Deck 10: Studying Merges and Acquisitions

Question 1

A merger is the consolidation of one firm with another.

Answer 1

True

Question 2

Managers often have unsound confidence in both their valuations of acquisitions and in their ability to create value.

Answer 2

True

Question 3

Most of the motives behind mergers and acquisitions reflect shareholders' best interests.

Answer 3

False

Question 4

Managers may be willing to compromise shareholder interests and make acquisitions that do nothing more than increase the size of the firm.

Question 5

The terms mergers and acquisitions are synonymous and may be used interchangeably

Question 6

After PayPal was acquired by eBay, it became the de facto payment standard on the biggest locus of small business in the world.

Question 7

As a firm increases in size, shareholder wealth automatically increases as well.

Question 8

Revenue-enhancement opportunities are known as synergies.

Question 9

The motives behind mergers and acquisitions can fall into a basic category called synchronicity.

Question 10

eBay generates revenues only through charging listing and selling fees.

Question 11

When a merger takes place, there is a transfer of ownership.

Question 12

Sometimes senior managers make decisions based on personal, and not shareholder, interest.

Question 13

Mergers of equals are typically between firms of relatively equal size and influence.

Question 14

Hubristic managers may underestimate their own abilities to implement potential synergies.

Question 15

Executive compensation tends to be linked to firm size.

Question 16

Diversification of a firm's revenue stream creates immense value for shareholders.

Question 17

Managers may willingly overpay in mergers and acquisitions in order to maximize their own interests.

Question 18

Acquiring firms is more likely to realize synergies when managerialism and hubris are kept in check.

Question 19

Managers may make acquisitions in order to increase earnings by diversifying the firm's revenue stream.

Question 20

Strategy is important to every firm, but the Internet changes quarterly, which elevates strategy to a mission-critical task.

Question 21

Sometimes a supplier cannot or will not make an investment that is specific to an exchange with one buyer.

Question 22

Various tax benefits may provide unique financial synergies.

Question 23

The resource-based view of competitive advantage says that one reason for acquiring another firm would be to absorb and assimilate the target's real estate holdings.

Question 24

An acquisition can raise the financing costs of the target firm when the two firms' respective credit ratings are markedly different.

Question 25

Mergers may be designed to improve market access for both companies in geographic markets where individually they are weak.

Question 26

Through a merger or acquisition, firms may be able to create a bundle of resources that is unavailable to competitors.

Question 27

If a target company in an acquisition has operating loss carry-forwards that cannot be fully utilized, the acquiring company can use them to reduce the tax bill of the combined firm.

Question 28

Transferring best practices and core competencies can create value.

Question 29

If the combined resources and capabilities resulting from a merger or acquisition are complementary, the competitive advantage is usually short term in nature.

Question 30

Financial markets tend to not accept cost savings as a rationale and are less likely to reward savings-motivated mergers and acquisitions with higher stock prices.

Question 31

Cost savings are the most common synergy.

Question 32

Synergy occurs when the value of two firms combined is greater than the sum of the values of the two firms independently.

Question 33

Acquisitions increase the risk associated with entering new markets.

Question 34

If a company improves its competitive position by means of a merger or acquisition, it may be possible to derive potential market power from the deal.

Question 35

Price competition increases when rivalry is reduced.

Question 36

If the cost of the acquisition exceeds the cost to other firms of accumulating comparable resource stocks, the transferring of resources and capabilities will not create long-term competitive advantage.

Question 37

Firms have synergy when they can control prices.

Question 38

When a publicly traded firm is acquired by another firm, the purchase price is almost always less than the target firm's market value.

Question 39

Mergers and acquisitions are recognized as strategies in and of themselves.

Question 40

Primary sources of competitive advantage include resources, knowledge, and capabilities.

Question 41

A geographic roll-up occurs when a firm acquires firms that are in the same industry segment but in many different geographic arenas.

Question 42

Acquisitions are generally regarded as a means of managing competitive uncertainty.

Question 43

Acquisitions enable companies to accelerate their strategies.

Question 44

Cultural clashes can facilitate the integration of two firms.

Question 45

Through acquisition, the buyer firm eliminates a competitor that would otherwise remain in the market.

Question 46

Vertical acquisitions help fill out the company's product offerings.

Question 47

Acquisitions that result in diversification are used in the staging of corporate strategies.

Question 48

The financial success of any acquisition has a significant effect on the overall economic logic of a firm's strategy.

Question 49

Acquisitions are typically all-or-nothing propositions.

Question 50

Even though the logic behind each form of acquisition varies, the criteria for judging their success are the same.

Question 51

In a market-expansion acquisition, the acquiring company expands its product line by purchasing another company.

Question 52

In a product-expansion acquisition, one company buys another that offers essentially the same products but that has a presence in a geographic market in which the buyer has no presence.

Question 53

Internal development is typically more expensive than acquisitions.

Question 54

A complementary acquisition increase involves a complementary business.

Question 55

Divestiture is a simple form of acquisition.

Question 56

The greater the cost in capital and time, the more synergies managers need to create from the acquisition.

Question 57

With a roll-up, the acquiring company is trying to maintain the nature of industry competition.

Question 58

One of the primary advantages of internal development over acquisitions is speed.

Question 59

An acquisition ensures that a firm enters a new business with viable competitive strength.

Question 60

Upstream acquisitions are acquisitions that result when companies buy some of their customers.

Question 61

Serial acquirers are companies that engage in frequent acquisitions.

Question 62

Mergers and acquisitions in converging industries will put firms at a disadvantage when industry boundaries erode.

Question 63

An integration manager is appointed to oversee the merger of two firms.

Question 64

Many acquisitions fail during the integration stage.

Question 65

Synergy value is a function of the strategic fit of the acquiring and the target firms.

Question 66

Integration problems can arise during the idea generation and justification stages.

Question 67

The purchase price is almost always greater than current market value.

Question 68

When integrating acquisitions, most managers tend to focus on personnel issues.

Question 69

The purpose of a geographic roll-up is achieving economies of scope and scale.

Question 70

Acquisitions are common in industries in which technology advances slowly and methodically.

Question 71

In investor/holding company transactions, independent investors or holding companies purchase existing firms.

Question 72

Escalation of commitment can lead to an overestimation of the value believed to be derived from the acquisition.

Question 73

When industries overlap, there is a reduction in the level of mergers and acquisitions in the intersecting industries.

Question 74

In most cases of overcapacity mergers, both companies are usually already large enough to be operating at a minimum efficient scale.

Question 75

Technological integration is critical in most acquisitions because of the time value of money.

Question 76

Some firms use acquisitions instead of internal research and development.

Question 77

The larger the target firm, the shorter the time it will take to absorb it.

Question 78

In a roll-up, the acquiring company usually replaces the management of acquired companies.

Question 79

Executives decrease their commitment to an initiative as they proceed through a transaction.

Question 80

When two organizations have a lot in common, cultural differences are limited.