True / False
1. Restructuring strategies are commonly used to correct or deal with the results of ineffective mergers and
acquisitions.
a. True
b. False
2. The recent financial crisis made it difficult for firms to complete “megadeals” and the slowdown in merger and
acquisition has continued in 2011.
a. True
b. False
3. The relatively strong U.S. dollar has increased the interest of firms from other nations to acquire U.S. companies.
a. True
b. False
4. Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the acquiring firm.
a. True
b. False
5. Evidence suggests that returns to shareholders of acquired firms are greater than those for acquiring firms.
a. True
b. False
6. Typical returns on acquisitions for acquiring firms are close to zero.
a. True
b. False
7. A merger is defined as a strategy in which one firm purchases controlling interest in another firm.
a. True
b. False
8. A merger is a strategy through which two firms agree to integrate their operations on a relatively coequal basis.
a. True
b. False
9. In the final analysis, firms use merger and acquisition strategies to improve their ability to create value for all
stakeholders, including stockholders.
a. True
b. False
10. Takeovers are unfriendly acquisitions where the target firm does not solicit the acquiring firm’s bid.
a. True
b. False
11. An acquisition occurs when one firm buys a controlling or 100 percent interest in another firm and the acquired firm
becomes a subsidiary business.
a. True
b. False
12. Most acquisitions that are designed to achieve greater market power entail buying a competitor, a supplier, a
distributor, or a business in a highly related industry.
a. True
b. False
13. Moon–in-June, a designer and manufacturer of wedding dresses, has decided to purchase a retail chain specializing
in bridal wear. This purchase will be useful in gaining more market power for Moon-in–June.
a. True
b. False
14. An acquisition of a firm in a highly related industry is referred to as a horizontal acquisition.
a. True
b. False
15. Research evidence suggests that horizontal acquisitions of firms with dissimilar characteristics result in higher
performance levels.
a. True
b. False
16. Research evidence suggests that horizontal acquisitions result in higher performance when the firms have similar
strategies, assets, and capabilities.
a. True
b. False
17. A horizontal acquisition involves two firms in the same industry.
a. True
b. False
18. The acquisition of Sun Microsystems (a computer hardware producer) by Oracle (a software firm) is an example
of a horizontal acquisition.
a. True
b. False
19. A related acquisition involves two firms in the same industry.
a. True
b. False
20. An advantage of using horizontal, vertical, or related acquisitions is that they are not subject to regulatory review.
a. True
b. False
21. Firms are more likely to enter a market through acquisition when high product loyalty is present in the industry.
a. True
b. False
22. The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a market.
a. True
b. False
23. In the current global landscape, firms from North America and Europe use the acquisition strategy more frequently
than firms from other nations.
a. True
b. False
24. The Chapter 7 Strategic Focus shows that the first attempts at cross-border acquisitions by Chinese companies
ended in failure.
a. True
b. False
25. As noted in the Chapter 7 Strategic Focus, the current Chinese cross-border strategy is to focus on buying global
brands, sales networks, and goodwill in in branded products.
a. True
b. False
26. Research suggests that emerging economy firms pay a higher premium than other firms when making cross-border
acquisitions (Chapter 7 Strategic Focus).
a. True
b. False
27. Research suggests (Chapter 7 Strategic Focus) that government ownership of emerging economy firms leads to
overpayment in cross-border acquisitions and that overpayment reduces value for minority shareholders
(nongovernment shareholders).
a. True
b. False
28. China remains a challenging environment for investors and political and legal obstacles make acquisitions in China
risky and difficult.
a. True
b. False
29. A major problem with buying other companies in order to gain access to their product lines is that the acquiring firm
may lose its own ability to innovate.
a. True
b. False
30. Firms can increase their speed to market for new products by pursuing an internal product development strategy
rather than an acquisition strategy.
a. True
b. False
31. United Technologies Corp. (UTC) uses acquisitions of firms such as Otis Elevator Company (elevators, escalators,
and moving walkways) and Carrier Corporation (heating and air conditioning systems) as the foundation for
implementing its related diversification strategy.
a. True
b. False
32. Research has shown that the more different the acquired firm is in terms of competencies and resources than the
acquiring firm, the more likely the acquisition is to be successful.
a. True
b. False
33. Horizontal acquisitions and related acquisitions tend to contribute less to a firm‘s competitiveness than do unrelated
acquisitions.
a. True
b. False
34. The quickest and easiest way for a firm to diversify its portfolio of businesses is to make acquisitions.
a. True
b. False
35. It is relatively common for a firm to develop new products internally to diversify its product lines.
a. True
b. False
36. P&G‘s acquisition of Gillette reshaped its competitive scope by giving P&G a stronger presence in some products
for whom men are the target market.
a. True
b. False
37. The post-acquisition integration phase is less important for acquisition success than characteristics of the deal itself.
a. True
b. False
38. Research shows that in times of high or increasing stock prices, due diligence is relaxed and firms often overpay for
acquisitions and the long–run performance of the newly formed form suffers.
a. True
b. False
39. The reasons why a firm would overpay for a company that it acquires include inadequate due diligence.
a. True
b. False
40. Large or extraordinary debt is defined as overpaying for an acquired firm.
a. True
b. False
41. Junk bonds are now used more frequently to finance acquisitions primarily because of the belief that debt disciplines
managers.
a. True
b. False
42. Junk bonds are a financing option through which risky acquisitions are financed with debt that provides a large
potential return to bondholders.
a. True
b. False
43. Synergy is created by the efficiencies derived from economies of scale and economies of scope and by sharing
resources across the businesses in the merged firm.
a. True
b. False
44. Private synergies are unique to the acquired and acquiring firms and could not be developed by combining either
firm’s assets with another company.
a. True
b. False
45. Private synergies exist between a potential acquisition target and all firms seeking to acquire it.
a. True
b. False
46. Transaction costs resulting from an acquisition refer to the direct and indirect costs resulting from the use of
acquisition strategies to create synergies.
a. True
b. False
47. Unrelated diversified firms become overdiversified with a smaller number of business units than do firms using an
related diversification strategy.
a. True
b. False
48. When a firm becomes highly diversified through acquisitions, managers often focus on financial controls rather than
strategic controls.
a. True
b. False
49. Top managers typically become overly focused on acquisitions because only they can perform most of the tasks
involved, such as performing due diligence on the target firm.
a. True
b. False
50. Citigroup’s acquisitions and mergers were driven by the concept of a “financial supermarket” (Chapter 7 Strategic
Focus) and was a success since very little or restructuring was later required.
a. True
b. False
51. Citigroup’s acquisition strategy (Chapter 7 Strategic Focus) was effective in that it created a firm that was not
overdiversified or too large, and that was able to realize synergies between its units.
a. True
b. False
52. Although Citigroup (Chapter 7 Strategic Focus) is still involved in many financial services sectors, those that will
remain after its restructuring will be more solidly focused on its main business, consumer, and investment banking.
a. True
b. False
53. Top manager participation in and overseeing the activities required for making acquisitions can divert managerial
attention from other matters that are necessary for long-term competitive success.
a. True
b. False
54. Acquisitions can become a substitute for innovation in some firms and trigger future rounds of acquisitions.
a. True
b. False
55. 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.
a. True
b. False
56. 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.
a. True
b. False
57. Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to
integrate the firms.
a. True
b. False
58. 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.
a. True
b. False
59. 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.
a. True
b. False
60. When the actual results of an acquisition strategy fall short of the projected results, firms consider using
restructuring strategies.
a. True
b. False
61. Restructuring refers to changes in the composition of a firm’s set of businesses or its financial structure.
a. True
b. False
62. Firms often use the downscoping and downsizing strategies simultaneously as did Citigroup in its restructuring
(Chapter 7 Strategic Focus).
a. True
b. False