71) ________ is (are) a maneuver in which a target firm’s management purchases any of the
target firm’s stock owned by a bidder and does so for a price that is greater than the current
market value of that stock.
A) Standstill agreements
B) Poison pills
C) Shark repellents
D) Greenmail
72) Firms using ________ fend off an acquisition by taking over the firm or firms bidding for
them.
A) shark repellents
B) a crown jewel sale
C) the Pac Man defense
D) a golden parachute
73) A ________ is a compensation arrangement between a firm and its senior management team
that promises these individuals substantial cash payment if their firm is acquired and they lose
their jobs in the process.
A) white knight agreement
B) greenmail agreement
C) shark repellent
D) golden parachute
74) Mergers and acquisitions used to create diversification strategies should be managed through
the
A) M-form structure.
B) functional structure.
C) U-form structure.
D) matrix structure.
75) The most significant challenge in integrating bidding and target firms has to do with
A) accounting differences.
B) cultural differences.
C) operational differences.
D) logistic differences.
76) A ________ is another bidding firm that agrees to acquire a particular target in the place of
the original bidding firm.
A) golden parachute
B) greenmail
C) white knight
D) crown jewel
77) ________ include a variety of relatively minor corporate governance changes that, in
principle, are supposed to make it more difficult to acquire a target firm.
A) Shark repellents
B) White knights
C) Greenmail
D) Poison pills
78) Supermajority voting rules are an example of a
A) poison pill.
B) white knight.
C) golden parachute.
D) shark repellent.
79) ________ does not affect the wealth of target firm equity holders.
A) Blue Man defense
B) Pac Man defense
C) Golden parachute
D) Silver parachute
80) ________ is an example of an ineffective and inconsequential response by a target firm.
A) A Pac Man defense
B) A Blue Man defense
C) A crown jewel sale
D) A golden parachute defense
81) If P&G’s bid for Gillette was invited by Gillette’s management, this would be an example of
a
A) hostile acquisition.
B) joint venture.
C) friendly acquisition.
D) merger.
82) 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)
A) 18% acquisition premium.
B) 82% acquisition discount.
C) 82% acquisition premium.
D) 18% acquisition discount.
83) Since both P&G and Gillette are consumer products firms, this acquisition is best described
as a
A) vertical merger.
B) horizontal merger.
C) market extension merger.
D) conglomerate merger.
84) P&G’s acquisition of Wella in 2003 is an example of a
A) market extension merger.
B) conglomerate merger.
C) vertical merger.
D) product extension merger.
85) P&G’s purchase of AG-Hutchison Ltd in 2004 is an example of a
A) conglomerate merger.
B) vertical merger.
C) market extension merger.
D) conglomerate acquisition.
86) 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.
A) technical
B) pecuniary
C) diversification
D) vertical
87) 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
A) share information about Gillette with other potential bidders.
B) share information about strategic fit potential between P&G and Gillette with Gillette.
C) wait to submit its bid for Gillette until there are multiple interested bidders.
D) close the acquisition deal as quickly as possible.
88) If Gillette’s managers wanted to maximize the value that Gillette received from its
acquisition by P&G, they should
A) seek information from P&G about the value that P&G will receive from its acquisition of
Gillette.
B) not engage in negotiations with any bidder but P&G.
C) close the acquisition as quickly as possible.
D) stop the acquisition.
89) 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
A) the Pac Man defense.
B) a poison pill.
C) greenmail.
D) a shark repellent.
90) 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.
A) logistical
B) cultural
C) operational
D) distribution
91) Discuss the differences between mergers and acquisitions and differentiate between friendly
and unfriendly acquisitions.
92) 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.
93) Identify and differentiate between the five different FTC categories of mergers and
acquisitions.
94) 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.
95) 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.
96) 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.
97) 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.
98) 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.
99) Describe three major challenges that firms integrating acquisitions are likely to face.
100) How are poison pills different from shark repellents?