Question 1

The outcome of downsizing, downscoping, and leveraged buyouts is higher performance.

Accepted Answer

The answer of The outcome of downsizing, downscoping, and leveraged...

Question 2

Firms often use the downscoping and downsizing strategies simultameously as did Citigroup in its restructuring ( Chapter 7 Strategic Focus).

Accepted Answer

Yes, it is true that firms often use both downscoping and downsizing strategies simultaneously in their restructuring efforts. Citigroup is an example of a company that has implemented both strategies in the past. Downscoping involves divesting or spinning off non-core business units, while downsizing involves reducing the size of the workforce or cutting back on expenses.

Question 3

Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to integrate the firms.

Accepted Answer

Hostile acquisitions often lead to conflicts between the acquiring and acquired companies, making it more difficult for managers to integrate the firms. This can result in higher costs and slower integration, which may decrease overall financial returns.

Question 4

One of the potential problems associated with acquisitions is that the additional costs required to manage the larger firm will exceed the benefits of economies of scale and additional market power.

Accepted Answer

This statement is true. If the costs of managing the acquired firm exceed the benefits of economies of scale and market power, the acquisition may not be a profitable decision.

Question 5

One of the most effective ways to test the feasibility of a future merger or acquisition is for the firms to first engage in a strategic alliance.

Accepted Answer

Engaging in a strategic alliance allows the firms to test their compatibility and ability to work together towards a common goal, which can provide valuable insight into the feasibility of a future merger or acquisition.

Question 6

Some research findings have shown that acquisitions typically ____ for shareholders in the acquiring firm.
A) result in above-average returns
B) provide approximately average returns
C) result in returns near zero
D) take some time to achieve private synergy, but eventually result in above-average returns

Accepted Answer

Some research findings suggest that acquisitions may not provide significant benefits for shareholders in the acquiring firm, and may result in returns near zero.

Question 7

All of the following statements are correct EXCEPT
A) immediately after the announcement of a planned acquisition, the stock price of the majority of acquiring firms declines.
B) shareholders of acquired firms often earn above-average returns from an acquisition.
C) the majority of acquisitions increase long-term value for the acquiring firm.
D) shareholders of acquiring firms typically earn returns from the transaction that are close to zero.

Accepted Answer

The majority of acquisitions actually do not increase long-term value for the acquiring firm. Studies have shown that a significant number result in little to no value creation, and some even result in a decrease in value for the acquiring firm. Options A, B, and D are all true statements.

Question 8

Downscoping makes management of the firm more effective because it allows the top management team to better understand the remaining businesses.

Accepted Answer

Downscoping involves divesting non-core businesses, which allows the top management team to focus on and better understand the remaining businesses. This can make management more effective by allowing them to allocate resources more strategically and make better decisions for the long-term health of the firm.

Question 9

During the recent financial crisis, M&A activity ______ whereas in 2011, M&A activity __________.
A) declined; increased
B) declined; declined
C) increased; increased
D) increased; declined

Accepted Answer

During the financial crisis, many companies faced financial difficulties and were less likely to engage in mergers and acquisitions due to the uncertainty of the economy. However, as the economy improved in 2011, companies became more confident in their ability to invest and grow through M&A activity, leading to an increase in deals.

Question 10

Restructuring refers to changes in the composition of a firm's set of businesses or its financial structure.

Accepted Answer

Restructuring can involve changes in a firm's portfolio of businesses or its financial structure, such as mergers and acquisitions, divestitures, spin-offs, debt restructuring, or changes in management or organizational structures.

Question 11

According to the Chapter 7 Opening Case, the difference between Google's and Microsoft's acquisition approaches is that
A) Microsoft tends to acquire earlier-stage companies whereas Google tends to acquire later-stage companies.
B) None of Google's acquisitions have survived as independent companies whereas Microsoft's have continued to operate as subsidiaries.
C) Google's approach is to acquire earlier-stage companies whereas Microsoft tends to acquire later-stage companies.
D) Google's acquisitions have all been friendly whereas Microsoft's have all been hostile.

Accepted Answer

According to the Chapter 7 Opening Case, Google's approach is to acquire earlier-stage companies whereas Microsoft tends to acquire later-stage companies. This is highlighted by Google's acquisition of YouTube when it was still a relatively young company, while Microsoft's acquisition of LinkedIn was after it had achieved significant success and scale.

Question 12

When the actual results of an acquisition strategy fall short of the projected results, firms consider using restructuring strategies.

Accepted Answer

When an acquisition strategy does not meet the projected results, firms often turn to restructuring strategies as a way to improve the performance of the acquired business.

Question 13

Researchers have found that shareholders of acquired firms often
A) earn above-average returns.
B) earn below-average returns.
C) earn close to zero as a result of the acquisition.
D) are not affected by the acquisition.

Accepted Answer

The answer of Researchers have found that shareholders of acquired...

Question 14

Downscoping represents a reduction in the number of a firm's employees and sometimes in the number of its operating units, but it may or may not represent a change in the composition of businesses in the corporation's portfolio.

Accepted Answer

The answer of Downscoping represents a reduction in the number...

Question 15

Downsizing may be necessary because acquisitions often create a situation in which the newly formed firm has duplicate organizational functions such as sales, manufacturing, distribution, human resources, and management.

Accepted Answer

Downsizing is often necessary in order to eliminate redundant positions and functions that may arise from an acquisition. This can help the newly formed company to operate more efficiently and effectively.

Question 16

Traditionally, leveraged buyouts were used as a restructuring strategy to correct managerial mistakes or because the firm's managers were making decisions that primarily served their own interests rtaher than those of the shareholders.

Accepted Answer

Leveraged buyouts (LBOs) were initially used as a means of taking over underperforming or undervalued companies to improve their performance and create shareholder value. This usually involved replacing inefficient or ineffective management teams with more competent ones. However, in some cases, LBOs were also used as a response to managerial entrenchment, where managers were focused on their own interests rather than maximizing shareholder value.

Question 17

Research has shown that maintaining a low or moderate level of firm debt is critical to the success of an acquisition, even when substantial leverage was used to finance the acquisition itself.

Accepted Answer

Research has found that companies with high levels of debt are more likely to have difficulty paying off acquisition-related debt and may experience financial distress. Therefore, maintaining a low or moderate level of debt is essential for the success of an acquisition.

Question 18

Wilberforce Press is a small book publishing firm in Iowa that has been owned by the same family since 1895. It is being purchased by Ozarka Publishing, another family-run business in Nebraska, which has been a specialty publisher for 77 years. Each company is known for its unique culture passed down from its founders. Executives and employees in both firms have "grown up" with their companies. Since both these companies have a long, stable history in highly related industries, this acquisition has a high probability of success.

Accepted Answer

The answer of Wilberforce Press is a small book publishing...

Question 19

According to the Chapter 7 Opening Case, the difference between Facebook's acquisition approach and the approaches of Microsoft and Google is that
A) Facebook tends to acquire earlier-stage companies whereas Microsoft and Google tend to acquire later-stage companies.
B) None of Facebook's acquisitions have survived as independent companies whereas those of Microsoft and Google have continued to operate as subsidiaries.
C) Facebook's approach is to acquire earlier-stage companies whereas Microsoft and Google tend to acquire later-stage companies.
D) Microsoft's and Google's acquisitions have all been friendly whereas Facebook's have all been hostile.

Accepted Answer

The answer of According to the Chapter 7 Opening Case,...

Question 20

The intent of the owners in a whole-firm leveraged buyout may be to increase the efficiency of the bought-out firm and resell it in five to eight years. This tends to make the managers of the bought-out firm high-risk takers, since they will probably not survive the resale and thus have little to lose.

Accepted Answer

The answer of The intent of the owners in a...

Quiz 7: Merger and Acquisition Strategies

The outcome of downsizing, downscoping, and leveraged buyouts is higher performance.

Firms often use the downscoping and downsizing strategies simultameously as did Citigroup in its restructuring ( Chapter 7 Strategic Focus).

Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to integrate the firms.

One of the potential problems associated with acquisitions is that the additional costs required to manage the larger firm will exceed the benefits of economies of scale and additional market power.

One of the most effective ways to test the feasibility of a future merger or acquisition is for the firms to first engage in a strategic alliance.

Some research findings have shown that acquisitions typically ____ for shareholders in the acquiring firm.

All of the following statements are correct EXCEPT

Downscoping makes management of the firm more effective because it allows the top management team to better understand the remaining businesses.

During the recent financial crisis, M&A activity whereas in 2011, M&A activity ____.

Restructuring refers to changes in the composition of a firm's set of businesses or its financial structure.

According to the Chapter 7 Opening Case, the difference between Google's and Microsoft's acquisition approaches is that

When the actual results of an acquisition strategy fall short of the projected results, firms consider using restructuring strategies.

Researchers have found that shareholders of acquired firms often

Downscoping represents a reduction in the number of a firm's employees and sometimes in the number of its operating units, but it may or may not represent a change in the composition of businesses in the corporation's portfolio.

Downsizing may be necessary because acquisitions often create a situation in which the newly formed firm has duplicate organizational functions such as sales, manufacturing, distribution, human resources, and management.

Traditionally, leveraged buyouts were used as a restructuring strategy to correct managerial mistakes or because the firm's managers were making decisions that primarily served their own interests rtaher than those of the shareholders.

Research has shown that maintaining a low or moderate level of firm debt is critical to the success of an acquisition, even when substantial leverage was used to finance the acquisition itself.

According to the Chapter 7 Opening Case, the difference between Facebook's acquisition approach and the approaches of Microsoft and Google is that