Deck 4: Planning: Developing Business and Acquisition Plans: Phases 1 and 2 of the Acquisition Process

Question 1

What is the difference between a business plan and an acquisition plan?

Answer 1

The business plan articulates a mission or vision for the firm and a business strategy for realizing that
mission for all of the firm's stakeholders. If it is determined following an analysis of available options that an
acquisition or merger is necessary to implement the business strategy, a merger/acquisition plan is required. The
acquisition plan is a specific type of implementation strategy. The acquisition plan focuses on short-term rather
than strategic or longer-term business issues. It consists of management objectives, a resource assessment, a
market analysis, management's preferences for managing the process, clearly specified actions, a timetable for completing
the acquisition, and the name of the individual responsible for making it all happen.

Question 2

you believe Facebook paid too much for WhatsApp? Why? Why not? Be specific in identifying the assumptions underlying your argument.

Answer 2

Based on market value per user, a commonly used valuation metric, Twitter at the time of the announced takeover of WhatsApp was $12.45 per user (i.e., $30 billion/241 million users). This compares to the amount per user paid by Facebook for each WhatsApp user of about $42 ($19 billion/450 million users). Based on this metric, Facebook overpaid for WhatsApp. This assumes that Twitter's users are accurately valued by investors at the moment in time this valuation metric is calculated and that the two firms, WhatsApp and Twitter, exhibit similar expected risk and earnings growth potential. The price paid for each Instagram user by Facebook was about $33 per user. Again, based on this comparison, it would appear that Facebook overpaid.
Those that feel that Facebook did not overpay are assuming that the current frenetic growth in users is sustainable and that this growing user base can be monetized to generate substantial future earnings growth eventually enabling Facebook to earn or exceed its cost of capital. Assuming WhatsApp continues to eschew advertising (whose absence probably stimulates user growth), it is unclear at this point in time how this earnings growth will be achieved. Therefore, the sense that Facebook did not overpay is based more on hope than compelling logic.

Question 3

In your judgment, which of the acquisition plan management preferences discussed in this chapter is the most important
and why?

Answer 3

While it is difficult to say that one preference is necessarily more important than another, the criteria that
management indicates should be used for selecting the potential target firms may be among the most important,
because they indicate the general characteristics of the firm that management considers most attractive.

Question 4

Given the nature of technology, do you believe it is possible for one firm to dominant the mobile messaging space? Explain your answer.

Question 5

Dell Computer is one of the best known global technology companies. In your opinion, who are Dell's primary customers?
Current and potential competitors? Suppliers? How would you assess Dell's bargaining power with respect to its customers
and suppliers? What are Dell's strengths/weaknesses versus it current competitors?

Question 6

.Discuss the types of analyses inside GE that may have preceded GE's 2008 announcement that it would spin-off its
consumer and industrial business to its shareholders.

Question 7

What are the advantages and disadvantages of using an acquisition to implement a business strategy as
compared to a joint venture?

Question 8

business plan articulates a mission or vision for the firm and a strategy for realizing that mission.

Question 9

planning-based acquisition process consists of both a business plan and acquisition plan, which drive all subsequent phases of the acquisition process.

Question 10

Why is it important to get senior management heavily involved early in the acquisition process?

Question 11

Determining where a firm should compete starts with deciding who the firm's current or potential customers are and what are their needs.

Question 12

alternatives to acquisition did Facebook have in dealing with WhatsApp? Why was acquisition the preferred option?

Question 13

you believe that Facebook is justified in its aggressive acquisition strategy? What are the assumptions implicit in this strategy? Are they credible? Why? Why not?

Question 14

How does planning facilitate the acquisition process?

Question 15

Ashland Chemical, the largest U.S. chemical distributor, acquired chemical manufacturer, Hercules Inc., for $3.3 billion in

Question 16

Why is it important to understand the assumptions underlying a business plan or an acquisition plan?

Question 17

This move followed Dow Chemical Company's purchase of Rohm & Haas. The justification for both acquisitions was
to diversify earnings and offset higher oil costs. How will these combinations offset escalating oil costs?

Question 18

After having acquired the OfficeMax superstore chain in 2003, Boise Cascade announced the sale of its core paper and
timber products operations in late 2004 to reduce its dependence on this highly cyclical business. Reflecting its new
emphasis on distribution, the company changed its name to OfficeMax, Inc. How would you describe the OfficeMax
mission and business strategy implicit in these actions.

Question 19

might existing Facebook shareholders be hurt by the deal? What do current shareholders have to assume about future earnings growth to benefit from the deal?

Question 20

Describe how Facebook has chosen to deal with cultural differences that may exist between it and the firms it acquires? What are the advantages and disadvantages of Facebook's approach to dealing with cultural differences?

Question 21

Coca Cola is an example of a company that pursues both a differentiation and cost leadership strategy.

Question 22

firm's core competencies refer to those skills which are required to produce the firm's primary products but
which have little or no application in producing related products.

Question 23

Strong sales growth and low entry barriers characterize the embryonic and growth stages of a product's life cycle.

Question 24

Firms adopting a focus strategy compete primarily based on their superior understanding of how to satisfy their customers needs better than the competition.

Question 25

corporate mission statement should be defined as broadly as possible since it seeks to describe the corporation's reason for being, and it should not exclude the firm from pursuing any significant opportunities.

Question 26

analysis of markets should involve current and potential customers, as well as current and potential competitors, but
it should exclude suppliers.

Question 27

Market segmentation involves identifying customers with common characteristics and needs.

Question 28

firm should choose that strategy from among the range of reasonable alternatives that enables it to achieve its stated objectives in an acceptable time period without regard for resource constraints.

Question 29

differentiation strategy is one in which a firm's products are perceived by customers to be slightly different from other firms' products in the same industry.

Question 30

market targeted by the firm should reflect the fit between the corporation's primary strengths and competencies and its ability to satisfy customer needs better than the competition.

Question 31

Corporate objectives are defined as what is to be accomplished within a specific period.

Question 32

Firms adopting a focus strategy tend to concentrate their efforts by selling a few products to a single market and compete primarily on price.

Question 33

The evolution of the growth of a product can be characterized in four stages: embryonic, growth, maturity, and decline. This description is called a business attractiveness matrix.

Question 34

cost leadership strategy can be highly destructive to the firm with the largest market share if pursued concurrently by a number of firms with very different market shares.

Question 35

differentiation strategy is one in which customers believe that various competitors have significantly different cost structures.

Question 36

acquisition plan defines the objectives to be achieved by acquiring another firm, management's preferences as to how the acquisition process should be managed, resources required, and the roles and responsibilities of those responsible for implementing the plan.

Question 37

price or cost leader in an industry is usually the firm with the largest market share.

Question 38

competitive self-assessment involves an analysis of the firm's absolute strengths and weaknesses.

Question 39

competencies should be defined as narrowly as possible.

Question 40

experience curve is most important in analyzing industries with low fixed costs.

Question 41

While management's upfront involvement in the acquisition process is crucial, management should largely disengage from the process until the transaction is completed.

Question 42

The market or markets in which a firm chooses to compete should reflect the fit between the firm's primary strengths and its ability to satisfy customers needs better than the competition.

Question 43

Planning in advance of a merger or an acquisition necessarily slows down decision making.

Question 44

The implementation strategy refers to the way in which a firm chooses to implement its business strategy.

Question 45

Operating risk addresses the ability of the buyer to manage the acquired company.

Question 46

Good planning expedites sound decision making.

Question 47

Resource limitations in developing the acquisition plan include money, borrowing capacity, as well as management time and skills.

Question 48

acquisition is one of many options available for implementing a firm's business plan.

Question 49

A collection of markets is said to comprise an industry.

Question 50

A cost leadership strategy is most appropriate when pursued concurrently by a number of firms in the same industry with approximately the same market share.

Question 51

Market profiling entails collecting sufficient data to accurately assess and characterize a firm's competitive environment within its chosen markets.

Question 52

Contingency plans are actions that are taken as an alternative to the firm's current business strategy.

Question 53

Financial risk refers to the buyer's willingness and ability to leverage a transaction as well as the willingness of shareholders to accept near-term earnings per share dilution.

Question 54

Examples of management preferences used in an acquisition plan include their preference for an asset or stock purchase or openness to partial rather than full ownership of the target firm.

Question 55

Potential competitors include firms (both domestic and foreign) in the current market, those in related markets, current customers, and current suppliers.

Question 56

The joint venture may represent an attractive alternative to a merger or acquisition.

Question 57

A corporate mission statement seeks to describe the corporation's purpose for being and where the corporation hopes to go.

Question 58

acquisition plan is developed if management determines that an acquisition or merger is required to implement the firm's business strategy.

Question 59

A merger or acquisition is generally not considered an example of an implementation strategy.

Question 60

Stakeholders only include a firm's shareholders.

Question 61

is the core competence underlying Honda Corporation product offering?

A) Product distribution
B) Marketing
C) Internal combustion engine design
D) Exterior design
E) Organizational structure

Question 62

In selecting an appropriate business strategy, all of the following are relevant questions except for

A) Does the firm have sufficient resources to implement the strategy?
B) Have all reasonable alternatives available for implementing the strategy been evaluated?
C) What are the key assumptions underlying the various strategic options under consideration?
D) What do the firm's targeted customers primarily consider in making purchasing decisions?
E) Why might an acquisition be preferred to a joint venture in implementing the business strategy?

Question 63

Overpayment risk involves the dilution of EPS or a reduction in its growth rate resulting from paying significantly more than the economic value of the acquired firm.

Question 64

A diversification strategy involves a firm moving into only those businesses which are unrelated to the firm's current core business.

Question 65

Determining how to compete requires a firm's management to consider which of the following factors?

A) Factors critical to successfully competing in its targeted markets
B) An external market analysis
C) An evaluation of what criteria customers use to make buying decisions
D) Availability of product substitutes
E) All of the above

Question 66

The acquisition plan establishes a schedule of milestones to keep the process on track and clearly defines the authority and responsibilities of the individual charged with managing the acquisition process.

Question 67

Management can obtain insight into the firm's probable future cash requirements and in turn its value by determining its position in its industry's product life cycle.

Question 68

The acquisition plan provides the detail needed to implement effectively the firm's business strategy,

Question 69

In a conducting a self-assessment, a firm should consider all of the following except for

A) The degree on government regulation in its targeted markets
B) The effectiveness of its R&D activities
C) Product quality
D) Responsiveness to changing customer needs
E) Brand name recognition

Question 70

Market profiling requires an analysis of all of the following factors except for:

A) Customers
B) Suppliers
C) Core competencies
D) Current and potential competitors
E) Product or service substitutes

Question 71

Acquisition plan objectives should be directly linked to key business plan objectives.

Question 72

Accounting considerations rarely affect the decision to buy another business rather than to build the business internally.

Question 73

of the following represent commonly found components of a well-constructed business plan except for

A) Mission statement
B) Strategy
C) Acquisition plan
D) Objectives
E) Tactical or implementation plans

Question 74

Which of the following represent key components of the acquisition process

A) Business plan
B) Integration plan
C) Search plan
D) Negotiation process
E) All of the above

Question 75

Which of the following examples represents the best application of a firm's primary core competence?

A) Honda Motors manufactures cars, motorcycles, lawnmowers, and snow blowers
B) IBM provides both software services and manufactures computer hardware
C) PepsiCo manufactures and distributes soft drinks and manages restaurant chains
D) Microsoft sells operating system software and access to the internet through its MSN subscription service
E) McDonalds sells hamburgers and pizza.

Question 76

All of the following represent generic business strategies except for

A) Cost leadership
B) Differentiation
C) Focus
D) Market segmentation
E) A and D

Question 77

of the following questions are relevant for conducting a self-assessment or internal analysis of the firm except for

A) What are the firm's critical strengths and weaknesses as compared to the competition?
B) Can the firm's critical strengths be easily duplicated and surpassed by the competition?
C) Can the firm's critical strengths be used to gain strategic advantage in the firm's chosen market?
D) What are the least important factors customers consider in making purchasing decisions?
E) Can the firm's key weaknesses be exploited by the competition?

Question 78

Determining where a firm should compete requires management to consider which of the following factors?

A) Determining the firm's current customers only
B) Determining the firm's potential customers only
C) Determining the needs of current and potential customers, as well as suppliers
D) Determining the needs of potential suppliers only
E) A and D only

Question 79

Which of the following best defines market segmentation

A) The identification of customers with common characteristics and needs
B) The identification of customers with heterogeneous characteristics and needs
C) The grouping of customers with different characteristics
D) The process of reducing large markets into smaller markets without regard to customer characteristics
E) The process of identifying the various markets that comprise an industry without regard to customer characteristics

Question 80

A good mission statement should be

A) Very broadly defined
B) Very narrowly defined
C) Reference the firm's targeted markets, product or service offering, distribution channels and management's core operating beliefs
D) Describe only the purpose of the corporation
E) A and C only