Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

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 riskier than those which leverage its existing business model.

Question 3

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

Accepted Answer

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 4

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.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

Acquiring companies typically pay between 20% and 40% more than the pre-bid market capitalization to acquire target companies.The main reason for this sizable acquisition premium is:

Accepted Answer

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) Excessive optimism causes acquirers to overvalue their acquisition targets 
D) Investment bankers typically mislead the9r clients in their company valuations in an effort to boost their fees

Question 7

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

Accepted Answer

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 8

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

Accepted Answer

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 9

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

Accepted Answer

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. To instill more effective programs of corporate social responsibility

Question 10

The tendency for M&A activity is highly cyclical, with a heavy clustering in specific sectors reflects:

Accepted Answer

A) General economic conditions 
B) Changing monetary conditions including interest rates and quantitative easing 
C) Imitative behavior among companies 
D) Excessive liquidity on company balance sheets

Question 11

The forces that gave rise the created the industrial districts of Italy are essentially the same as those that have caused clustering of ﬁlm production companies in Hollywood and electronics and IT companies in Silicon Valley.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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 (a) and (b) 
D) Both (a) and (b) plus the fact that most investment analysts view takeovers as a sign of a dynamically-managed company.

Question 14

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

Accepted Answer

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

Question 15

The main parallel between the merger boom in the US at the end of the 19th century and the recent merger boom in the chemicals, beer, food, media and communications, and pharmaceutical industries is that both involves horizontal mergers and resulted in the creation of market-dominating companies:

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) Slightly positive 
B) Slightly negative 
C) Insigniﬁcant from zero 
D) Too varied to generalize.

Question 17

Mergers and acquisitions represent paradoxes in the sense that:

Accepted Answer

A) The stock market remains suspicious of them, despite widespread evidence of their effectives as tools of corporate strategy 
B) Companies continue to be enthusiastic in initiating acquisitions despite empirical evidence that, on average, acquisitions destroy shareholder value for acquirers 
C) The CEOs who initiate them are lauded by the business media, despite the suspicious that they are vehicles for CEO testosterone-fueled hubris 
D) They are often initiated by companies that profess a stakeholder orientation despite the fact that it is investment bankers who are the main beneficiaries, while consumers and employees are the main losers

Question 18

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

Accepted Answer

A) For companies with high price/earnings ratios, acquiring companies in other sectors that have low price/earnings ratios offers an attractive means of boosting market capitalization 
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 is slow and risky.

Exam 14: External Growth Strategies: Mergers, Acquisitions, and Alliances

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.

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

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

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.

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.

Acquiring companies typically pay between 20% and 40% more than the pre-bid market capitalization to acquire target companies.The main reason for this sizable acquisition premium is:

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

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

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

The tendency for M&A activity is highly cyclical, with a heavy clustering in specific sectors reflects:

The forces that gave rise the created the industrial districts of Italy are essentially the same as those that have caused clustering of ﬁlm production companies in Hollywood and electronics and IT companies in Silicon Valley.

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.

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

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

The main parallel between the merger boom in the US at the end of the 19^th century and the recent merger boom in the chemicals, beer, food, media and communications, and pharmaceutical industries is that both involves horizontal mergers and resulted in the creation of market-dominating companies:

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

Mergers and acquisitions represent paradoxes in the sense that:

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