Question 1

Markides and Oyon found positive announcement effects for acquisitions by U.S.firms of:
A)Continental European targets
B)British or Canadian target firms
C)South and Central American firms
D)Asian companies

Accepted Answer

A

Question 2

Revenue enhancing synergies are more difficult to achieve than cost economies

Accepted Answer

Cost economies can be achieved through measures such as streamlining processes, reducing unnecessary expenses, and optimizing resources. These measures are often easier to implement and can result in immediate savings. On the other hand, revenue enhancing synergies typically require a more strategic and long-term approach, such as expanding market share, developing new products or services, or leveraging technology to increase sales. Achieving these types of synergies requires significant investment and a thorough understanding of the market and competitive landscape. Therefore, they are generally more challenging to achieve than cost economies.

Question 3

Wachovia's acquisition of Golden West Financial provided significant economies of scope which enabled the bank to show steady profits even during the subprime crisis.

Accepted Answer

Wachovia's acquisition of Golden West Financial contributed to its significant exposure to risky subprime mortgages, leading to billions of dollars in losses and ultimately the bank's failure.

Question 4

The Merck-Medco deal is an example of related diversification.

Accepted Answer

The Merck-Medco deal involved the diversification of Merck & Co. Inc., a pharmaceutical company, into the healthcare services industry through the acquisition of Medco Containment Services Inc., a pharmacy benefits management company. This type of diversification is known as related diversification, where a company expands into a related industry to its current business.

Question 5

Which motives are often cited as reasons for M&As?
A)Growth
B)Synergy
C)Improved R&D
D)Improved distribution
E)All of the above

Accepted Answer

All of the listed motives are commonly cited as reasons for M&As.

Question 6

Mitchell and Lehn found that bad bidders are more likely to become takeover targets.

Accepted Answer

Mitchell and Lehn's study found that companies with poorer performance and lower stock prices are more likely to become takeover targets, and these companies are more likely to have engaged in unsuccessful bidding activity in the past, earning them the label of "bad bidders." Therefore, bad bidders are more likely to become takeover targets.

Question 7

With respect to diversification programs, Berger and Ofek found:
A)Reduced Tobin q values
B)Evidence of higher premiums
C)No significant shareholder wealth effects
D)None of the above

Accepted Answer

Berger and Ofek found that diversification programs are associated with reduced Tobin's q values, indicating that diversified firms tend to have lower market valuations compared to their focused counterparts. This suggests that the market may view diversification negatively, possibly due to inefficiencies or the dilution of focus.

Question 8

Research shows that for companies that often acquire other companies there is:
A)No relationship between size and executive compensation
B)There is a good relationship between size and executive competition
C)Their shares trade at a diversification discount
D)Their acquisition prowess is unrelated to how often they do deals

Accepted Answer

The answer of Research shows that for companies that often...

Question 9

Improved R&D is a common motive for deals in the airline industry.

Accepted Answer

The answer of Improved R&D is a common motive for...

Question 10

Vivendi under Meissier is a good example of a hubris-related M&A program.

Accepted Answer

Under the leadership of Jean-Marie Messier, Vivendi embarked on a hubris-related M&A program, which ultimately led to the company's financial collapse in the early 2000s. Messier's aggressive acquisition strategy and disregard for financial discipline ultimately harmed the company's long-term prospects.

Question 11

The process of consolidation of fragmented industries is referred to as:
A)Synergistic deals
B)Roll-ups
C)Vertical integration
D)None of the above

Accepted Answer

Roll-ups refer to the process of consolidating fragmented industries by acquiring multiple small companies and integrating them into a larger entity. Synergistic deals involve merging or acquiring companies with complementary products or services to create greater value. Vertical integration refers to a company acquiring another company in a different stage of the supply chain, such as a manufacturer acquiring a supplier. None of the above is not the correct answer as consolidation of fragmented industries is a well-known business strategy.

Question 12

Schipper and Thompson found positive stock market announcement effects from diversification acquisition programs in the 1960s.

Accepted Answer

Schipper and Thompson's research in the 1960s found positive stock market announcement effects from diversification acquisition programs.

Question 13

Cybo-Ottone and Murgia found positive abnormal returns for European bank merger announcements.

Accepted Answer

Cybo-Ottone and Murgia's research found that there were positive abnormal returns for European bank merger announcements.

Question 14

Doukas and Travlos found that, unlike many domestic acquisitions, acquirers enjoyed positive (although not statistically significant)) returns when they acquired targets in countries in which they did not previously have operations.

Accepted Answer

According to Doukas and Travlos, acquirers enjoyed positive returns when they acquired targets in countries where they did not previously have operations.

Question 15

United Airlines was finally able to realize synergies when they acquired travel-related businesses such as hotels and car rental companies.

Accepted Answer

The statement is false. United Airlines did not acquire any travel-related businesses such as hotels and car rental companies.

Question 16

Both Eckbo and Stillman found:
A)No negative shareholder responses from competitors to horizontal deals
B)Significant negative effects
C)The shareholder wealth effects were delayed and occurred one to two years later
D)None of the above

Accepted Answer

The answer of Both Eckbo and Stillman found:
A)No negative shareholder...

Question 17

Haywood and Hambrick found:
A)Horizontal integration yields positive shareholder wealth effects
B)Horizontal deals yield negative shareholder wealth effects
C)Hubris-related deals have higher premiums
D)There is a diversification discount

Accepted Answer

The answer of Haywood and Hambrick found:
A)Horizontal integration yields positive...

Question 18

Varaiya found:
A)Higher premiums in horizontal deals
B)Evidence of a winner's curse
C)Related diversification generates positive gains
D)Vertical deals decrease shareholder value

Accepted Answer

The answer of Varaiya found:
A)Higher premiums in horizontal deals
B)Evidence of...

Question 19

Bradley, Desai, and Kim found:
A)Horizontal deals yield greater gains than vertical deals
B)Evidence of the winner's curse
C)Tender offers yield gains for target shareholders
D)Bad bidders make good targets

Accepted Answer

The authors found evidence that tender offers yield gains for target shareholders.

Question 20

United Airlines' merger with Continental Airlines is an example of:
A)Vertical integration
B)Conglomerate formation
C)Horizontal integration
D)None of the above

Accepted Answer

The merger between United Airlines and Continental Airlines is an example of horizontal integration because both airlines were in the same industry and merged to expand their market share and reach. Vertical integration involves merging with or acquiring a company in the supply chain (such as a supplier or distributor) and conglomerate formation involves merging with companies in different industries. Therefore, choices A and B are incorrect.

Quiz 4: Merger Strategy

Markides and Oyon found positive announcement effects for acquisitions by U.S.firms of:

Revenue enhancing synergies are more difficult to achieve than cost economies

Wachovia's acquisition of Golden West Financial provided significant economies of scope which enabled the bank to show steady profits even during the subprime crisis.

The Merck-Medco deal is an example of related diversification.

Which motives are often cited as reasons for M&As?

Mitchell and Lehn found that bad bidders are more likely to become takeover targets.

With respect to diversification programs, Berger and Ofek found:

Research shows that for companies that often acquire other companies there is:

Improved R&D is a common motive for deals in the airline industry.

Vivendi under Meissier is a good example of a hubris-related M&A program.

The process of consolidation of fragmented industries is referred to as:

Schipper and Thompson found positive stock market announcement effects from diversification acquisition programs in the 1960s.

Cybo-Ottone and Murgia found positive abnormal returns for European bank merger announcements.

Doukas and Travlos found that, unlike many domestic acquisitions, acquirers enjoyed positive (although not statistically significant)) returns when they acquired targets in countries in which they did not previously have operations.

United Airlines was finally able to realize synergies when they acquired travel-related businesses such as hotels and car rental companies.

Both Eckbo and Stillman found:

Haywood and Hambrick found:

Varaiya found:

Bradley, Desai, and Kim found:

United Airlines' merger with Continental Airlines is an example of: