Deck 6: Postclosing Integration: Mergers, Acquisitions, and Business Alliances

Question 1

is it often considered critical to integrate the target business quickly? Be specific.

Answer 1

The acquirer's ability to earn the premium paid for a target is heavily dependent of the amount and timing of incremental cash flows due to cost and revenue related synergies since those received early contribute more to firm value. Moreover, a protracted integration is likely to create angst among employees, with the best ones prone to leave. Customer attrition may escalate as uncertainty about the potential disruption to their businesses grows and competitors are able to encourage them to change suppliers through improved credit terms and the promise of more reliable on-time delivery.

Question 2

integration process if done effectively can help to mitigate the potential loss of employees.

Answer 2

True

Question 3

Integration is among the most important factors contributing to the success or failure of mergers and acquisitions.

Answer 3

True

Question 4

In your judgment, are acquirers more likely to under-or-overestimate anticipated cost savings?
Explain your answer.

Question 5

employee defection during the integration period is an excellent way to realize cost savings?

Question 6

are examples of difficult decisions that should be made early in the integration process?

Question 7

are the messages that might be communicated to the various stakeholders of the new firm?

Question 8

do you believe P&G was unable to retain most of Gillette's top managers following the acquisition?

Question 9

did P&G rely heavily on personnel in both companies to implement post-closing integration?

Question 10

employee turnover is rarely a problem during the integration of the target firm into the acquirer.

Question 11

Daimler Benz acquired Chrysler Corporation in 1998, it announced that it could take 6 to 8
years to fully integrate the combined firm's global manufacturing operations and certain functions
such as purchasing. Why do you believe it might take that long?

Question 12

Rapid integration helps to realize the planned synergies and may contribute to a higher present value for the merger or acquisition.

Question 13

Researchers routinely employ abnormal financial returns around the announcement date of a merger or margin improvement subsequent to closing as ways for determining the success (or failure) of a takeover. What other factors do you believe should be considered in making this determination? Be specific.

Question 14

is candid and continuous communication so important during the integration phase?

Question 15

Cite examples of expenses you believe are commonly incurred in integrating target companies.

Question 16

Given the complexity of these two businesses, do you believe the acquisition of Gillette by P&G made sense? Explain your answer.

Question 17

Why did Citibank and Travelers resort to a co-CEO arrangement when they merged in 1998? What are the advantages and disadvantages of such an arrangement?

Question 18

is the integration phase of the acquisition process considered so important?

Question 19

should acquired companies be integrated quickly? What are the risks to rapid integration?

Question 20

A common justification for mergers of competitors is the potential for cross-selling opportunities it would provide. Comment on the challenges that might be involved in making such a marketing strategy work.

Question 21

Focus on customers is generally considered a factor critical to the ultimate success or failure of the merger or acquisition.

Question 22

management integration team's primary responsibilities should be monitoring the daily operations of the work-teams assigned to complete specific tasks during the integration.

Question 23

Employees of both the target and acquiring firms are likely to resist change following a takeover.

Question 24

hostile takeovers, the employees that are on the post-merger integration team should come from the acquiring firm because of concerns that the target firm's employees cannot be trusted.

Question 25

Employees or so-called "human capital" are often the most valuable asset of the target firm.

Question 26

acquiring firm that focuses heavily on integrating a target firm, which represents a sizeable portion of its total operations, frequently sees deterioration in its own current operating performance.

Question 27

Differences in the way the management of the acquiring and target firms make decisions, the pace of decision-making, and perceived values are common examples of cultural differences between the two firms.

Question 28

management integration team's primary responsibilities should be to focus on achieving long-term profit goals, monitoring actual performance to the goals of the integration plan, and on cost management.

Question 29

A newly merged company will often experience at least a 5-10% loss of current customers during the integration effort.

Question 30

Co-locating employees from the acquiring and target firms is rarely a good idea early in the integration period because of the inevitable mistrust that will arise.

Question 31

Divulging the true intentions of the acquiring firm to the target firm's employees should be deferred until it can be determined that such employees can be trusted.

Question 32

is generally more important to respond to current issues as they arise in your communication plans even if it results in the appearance of a somewhat inconsistent theme throughout communications made to stakeholders.

Question 33

Employee health care or disability claims tend to escalate just before a transaction closes, thereby adding to the total cost of the transaction. Who will pay such claims should be determined in the agreement of purchase and sale.

Question 34

Following an acquisition, long-term contracts with suppliers can generally be broken without redress.

Question 35

Revenue growth is often sacrificed in an effort to engage in aggressive cost cutting during the integration period.

Question 36

Key stakeholders in the integration effort generally include employees, customers, suppliers, communities, and regulators.

Question 37

So-called contract related transition issues often involve how the new employees will be paid and what benefits they should receive.

Question 38

In building a new organization for the combined firms, it is important to start with a clean sheet of paper and ignore the organizational structures that existed prior to the merger or acquisition.

Question 39

Communication plans should be developed for all stakeholder groups except for suppliers, because they generally have a lower priority in the integration process.

Question 40

Developing staffing plans involves identifying staffing requirements and developing a compensation strategy, among other things.

Question 41

Highly decentralized organizational structures generally expedite the integration effort more so than highly centralized structures.

Question 42

The speed with which two firms are merged is an important factor determining the long-term success of the merger.

Question 43

Whenever possible, integration planning should begin before closing.

Question 44

Integration of a new business into an existing one rarely affects current operations of either business.

Question 45

The extent to which the sales forces of the two firms are combined depends on their relative size, the nature of their products and markets, and their geographic location.

Question 46

Newly merged firms frequently experience a loss of existing customers as a direct consequence of the merger.

Question 47

Decentralized management control usually facilitates the integration of a newly acquired business.

Question 48

Pre-closing integration planning is likely to be easier in friendly than in hostile transactions.

Question 49

Sharing common goals, standards, services, and space can be a highly effective and practical way to integrate disparate corporate cultures.

Question 50

Benchmarking important functions such as the acquirer's and the target's manufacturing and information technology operations and processes is a useful starting point for determining how to integrate these activities.

Question 51

Benchmarking important functions such as the acquirer's and the target's manufacturing and IT operations and processes is a useful starting point for determining how to integrate these activities.

Question 52

It is crucial to focus on the highest leverage issues in implementing post-merger integration. True of False

Question 53

When two companies with very different cultures merge, the new firm inevitably adopts one of the two cultures that existed prior to the merger.

Question 54

Integration planning involves addressing human resource, customer, and supplier issues that overlap the change of ownership.

Question 55

A merger agreement should specify how the seller should be reimbursed for products shipped or services provided by the seller before closing but not paid for by the customer until after closing.

Question 56

The extent to which compensation plans for the acquiring and acquired firms are integrated depends on whether the two companies are going to be managed separately or fully integrated.

Question 57

Customers of newly acquired firms are usually slow to switch to other suppliers even if product quality deteriorates due to inertia.

Question 58

Plant consolidation rarely requires the adoption of a common set of systems and standards for all manufacturing activities.

Question 59

Enabling the customer to see a consistent image in advertising and promotional campaigns is often the greatest challenge facing the integration of the marketing function.

Question 60

Merging compensation systems can be one of the most challenging activities of the integration process.

Question 61

Staffing plans should be postponed to relatively late in the integration process.

Question 62

of the following are generally true about creating new organizations except for

A) Learn from prior organizational strengths and weaknesses
B) Business needs should drive structure and not the reverse
C) Centralized organizations facilitate the pace of the integration
D) The structure employed during the integration must be the one used in the long-run
E) Senior managers should be given responsibility for selecting their own subordinates

Question 63

Developing staffing plans requires which of the following?

A) Identifying personnel requirements
B) Determining the availability of skilled employees to fill these requirements
C) Developing compensation plans
D) A and B only
E) A, B, and C

Question 64

Which of the following is generally not true about communication during the integration period?

A) Communication should be as frequent as possible
B) Employees should be sheltered from bad news
C) The CEO of the combined firms should lead the effort to communicate to employees at all levels
D) Regularly scheduled employee meetings are often the best way to communicate progress to plan
E) The reasons for changing work practices and compensation must be thoroughly explained to employees

Question 65

The extent to which compensation plans are integrated depends on whether the two companies are going to be managed separated or integrated.

Question 66

acquirer's sales force sells very complex software solutions to its customers. The target firm manufactures commodity hardware products. Customers of the two firms sometimes buy both products. The benefits of integrating the sales force of both the acquirer and target firms includes all of the following except for

A) Generates significant cost savings by eliminating duplicate sales representatives
B) Eliminates related sales support expenses
C) Minimizes potential customer confusion by enabling customers to deal with a single sales representative
D) Facilitates communication of a consistent brand image
E) Makes product cross-selling more effective

Question 67

Rapid integration is usually important for all of the following reasons except for

A) Minimizes employee turnover
B) Improves the morale and productivity of current employees of both the acquiring and acquired firms
C) Builds confidence in current employees in the competence of management
D) Dispenses with the need for pre-integration planning
E) Reduces customer turnover

Question 68

of the following are generally considered stakeholders in the integration process except for

A) Suppliers
B) Employees
C) Competitors
D) Regulators
E) Customers

Question 69

All of the following are true about the challenges of integrating firms with different corporate cultures except for

A) Cultural issues can run the gamut from dress codes to compensation
B) The acquired firm's overarching culture is generally rapidly accepted by the target firm's employees
C) Small companies are usually highly unstructured and informal
D) There are often differences in culture even between firms in the same industry
E) Integration may be inappropriate if acquirer and acquired firm's cultures are extremely different.

Question 70

The newly integrated firm must be able to communicate a compelling vision to investors.

Question 71

Successfully integrated mergers and acquisitions are frequently those which

A) Communicate candidly and continuously
B) Appoint an integration manager and team with clearly defined goals and responsibilities
C) Establish well defined lines of authority
D) Focus on issues that have the greatest near-term impact
E) All of the above

Question 72

The post-closing integration process consists of all of the following activities except for
A) Developing staffing plans

A) Integration planning
B) Identifying the acquisition vehicle
B) Developing communication plans
C) Creating a new organization

Question 73

Post-closing integration may be viewed in terms of a process consisting of the following activities

A) Integration planning
B) Developing communication plans
C) Creating a new organization
D) Developing staffing plans
E) All of the above

Question 74

Which of the following represent commonly used techniques for integrating corporate cultures?

A) Employees are encouraged to share the same overall goals
B) "Best practices" in one department are employed in other departments
C) Multiple businesses share the same service such as the legal department
D) Employees are co-located
E) All of the above

Question 75

Certain post integration issues are best addressed prior to the closing. These include all of the following except for

A) Who will pay for employee severance expenses
B) How will employee payroll be managed during ownership transition
C) What will be done with checks from customers that the seller continues to receive after closing
D) How will the seller be reimbursed for monies owed to suppliers for products sold prior to closing
E) Who will pay for health care and disability claims that often arise just before a business is sold?

Question 76

Which of the following is not true about integrating business alliances?

A) Teamwork is the underpinning that makes alliances work.
B) Control is best exerted through coordination
C) Decisions are made at the top of the organization
D) Decisions are based on the premise that all participants to the alliance have had an opportunity to express their opinions.
E) The failure of one party to meet commitments will erode trust

Question 77

An effective starting point in setting up a structure is to learn from the past and to recognize that the needs of the business drive structure and not the other way around.

Question 78

of the following are often cited as factors critical to the ultimate success of the integration effort except for

A) Plan carefully, act quickly
B) The use of project management techniques
C) Early communication from the top of the organization
D) Salary and benefit reductions for many employees of the acquired company in order to realize cost savings
E) Making the tough decisions as early as possible

Question 79

When news about the integration is bad, it is critical never to share it with employees.

Question 80

Which of the following is not true about the primary responsibilities of the management integration team (MIT)?

A) The MIT should direct the daily operations of the individual work teams set up to implement certain activities.
B) Focus the organization on meeting ongoing business commitments and operational performance targets
C) The creation of an early warning system to determine when performance targets are likely to be missed.
D) Establish a rigorous communication program
E) Establishing a master schedule of what should be done by whom and by what date.