studies show 33 percent to 50 percent of acquisitions are later divested, giving corporate marriages a divorce rate roughly comparable to that of men and women.

Question 9

One of the reasons it is said that only the investment banker wins when a company is acquired is that they

Accepted Answer

Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. At times, the only other people who may have benefited were the shareholders of the acquired firms or the investment bankers who advise the acquiring firm because they collect huge fees up front regardless of what happens afterward.

Question 10

The corporate office of Novartis,formerly Ciba-Geigy,acts to improve many key activities,including resource allocation and reward and evaluation systems.This is an example of creating value by using

Accepted Answer

A corporation may diversify into unrelated businesses. Novartis has followed a successful strategy of unrelated diversification. Here, the primary potential benefits are derived largely from hierarchical relationships, that is, value creation derived from the corporate office. Examples of the latter would include leveraging some of the support activities in the value chain. Unrelated diversifiers often benefit from the best practices of sister businesses, even though their products, markets, and technologies may differ dramatically.

Question 11

The Coca-Cola acquisition of its bottlers failed because

Accepted Answer

Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. For decades, Coca-Cola used independent bottlers to distribute Coke products to stores and restaurants. Coke would manufacture the concentrate used to make its soft drinks, but the actual bottling of the product and distribution to end retailers was handled by about 70 regional bottling firms. In 2010, Coca-Cola undertook a major initiative to buy its bottlers and create a national vertically integrated business operation, where Coke would not only manufacture the concentrate but also own its bottling and distribution system. The firm spent 12.3 billion USD to acquire Coca-Cola Enterprises, it largest bottling partner. Coca-Cola reversed course in 2015, announcing that it would sell off all its bottling operations. In the first step of this process, it agreed to sell nine production facilities to three bottling companies for 380 million USD. Additionally, Coke announced it would complete the process of selling off its remaining bottling plants and distribution facilities by the end of 2017. What happened to trigger this rapid change? Coke found that being in the bottling business did not help its financial performance. In the words of Jack Russo, an analyst at Edward Jones Investing-bottling is a low margin, capital-intensive business. As a result, Coke saw its operating margins fall from 20.7 percent in 2009 to 11.4 percent in 2014.

Question 12

Polaris,a manufacturer of snowmobiles,motorcycles,watercraft,and off-road vehicles,shares manufacturing operations across its businesses.It also has a corporate research and development facility and staff departments that support all the Polaris operating divisions.This is an example of creating value by using

Accepted Answer

In this case, Polaris uses related diversification to create value by sharing activities in order to create economies of scope.

Question 13

Yahoo purchased Tumblr for 1.1 billion in 2013 but wrote off 80 percent of the investment by the middle of 2016.They considered this to be a poor

Accepted Answer

Yahoo purchased Tumblr for 1.1 billion USD in 2013 but had written off over 80 percent of this value by the middle of 2016. Commentators have noted that repeated failures by Yahoo to extract value from acquisitions is one of the key reasons it was unable to survive as an independent firm.

Question 14

ConAgra,a diversified food producer,increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all its food divisions.This is an example of using

Accepted Answer

ConAgra uses pooled negotiating power to enhance market power. They do this to increase their power over suppliers by centrally purchasing huge quantities of packaging materials for all its food divisions.

Question 15

If a multinational firm paid too high a premium for the common stock of the company,this can lead to

Accepted Answer

Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business.

Question 16

If a multinational firm is unable to understand how the assets of the acquired company would fit with their own lines of business,this can lead to

Accepted Answer

Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business.

Question 17

Corporate-level strategy focuses on

Accepted Answer

Corporate-level strategy focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses.

Question 18

AOL purchased Time Warner for 114 billion USD in 2001.By 2003,AOL Time Warner had lost 150 billion USD in market valuation.This is an example of a

Accepted Answer

AOL paid 114 billion USD to acquire Time Warner in 2001. Over the next two years, AOL Time Warner lost 150 billion USD in market valuation. This is an example of a failed acquisition.

Question 19

Firms have several choices of diversification initiatives that can be used to create value.Which of the following is not one of them?

Accepted Answer

They can use unrelated diversification to acquire parenting, restructuring, and financial synergies.

Question 20

Many leading high-tech firms such as Google,Apple,and Intel have dramatically enhanced their revenues,profits,and market values through a wide variety of diversification initiatives.Which of the following is not such an initiative?

Accepted Answer

Many leading high-tech firms such as Google, Apple, and Intel have dramatically enhanced their revenues, profits, and market values through a wide variety of diversification initiatives, including acquisitions, strategic alliances, and joint ventures, as well as internal development.

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

At Cooper Industries,there are few similarities in the products it makes or the industries in which it completes.The corporate office adds value through such activities as improving their accounting activities and centralizing union negotiations.This is an example of creating value by using

Which of the following is not a reason for merger and acquisition failures?

3M leverages its competencies in adhesives technologies to many industries,including automotive,construction,and telecommunications.This is an example of creating value by using

In 2012,Microsoft admitted to a major ________ mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm,aQuantive,that it purchased in 2007.

Diversification initiatives include all the following except

Shaw Industries,a giant carpet manufacturer,increases its control over raw materials by producing much of its own polypropylene fiber,a key input to its manufacturing process.This is an example of creating value by using

If a multinational firm fails to effectively integrate their acquisitions,this can result in

An acquisition that results in ________ commonly indicates that expectations were not met.

One of the reasons it is said that only the investment banker wins when a company is acquired is that they

The corporate office of Novartis,formerly Ciba-Geigy,acts to improve many key activities,including resource allocation and reward and evaluation systems.This is an example of creating value by using

The Coca-Cola acquisition of its bottlers failed because

Yahoo purchased Tumblr for 1.1 billion in 2013 but wrote off 80 percent of the investment by the middle of 2016.They considered this to be a poor

ConAgra,a diversified food producer,increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all its food divisions.This is an example of using

If a multinational firm paid too high a premium for the common stock of the company,this can lead to

If a multinational firm is unable to understand how the assets of the acquired company would fit with their own lines of business,this can lead to

Corporate-level strategy focuses on

AOL purchased Time Warner for 114 billion USD in 2001.By 2003,AOL Time Warner had lost 150 billion USD in market valuation.This is an example of a

Firms have several choices of diversification initiatives that can be used to create value.Which of the following is not one of them?

Many leading high-tech firms such as Google,Apple,and Intel have dramatically enhanced their revenues,profits,and market values through a wide variety of diversification initiatives.Which of the following is not such an initiative?