Exam 9: Diversification and Acquisitions

Which of the following is true regarding M&As? a. As many as 70 percent of M&As reportedly fail. b. On average, the acquiring firms' performance improves after acquisitions. c. Target firms, after being acquired and becoming internal units, often perform better than when they were independent, stand-alone firms. d. The only identifiable losers are the shareholders of target (acquired) firms. e. The outstanding success of M&As is due to pre- and post acquisition phases.

Operational synergy involves economies of scale.

Porter's five forces affect the structural attractiveness of an industry.

Corporate scope is shaped by: a. Industry conditions. b. Firm capabilities. c. Institutional constraints. d. Opportunities in both developed and emerging economies. e. All of the above.

Diversification discount is the situation when unrelated-product diversification enables conglomerate units to beat stand-alone rivals.

Other comments you saw in the blog are less hostile to business. In one, the person was claiming that recent developments in financial markets suggest that it is time to revive the use of conglomerates. Based on what is happening now, do you agree? Why or why not?

You are the CEO of International Widget and you are contemplating expanding into Lower Slobovia. You have the resources needed to start from scratch in that country but it would be possible to acquire the company that dominates the Lower Slobovian Widget industry. Which do you think would be best: start from scratch or an acquisition?

Which is not true regarding geographic diversification and firm performance? a. U-shaped relationship at low level of internationalization. b. Initially a negative effect of international expansion on performance. c. Affected by the liability of foreignness. d. Inverted-U shape at moderate to high levels of internationalization. e. Positive only at high levels of internationalization.

You are the CEO of Mega Global Corporation and you are weighing a number of decisions involving diversification, acquisition, and restructuring. Long ago you were the manager of a mutual fund and you decide to make your decisions using the same approach as you used in managing that fund. How would that affect your decisions and decision process?

Sources of operational synergy include: a. Technologies. b. Marketing. c. Manufacturing. d. All of the above. e. None of the above.

Sources of operation synergy: a. Technologies. b. Marketing. c. Manufacturing. d. All of the above. e. None of the above.

Which is one motive for M&A which does not necessarily increase shareholder value? a. Synergistic. b. Hubris. c. Performance. d. A and C above. e. None of the above.

Diversification premium is the same thing as: a. Conglomerate advantage. b. Diversification discount. c. Conglomerate disadvantage. d. Level of product diversification. e. Measurement of firm performance.

Instead of operational synergy, conglomerates focus on financial synergy.

Product-related diversification involves all of the following except: a. A single business strategy. b. Entries into activities that are related to a firm's existing markets and/or activities. c. The emphasis is on economies of scale rather than scope. d. Increases in competitiveness. e. Synergy.

Research regarding the relationship between product diversification and firm performance indicates that: a. Performance may increase as firms shift from single business strategies to product-related diversification. b. Performance may decrease as firms change from product-related to -unrelated. c. The linkage between diversification and performance is inverted U shaped. d. "Putting your eggs in similar baskets," has emerged as a balanced way to both reduce risk and leverage synergy. e. All of the above.

Diversification can pay off in all of the following situations except: a. Risk is spread over several (product or country) markets. b. Core resources are leveraged. c. The art of post-acquisition integration has been mastered. d. Commonly shared industry skills are used. e. Firms are organized to minimize the costs.

When conglomerate units are better off competing as stand-alone entities, we call it diversification premium.

By the 1980s MBC began to decrease.

In combining product and geographic diversification, which is not one of the four possible combinations? a. Anchored replicators. b. Multinational replicators. c. Far-flung conglomerates. d. Classic replicators. e. Classic conglomerates.