Question 1

In which of the following instances is retrenching to a narrower diversification base NOT likely to be an attractive or advisable strategy for a diversified company?

Accepted Answer

Retrenching to a narrower diversification base would not be advisable if the diversified company has too many cash cows, as these businesses are already generating substantial profits and narrowing the diversification base would lead to a loss of diversity and possibly lower overall profits. In the other options, retrenching to a narrower diversification base may be an attractive or advisable strategy.

Question 2

Divestiture can be accomplished best when the company:

Accepted Answer

Divestiture can be accomplished in various ways, depending on the company's goals and objectives. Selling an unwanted business outright to another company (Option A) is one approach to divestiture. Another way is to spin off the unwanted business as a separate entity (Options B and C). Option B involves selling shares to the public via an IPO, while Option C involves distributing shares to existing shareholders of the parent company. Both methods provide a way for the parent company to divest itself of the unwanted business and focus on its core operations. Therefore, Option D, which includes all the above methods, is the best choice.

Question 3

Conditions that may make corporate restructuring strategies appealing include:

Accepted Answer

All of these conditions can make corporate restructuring strategies appealing. Ongoing declines in market shares, an unprofitable business lineup, excessive debt burden, and ill-chosen acquisitions all negatively impact a company's financial performance and may require restructuring to improve profitability and competitiveness.

Question 4

Which is the better approach to diversification-a strategy of related diversification or a strategy of unrelated diversification? Explain and support your answer.

Accepted Answer

The answer of Which is the better approach to diversification-a...

Question 5

What is it called when the corporate parent creates an independent company and divests it by distributing to its stockholders new shares in the business?

Accepted Answer

This is commonly known as a spinoff. The corporate parent creates a separate, independent company and distributes new shares of that company to its existing stockholders.

Question 6

Retrenching to a narrower diversification base:

Accepted Answer

Retrenching to a narrower diversification base allows a company to focus its resources and managerial attention on fewer businesses, potentially strengthening its position in those areas.

Question 7

What is meant by the term strategic fit? What are the advantages of pursuing strategic fit and matchups in choosing which industries to diversify into?

Accepted Answer

The answer of What is meant by the term strategic...

Question 8

Corporate restructuring strategies:

Accepted Answer

Corporate restructuring strategies involve making major changes in a company's business lineup, including divesting some businesses and/or acquiring others, to significantly alter the company's business portfolio.

Question 9

Identify and briefly discuss each of the three options for entering new businesses.What are the driving choice parameters for entry into new businesses and which one is the most popular in the sense of being used most frequently?

Accepted Answer

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Question 10

What is the purpose of diversification?

Accepted Answer

The answer of What is the purpose of diversification?...

Question 11

Identify and briefly discuss each of the three tests for determining whether diversification into a new business is likely to build shareholder value.

Accepted Answer

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Question 12

Identify and explain the meaning and strategic significance of each of the following terms:
a)related diversification
b)unrelated diversification
c)strategic fit
d)economies of scope
e)divestiture
f)corporate restructuring

Accepted Answer

The answer of Identify and explain the meaning and strategic...

Question 13

The attractiveness test is the most important test for determining whether diversification into a new business is likely to result in 1 + 1 = 3 increases in shareholder value (as opposed to simply a 1 + 1 = 2 type of increase).True or false? Justify and explain your answer.

Accepted Answer

Diversifying into a new business must offer potential for the company's existing businesses and the new business to perform better together under a single corporate umbrella than they would perform operating as independent, stand-alone businesses-an effect known as synergy. For example, let's say that company A diversifies by purchasing company B in another industry. If A and B's consolidated profits in the years to come prove no greater than what each could have earned on its own, then A's diversification won't provide its shareholders with any added value. Company A's shareholders could have achieved the same 1 + 1 = 2 result by merely purchasing stock in company B. Diversification does not result in added long-term value for shareholders unless it produces a 1 + 1 = 3 effect, whereby the businesses perform better together as part of the same firm than they could have performed as independent companies.

Question 14

Briefly discuss when it makes good strategic sense for a company to consider diversification.

Accepted Answer

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Question 15

When should a business be divested?

Accepted Answer

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...

Question 16

Explain the relevance of the following as they relate to building shareholder value via diversification:
a)the industry attractiveness test
b)the cost-of-entry test
c)the better-off test

Accepted Answer

The answer of Explain the relevance of the following as...

Question 17

Retrenching to a narrower diversification base can be attractive or advisable when:

Accepted Answer

All of these factors can make retrenching to a narrower diversification base attractive or advisable. Businesses with questionable long-term potential, those with little strategic or resource fits, weakly positioned units with poor prospects for ROI, and deteriorating market conditions can all make it more advantageous for a diversified company to focus on a narrower set of core businesses.

Question 18

Carefully explain the difference between and the rationale for selecting a strategy of related diversification and/or a strategy of unrelated diversification

Accepted Answer

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Question 19

Strategies to restructure a diversified company's business lineup involve:

Accepted Answer

Option D suggests divesting low-performing businesses and acquiring new ones with promising opportunities. This strategy helps the company to get rid of its unprofitable businesses and focus on its profitable ventures. This not only improves the company's overall profitability but also restructures the business lineup by adding new businesses and removing the old ones. Options A, B, C, and E do not address the need for restructuring a diversified company's business lineup as effectively as option D.

Question 20

Which one of the following is NOT a good candidate for divestiture in a corporate restructuring effort?

Accepted Answer

Businesses that are compatible with the company's revised diversification strategy are in line with the company's long-term goals and should not be divested. Divesting them would go against the company's strategic direction and potentially harm its future growth prospects.

Quiz 8: Corporate Strategy: Diversification and the Multibusiness Company