Deck 15: External Growth Strategies: Mergers,acquisitions,and Alliances

Question 1

An important lesson from the troubled development of Boeing's 787 Dreamliner is that,for developing complex,technically-advanced products,the hub firm needs to have the capability to manage networks of strategic alliances.

Answer 1

True

Question 2

The key difference between a merger and an acquisition is that,in the case of a merger,the participating companies combine to create a new company.

Answer 2

True

Question 3

In the case of cross-border amalgamations of companies,concerns of national domination often mean that mergers are preferred to acquisitions.

Answer 3

True

Question 4

Internal business venture rather than external mergers,acquisitions and alliances is the preferred means by which most established firms achieve major extensions in the scope of their activities.

Question 5

Identifying the strategic rationale and likely benefits of mergers and acquisitions is easier in the case of diversifying mergers and acquisitions than for horizontal mergers and acquisitions.

Question 6

The concentration of Hollywood film industry in Los Angeles and electronics and IT companies in Silicon Valley is for different reasons than those which created the industrial districts of Italy.

Question 7

Mergers and acquisitions go in waves.Because acquirers prefer to pay low prices for acquired companies,these M&A waves tend to be inversely correlated with stock market fluctuations.

Question 8

The key lesson to be drawn from the failures that Hewlett-Packard has experienced in acquiring software and services companies EDS and Autonomy is that acquisitions that aim to change a company's business model are more risky than acquisitions that seek to leverage the existing business model.

Question 9

Issues of pre-acquisition planning and post-acquisition management should be viewed as separate: activities best led by separate teams.

Question 10

In most cases,the primary goal of a strategic alliance is to acquire that than simply to access the partner's organizational capabilities.

Question 11

The speed at which many decisions over corporate acquisitions are made as contributed to the disappointing outcomes of most mergers and acquisitions.

Question 12

Mergers,acquisitions,and alliances may be viewed not just as instruments of corporate strategy but as strategies in themselves.

Question 13

Most of the biggest mergers and acquisitions since 2000 have been horizontal-i.e.between companies in the same industry.This reflects the fact that:

A)Antitrust authorities have been more concerned with vertical than horizontal mergers and acquisitions.
B)By showing that diversification does not offer significant risk-spreading benefits,modern financial theory has undermined the attractions of diversifying mergers and acquisitions.
C)Horizontal mergers and acquisitions offer the greatest potential for value creation through cost reduction and moderating competition.
D)CEOs favor horizontal mergers and acquisitions because of their desire to eliminate rivals.

Question 14

In order to gain a new organizational capability,it is usually cheaper and less risky to acquire a company that already possesses that capability than to develop that capability internally.

Question 15

In the automobile and beer industries,acquisitions have been motivated primarily by the goal of international expansion.

Question 16

Mergers and acquisitions represent paradoxes in the sense that:

A)The stock market remains suspicious of them,despite widespread evidence of their effectivess as tools of corporate strategy
B)Companies continue to be enthusiastic in initiating acquisitions despite empirical evidence that acquisition destroy shareholder value for acquirers
C)Both of these
D)Neither of these

Question 17

The only clear finding from several decades of empirical research into the outcomes of mergers and acquisitions is that the shareholders of the acquiring firms lose money.

Question 18

Cross-border acquisitions tend to have the strongest strategic logic,but give rise to the greatest challenges of post-merger integration.

Question 19

In Capron and Mitchell's decision framework for selecting the right growth path,if a firm finds that its resources and capabilities do not fit with its current strategy,then acquisition should be first option considered and internal development the last option.

Question 20

The "lemons problem" in the market for companies refers to the fact that the sellers of companies have better information about the company than do would-be buyers.

Question 21

The main reason that empirical evidence of shareholder returns fails to provide conclusive evidence on the performance outcomes of mergers and acquisition is that:

A)Stock market data only shows expectations about performance,not actual performance
B)Stock market data is can only show the impact of M&A announcements and then only over a period of up to 12 months
C)Both (a)and (b)
D)Neither (a)nor (b)

Question 22

Strategic alliances frequently play an important role in a firm's internationalization strategy because:

A)Alliances offer a means of sharing the high risks involved in international expansion.
B)Internationalizing firms often lack the local knowledge and access to distribution channels that a local partner can provide.
C)Alliances offer greater security than a wholly-owned subsidiary.
D)Alliances offer greater flexibility than alternative internationalization modes.

Question 23

Which of the following was not a contributory factor to the success of Disney's post-acquisition integration of Pixar?

A)Personal and professional respect among key personnel at the two companies.
B)Disney's rapid integration of Pixar within its own animated productions unit.
C)Protection of Pixar's creative culture and employment arrangements.
D)Maintaining the support of Pixar's president by making him head of Disney's combined animated productions unit.

Question 24

Compared to alliances between domestic partners,international alliances typically offer:

A)Greater risk without greater potential return.
B)Higher potential returns but with greater risk of disagreement and failure.
C)A wider range of possible outcomes dependent upon the compatibility of the national cultures of the partners involves.
D)Higher potential return and moderate risks so long as the potential for disagreement is recognized and a mechanism is established for arbitrating disputes.

Question 25

Reckitt Benckiser's multiple acquisitions of consumer products companies have been motivated by its quest for:

A)Restructuring opportunities.
B)International diversification.
C)Building a portfolio of consumer brands.
D)Scale economies in production and marketing.

Question 26

The main reason that a strategic alliance is often an attractive alternative to a merger or acquisition is:

A)Alliances avoid government restrictions relating to antitrust and foreign direct investment.
B)Alliances permit firms to access one another's resources and capabilities without the costs and risks of a merger or acquisition.
C)Alliances allow a firm to create growth options.
D)Alliances allow risk sharing in giant projects.

Question 27

The fact that acquisitions impose substantial costs on acquiring firms (including both the acquisition premium and legal and advisory fees)implies that:

A)Acquirers need to be sure that potential of the acquisition to create value exceeds the costs of incurred by the acquisition.
B)Acquisitions tend to be in the interests of managers but contrary to the interests of shareholders.
C)Small acquisitions to be preferred to large acquisitions.
D)Boards of directors should be more active in opposing acquisition proposals.

Question 28

In technology-based industries,the most common reason for established companies to acquire small,start-up firms is in order to:

A)Preempt competitive attacks from potential rivals.
B)Acquire capabilities in emerging areas of technology.
C)Boost revenue growth as their own core businesses experience slower growth.
D)Recruit the entrepreneurial leaders of stat-up companies in order to revitalize their own managerial ranks.

Question 29

For acquiring firms,empirical studies show that,on average,the returns to shareholders are:

A)Positive,but not significantly so.
B)Negative.
C)Either negative or insignificant from zero.
D)Too varied to generalize.

Question 30

Acquiring companies often pay excessive prices to acquire target companies because:

A)To gain acceptance of the bid by the majority of a target company's shareholders,acquirers must pay a significant premium over the target company's stock market valuation.
B)Information asymmetry: acquiring companies knows less about the true value of target companies than do these companies themselves.
C)Acquirer are often drawn into a competitive bidding wars.
D)All of these.

Question 31

The transformations of:
- South African Breweries into SAB Miller,the world's second biggest beer company,
- North Carolina National Bank into Bank of America Corporation,the #2 bank in the US
- Comcast into the world's biggest media company
Are evidence of:

A)The opportunities that the turbulent world offers to ambitious corporate leaders
B)The potential that mergers and acquisition to effect major strategic transformations within a short time
C)The critical importance of timing when using mergers and acquisitions to initiate major strategic transformations
D)The need for antitrust policy to concentrate upon preventing the emergence of dominant firms,not on regulating their behavior once they have been created

Question 32

The wave of mergers and acquisitions in the beer industry that have created giants such as Anheuser Busch Inbev,SAB Miller and Heineken have been motivated primarily by the desire to:

A)Extend geographical scope
B)Exploit cost savings from combining operations within the same markets
C)Acquire organizational capabilities
D)Reduce risk

Question 33

Acquisition is the preferred mode of diversification for most firms because:

A)The stock market confers with high price/earnings ratios on companies that pursue diversifying acquisitions.
B)Empirical research shows that diversifying acquisitions typically create significant value for the acquiring firm.
C)The alternative of acquiring a minority stake does not give the diversifying firms significant decision-making influence over the target firm.
D)The alternative of setting up a new enterprise in the industry to be entered involves excessive time and risk.

Question 34

Which are the following statements about pre-merger planning is untrue?

A)It is easier to predict the outcomes of horizontal M&A than other types of M&A
B)In the case of horizontal M&A,it is easier to predict the impact on revenues than the impact on costs
C)The outcomes of a hostile acquisition are more difficult to predict than the outcomes of a friendly acquisition
D)Acquisitions that are directed towards a firm reinventing its business model should be regarded as more risky than those which leverage its existing business model.

Question 35

What distinguishes a joint venture from other types of strategic alliance is that in a joint venture:

A)The partners hold equity stakes in one another.
B)The partners combine their top management teams.
C)The partners create a new company which they jointly own.
D)The partners are from different countries.

Question 36

The continuing popularity of mergers and acquisitions among companies despite the lack of empirical evidence of their benefits suggests:

A)Many mergers and acquisitions are motivated by growth rather than profitability
B)Mergers and acquisitions by the leading firms in an industry promotes imitation by other firms in the industry
C)Both of these
D)Neither of these