Question 1

If P&G's bid for Gillette was invited by Gillette's management, this would be an example of a

Accepted Answer

A friendly acquisition is when the management of the target company invites the acquiring company to make a bid. This is in contrast to a hostile acquisition, where the acquiring company makes an unsolicited bid that is not welcomed by the target company's management. A joint venture involves two companies working together on a specific project, while a merger is a combination of two companies into one entity.

Question 2

Describe three major challenges that firms integrating acquisitions are likely to face.

Accepted Answer

The answer of Describe three major challenges that firms integrating...

Question 3

If P&G wanted to increase the probability that it would be able to earn superior economic performance from its acquisition of Gillette, P&G should

Accepted Answer

The answer of If P&G wanted to increase the probability...

Question 4

The most significant challenge P&G is likely to face in integrating each of the acquired companies into P&G's operations is likely to be ________ differences between P&G and each of the companies.

Accepted Answer

Cultural differences are likely to be the most significant challenge as each of the acquired companies may have their own unique culture, values, and way of doing things. Integrating these with P&G's culture and way of operating may require significant effort and adjustments. While logistical, operational, and distribution differences may also exist, they are more likely to be manageable through processes and systems integration.

Question 5

If P&G's acquisition of Wella had been delayed because it had to overcome a stipulation in Wella's corporate bylaws requiring that more than 50% of Wella's board of directors had to approve the takeover, this would be an example of

Accepted Answer

This is an example of a shark repellent, which is a defensive strategy used by a target company to make itself unattractive to potential acquirers by implementing measures that make a hostile takeover more difficult or expensive. In this case, Wella's corporate bylaws requiring board approval would make it harder for P&G to complete the acquisition without cooperation from a majority of Wella's directors.

Question 6

If there is one target firm with a current market value of $20,000 as a stand-alone entity and five bidding firms, each of which has a current market value of $30,000 as a stand-alone entity, and the value of the target firms and any of the bidding firms combined is $60,000, estimate the price the bidding firms would be willing to pay for the target firm and the return to stockholders of bidding and target firms when there is strategic relatedness between firms.

Accepted Answer

The answer of If there is one target firm with...

Question 7

Identify and discuss the three rules that target firm managers should follow to maximize the probability of earning economic profits from their merger and acquisition strategies.

Accepted Answer

The answer of Identify and discuss the three rules that...

Question 8

P&G's acquisition of Wella in 2003 is an example of a

Accepted Answer

P&G's acquisition of Wella is a product extension merger because it allowed P&G to expand its product line by adding Wella's hair care products to its existing portfolio.

Question 9

If one of the reasons P&G acquired Gillette was to gain greater market power in key industries, this would be an example of ________ economies.

Accepted Answer

Pecuniary economies refer to cost savings or increased market power achieved through financial means such as mergers and acquisitions. In this case, P&G's acquisition of Gillette was aimed at increasing its market power in the consumer goods industry, thus this would be an example of pecuniary economies. Technical economies refer to cost savings achieved through improvements in production processes, diversification economies refer to cost savings achieved through broadening a company's product line, and vertical economies refer to cost savings achieved through controlling multiple stages of the production process.

Question 10

Discuss the differences between mergers and acquisitions and differentiate between friendly and unfriendly acquisitions.

Accepted Answer

The answer of Discuss the differences between mergers and acquisitions...

Question 11

If Gillette's managers wanted to maximize the value that Gillette received from its acquisition by P&G, they should

Accepted Answer

By seeking information from P&G about the value they will receive, Gillette's managers can negotiate from a position of strength to ensure that they receive the maximum value from the acquisition. This will help them to make informed decisions about the deal and to negotiate better terms.

Question 12

If Gillette's total market value on the day the deal was announced was $48.30 billion, P&G's $57 billion offer would represent a(n)

Accepted Answer

An acquisition premium is calculated as the percentage difference between the offer price and the market value. The premium is calculated as ($57 billion - $48.30 billion) / $48.30 billion = 18%.

Question 13

Describe and discuss five reasons why bidding firms might still engage in acquisitions even if, on average, they do not create value for a bidding firm's stockholders.

Accepted Answer

The answer of Describe and discuss five reasons why bidding...

Question 14

P&G's purchase of AG-Hutchison Ltd in 2004 is an example of a

Accepted Answer

P&G's purchase of AG-Hutchison Ltd in 2004 is an example of a market extension merger because it allowed P&G to expand its market reach by acquiring a company that operated in a different geographical market.

Question 15

Identify and differentiate between the five different FTC categories of mergers and acquisitions.

Accepted Answer

The answer of Identify and differentiate between the five different...

Question 16

Since both P&G and Gillette are consumer products firms, this acquisition is best described as a

Accepted Answer

This acquisition can be categorized as a horizontal merger since both P&G and Gillette are in the same industry and produce similar products. They both operate in the consumer products business and the merger will allow them to expand their product offerings and increase market share within this industry.

Question 17

How are poison pills different from shark repellents?

Accepted Answer

The answer of How are poison pills different from shark...

Question 18

Identify and discuss six rules that firms bidding on a target firm in an acquisition should follow to increase the possibility that an acquisition strategy will earn superior performance.

Accepted Answer

The answer of Identify and discuss six rules that firms...

Question 19

If there are five bidders (each of which has a current market value of $50,000 ) interested in a target firm that has no strategic relatedness with any of the bidding firms and has a current market value of $25,000, identify the economic profits that will be earned by both the bidding firm's equity holders and the target firm's equity holders and discuss this case.

Accepted Answer

The answer of If there are five bidders (each of...

Question 20

Identify the three potential sources of strategic relatedness between bidding and target firms that were detailed by Lubatkin in 1983 and the four general reasons why bidding firms might want to engage in merger and acquisitions as detailed by Jensen and Ruback in 1983.

Accepted Answer

The answer of Identify the three potential sources of strategic...

Quiz 10: Mergers and Acquisitions