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a.
carrying a high risk of failure.
b.
the only reliable method of generating new products for the firm.
c.
a quicker method of product launch than acquisition of another firm.
d.
critical to the success of biotech and pharmaceutical firms.
73. Acquisitions can become a time sink for top level managers for all the following reasons EXCEPT:
a.
the integration process after acquisition requires managerial attention.
b.
they must prepare for acquisition negotiations.
c.
managers are involved in the search for viable acquisition candidates.
d.
only top managers can perform the required due diligence.
74. Horizontal, vertical, and related acquisitions to build market power:
a.
are likely to undergo regulatory review and analysis by financial markets.
b.
are rarely permitted to occur across international borders.
c.
typically involve a firm purchasing one of its suppliers or distributors.
d.
concentrate on capturing value at more than one stage in the value chain.
75. A primary reason for a firm to pursue an acquisition is to:
a.
avoid increased government regulation.
b.
achieve greater market power.
c.
exit a hyper-competitive market.
d.
achieve greater financial returns in the short run.
76. Manny Inc. recently completed the purchase of its primary supplier. Manny intends to begin expanding the market to
which the suppliers’ products are sold. This purchase is a(n):
a.
merger.
b.
unrelated acquisition.
c.
horizontal acquisition.
d.
vertical acquisition.
77. A friendly acquisition:
a.
raises the price that has to be paid for a firm.
b.
enhances the complementarity of the two firms’ assets.
c.
facilitates the integration of the acquired and acquiring firms.
d.
allows joint ventures to be developed.
78. Research shows that about ____ percent of mergers and acquisitions are successful.
a.
20
b.
40
c.
60
d.
80
79. When the target firm does not solicit the acquiring firm’s bid, it is referred to as a(n):
a.
stealth raid.
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b.
adversarial acquisition.
c.
takeover or unfriendly acquisition.
d.
leveraged buyout.
80. The presence of barriers to entry in a particular market will generally make acquisitions ____ as an entry strategy.
a.
less likely
b.
more likely
c.
prohibitive
d.
illegal
81. Research has shown that the more ____, the greater is the probability that an acquisition will be successful.
a.
related the acquired and acquiring firms are
b.
diverse the resulting portfolio of competencies
c.
disparate the corporate cultures
d.
involved investment banking firms are in the due diligence process
82. Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because
approximately _______ percent of innovations are imitated within 4 years after patents are obtained.
a.
5
b.
10
c.
60
d.
20
83. Which of the following is NOT a result of over-diversification?
a.
Executives do not have a rich understanding of all of the firm’s business units.
b.
Managers emphasize strategic controls rather than financial controls.
c.
Firms use acquisition as a substitute for innovation.
d.
Managers become short-term in their orientation.
84. Due diligence includes all of the following activities EXCEPT assessing:
a.
differences in firm cultures.
b.
tax consequences of the acquisition.
c.
the level of private synergy between the two firms.
d.
financing for intended transaction.
85. Currently, the rationale for making an acquisition includes each of the following EXCEPT:
a.
to increase market power.
b.
to decrease taxes paid by shareholders.
c.
to overcome entry barriers.
d.
to increase diversification.
86. The announcement that P&G was acquiring premium dog and cat food manufacturer Iams was a _________
acquisition and is intended to ________.
a.
vertical; increase diversification
b.
horizontal; increase market power
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c.
vertical; overcome entry barriers
d.
related; increase speed to market
87. When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is
intense, the firm may wish to ____ by making an acquisition.
a.
increase new product speed to market
b.
broaden its competitive scope
c.
increase its economies of scale
d.
overcome entry barriers
88. Which of the following is NOT one of the three main restructuring strategies?
a.
Realigning
b.
Downsizing
c.
Downscoping
d.
Leveraged buyouts
89. Compared with downsizing, ____ has (have) a more positive effect on firm performance.
a.
reconfiguring
b.
downscoping
c.
leveraged buyouts
d.
acquisitions
90. ___________ may be necessary because acquisitions create a situation in which the newly formed form has duplicate
organizational functions such as sales, manufacturing, distribution, and human resource management.
a.
Management buyout
b.
Leveraged buyout
c.
Downsizing
d.
Downscoping
91. One problem with becoming too large is that large firms:
a.
tend to have less market power.
b.
have less potential for economies of scale.
c.
become attractive takeover targets.
d.
usually increase bureaucratic controls.
92. Compared to internal product development, acquisitions allow:
a.
immediate access to innovations in mature product markets.
b.
more accurate prediction of return on investment.
c.
slower market entry.
d.
more effective use of company core competencies.
93. 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.
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d.
are not affected by the acquisition.
94. Market power is derived primarily from the:
a.
core competencies of the firm.
b.
size of a firm and its resources and capabilities.
c.
quality of a firm’s top management team.
d.
depth of a firm’s strategy.
95. In a merger:
a.
one firm buys controlling interest in another firm.
b.
two firms agree to integrate their operations on a relatively coequal basis.
c.
two firms combine to create a third separate entity.
d.
one firm breaks into two firms.
96. Caterpillar’s payment of a 32 percent premium for the acquisition of Bucyrus in 2011 and subsequent need to issue
more stock illustrates the acquisition problem of:
a.
integration difficulties.
b.
inability to achieve synergy.
c.
large or extraordinary debt.
d.
managers overly focused on acquisitions.
97. The ____ phase is probably the single most important determinant of shareholder value creation in mergers and
acquisitions.
a.
pre-acquisition negotiations
b.
pre-acquisition due diligence
c.
post-acquisition integration
d.
post-acquisition restructuring
98. The acquisition of Sun Microsystems (a computer hardware producer) by Oracle Corporation (a software firm) is an
example of a(n):
a.
vertical acquisition.
b.
unrelated acquisition.
c.
horizontal acquisition.
d.
merger of equals.
99. The term “leverage” in leveraged buyouts refers to the:
a.
firm’s increased concentration on the firm’s core competencies.
b.
amount of new debt incurred in buying the firm.
c.
fact that the employees are purchasing the firm for which they work.
d.
process of removing the firm’s stock from public trading.
100. Cross-border acquisitions are primarily made to:
a.
reshape the firm’s competitive scope.
b.
reduce the cost of new product development.
c.
take advantage of higher education levels of labor in developed countries.
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d.
overcome barriers to entry in another country.
101. Which of the following is NOT an attribute of a successful acquisition?
a.
The acquiring firm has a large amount of financial slack.
b.
The acquired and acquiring firms have complementary assets and/or resources.
c.
Innovation and R&D investments continue as part of the firm’s strategy.
d.
Investments in advertising and image building are made quickly.
102. Sales of watches among teenagers and twenty-somethings are declining rapidly as this age group uses cellphones,
iPods, and other devices to tell time. A company that specializes in selling inexpensive watches to this age group may
wish to consider ____ in order to develop new products other than watches.
a.
unrelated diversification
b.
backward integration
c.
forward integration
d.
horizontal acquisitions
103. Thomas is an upper-middle level manager for a firm that has been actively involved in acquisitions over the last 10
years. The firm has grown much larger as a result. Thomas has been dismayed to find that recently the managerial culture
of the firm has been turning more and more to ____ controls.
a.
bureaucratic
b.
strategic
c.
tactical
d.
organic
104. Ambrose is a scientist working for a pharmaceutical company. His company was acquired by a rival pharmaceutical
company, and now it is involved in downsizing and downscoping. Ambrose is concerned about his job security, since he
is actively involved in amateur sports in his community and does not wish to disrupt his current lifestyle. Ambrose’s job
will be most likely to be secure if:
a.
Ambrose’s research is in a non-core activity.
b.
the acquisition has been financed by junk bonds.
c.
Ambrose is in a position to take a poison pill.
d.
Ambrose is a key employee in the firm’s primary business.
105. The expenses incurred by firms trying to create synergy through acquisition are called ____ costs.
a.
differentiation
b.
diversification
c.
transaction
d.
interaction
106. There are few true mergers because:
a.
few firms have complementary resources.
b.
integration problems are more severe than in outright acquisitions.
c.
one firm usually dominates in terms of market share, size, or value of assets.
d.
of managerial resistance. True mergers result in significant managerial-level layoffs.
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107. Typically, in a failed acquisition, the organization will:
a.
restructure.
b.
go into bankruptcy.
c.
focus on building private synergy.
d.
increase integration.
108. A(n) ____ occurs when one firm buys a controlling, or 100 percent interest, in another firm.
a.
merger
b.
acquisition
c.
spin-off
d.
restructuring
109. When a firm acquires its supplier, it is engaging in a(n):
a.
merger.
b.
unrelated acquisition.
c.
hostile takeover.
d.
vertical acquisition.
110. A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative
product instead of a strategy of developing new products in-house. All of the following arguments are correct EXCEPT:
a.
the acquisition of Taylor should be primarily for defensive rather than strategic reasons.
b.
research suggests that acquisition strategies are a common means of avoiding risky internal ventures.
c.
the outcomes of acquisitions can be estimated more easily and accurately than the outcomes for an internal
product development process.
d.
acquisitions could become a substitute for innovation within your firm.
111. Baby Doe’s, a designer and manufacturer of children’s clothing, has decided to purchase a retail chain specializing in
children’s clothing. This purchase is a(n):
a.
merger.
b.
unrelated acquisition.
c.
horizontal acquisition.
d.
vertical acquisition.
112. Each of the following is a rationale for acquisitions EXCEPT:
a.
achieving greater market power.
b.
overcoming significant barriers to entry.
c.
increasing speed of market entry.
d.
positioning the firm for a tactical competitive move.
113. After a leveraged buyout, ____ typically occur(s).
a.
selling of assets
b.
further rounds of acquisitions
c.
due diligence
d.
private synergy
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114. Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition
becomes a substitute for:
a.
market discipline.
b.
innovation.
c.
risk analysis.
d.
international diversification.
115. Magma, Inc., acquired Vulcan, Inc., 3 years ago. Effective integration of the two companies’ culture was never
achieved, and the two firms’ assets were not complementary. It is very likely that Magma will:
a.
go public through an IPO.
b.
review the due diligence information collected before the acquisition.
c.
restructure.
d.
review its tactical-level strategies.
116. 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
117. The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms:
a.
with insufficient diversification.
b.
having too much debt.
c.
being unable to achieve synergy.
d.
growing too large.
118. Failing to ____________ appropriately will result in too many employees doing the same work and prevent the new
firm from realizing the cost synergies it anticipated.
a.
downsize
b.
spin-off
c.
downscope
d.
buyout
119. Claude holds a large number of shares of Bayou Beauty, a regional brewing company that is considered a likely
takeover target by a major international brewer. It would probably be in Claude’s financial interest if Bayou Beauty’s
owners:
a.
resisted selling at any price.
b.
sold the company to the larger brewer.
c.
designed a poison pill to discourage a takeover.
d.
looked for smaller brewers to acquire instead of selling to the larger brewer.
120. ____ typically result(s) in the acquiring firm being able to prevent valuable human resources in the acquired firm
from leaving.
a.
Financial slack
b.
Private synergy
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c.
Friendly acquisitions
d.
High compensation
121. Private synergy:
a.
occurs in most related acquisitions and allows firms to see increased returns.
b.
is frequently achieved in conglomerates.
c.
is not easy for competitors to understand and imitate.
d.
is assessed by managers during the due diligence process.
122. What is restructuring and what are its common forms?
123. What is an LBO and what have been the results of such activities?
124. Identify and explain the seven reasons firms engage in an acquisition strategy.
125. What are the differences between downscoping and downsizing and why are each used?
126. How have changing conditions in the external environment influenced the type of M & A activity firms pursue?
127. What are the attributes of a successful acquisition program?
128. Describe the seven problems in achieving a successful acquisition.
129. Describe how an acquisition program can result in managerial time and energy absorption.
130. What are the results of the three forms of restructuring?
131. How difficult is it for merger and acquisition strategies to create value and which firms benefit the most from M & A
activity?
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Answer Key
1. True
2. True
3. True
4. False
5. True
6. False
7. True
8. True
9. True
10. True
11. True
12. True
13. False
14. False
15. True
16. False
17. False
18. False
19. True
20. False
21. True
22. False
23. True
25. True
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26. False
27. False
28. True
29. True
30. True
31. True
32. False
33. True
34. False
35. False
36. False
37. True
38. True
39. False
40. True
41. True
42. True
43. True
44. True
45. False
46. False
47. True
48. True
49. False
51. True
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52. False
53. True
54. False
55. False
56. True
57. c
58. b
59. d
60. d
61. b
62. a
63. d
64. b
65. b
66. d
67. c
68. d
69. d
70. d
71. c
72. a
73. d
74. a
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77. c
78. a
79. c
80. b
81. a
82. c
83. b
84. c
85. b
86. d
87. b
88. a
89. b
90. c
91. d
92. b
93. a
94. b
95. b
96. c
97. c
98. a
99. b
100. d
102. a
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103. a
104. d
105. c
106. c
107. a
108. b
109. d
110. a
111. d
112. d
113. a
114. b
115. c
116. a
117. a
118. a
119. b
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