A firm engages in a(n) ________ when it purchases a second firm.
acquisition
joint venture
strategic alliance
equity alliance
When one firm acquires a(n) ________ of another firm, it has acquired enough of that firm's assets so that the acquiring firm is able to make all the management and strategic decisions in the target firm.
market stake
equity share
controlling share
equity stake
A(n) ________ acquisition occurs when the management of a target firm wants to be acquired.
hostile
admirable
strategic
friendly
When a firm has not sold shares on the public stock market, it is known as
closely held.
privately held.
publicly traded.
a small cap stock.
The difference between the current market price of a target firm's shares and the price a potential acquirer offers to pay for those shares is known as an
acquisition premium.
acquisition discount.
acquisition margin.
acquisition price.
When Sears and Kmart, two retail firms of relatively equal size in the United States, agreed to combine their assets, this was an example of a(n)
joint venture.
acquisition.
merger.
equity agreement.
The price of each of a firm's shares multiplied by the number of shares outstanding represents the firm's
total equity base.
current market value.
total market share.
current market share.
In an unrelated acquisition, if 5 firms are interested in acquiring a firm and each of the bidding firms had a current market value of $30,000 while the current market value of the target firm is $20,000, this acquisition is likely to generate economic profits of ________ for the acquiring firm.
$10,000
$20,000
$50,000
$0.00
If an electronics manufacturer were to acquire a chain of retail electronic stores to sell its products, this would be an example of a ________ merger.
vertical
horizontal
market extension
product extension
If eBay were to acquire a smaller online auction company, this would be an example of a ________ merger.
conglomerate
In a ________ merger, firms acquire complementary products through their merger and acquisition activities.
When eBay acquired Baaze.com, an Indian auction firm, in order to enter the Indian online auction market, this was an example of a ________ merger.
If there are no vertical, horizontal, product extension, or market extension links between firms, the FTC defines the merger or acquisition activity between firms as a ________ merger.
________ economies are scale economies that occur when the physical processes inside a firm are altered so that the same amounts of input produce a higher quantity of outputs.
Pecuniary
Diversification
Technical
Vertical
Which of the following is a source of diversification economies?
marketing
production
scheduling
portfolio management
________ economies are achieved by the ability of firms to dictate prices by exerting market power.
Production
________ economies are achieved by improving a firm's performance relative to its risk attributes or lowering its risk attributes relative to its performance.
Market
Which of the following is a financial motivation for why bidding firms might want to engage in merger and acquisition strategies?
to increase leverage opportunities
to capture economies of scale
to adopt more efficient production or organizational technology
to engage in vertical integration
Which one of the following is not one of the reasons that Jensen and Ruback listed as to why bidding firms might want to engage in merger and acquisition strategies?
to reduce production or distribution costs
to gain market power in product markets
to expand individual managers' power within an organization
to eliminate inefficient target management
In a related acquisition, if there is one target firm and ten bidding firms, and the value of each of the bidding firms as a stand-alone entity is $50,000 and the value of the target firm as a stand-alone entity is $30,000, the market value of the combined entity will be
$0.00.
less than $80,000.
more than $80,000.
$80,000.
Wealthy individuals who provide capital to entrepreneurs to help them grow their businesses are known as
business angels.
venture capitalists.
stockholders
CEOs.
________ firms typically raise money from numerous smaller investors, which they then invest in a portfolio of entrepreneurial firms.
Business angel
Venture capital
Closely held
Private equity
In a(n) ________, a firm, typically working with an investment banker, sells its equity to the public at large.
FTC
merger
IPO
Entrepreneurs must rely on capital generated from their ongoing operations or ________ and debt capital provided by banks.
initial public offering
retained earnings
venture capital firms
operating budgets
Managers of bidding firms continue to engage in merger or acquisition strategies even though they usually do not generate profits for bidding firms in order to
ensure survival.
improve firm reputation.
reduce agency problems.
reduce managerial hubris.
Which of the following actions should bidding firm managers take to help earn superior performance in an acquisition strategy?
Share information with other bidders.
Delay the closing of the deal.
Avoid winning bidding wars.
Operate in competitive acquisition markets.
A thinly traded market is a market where
there are only a small number of buyers and sellers,where information about opportunities in this market is not widely know, and where interests besides purely maximizing the value of a firm can be important.
many firms are implementing acquisition strategies.
information about opportunities in this market is widely known.
the only important interest is to maximize the value of a firm.
To ensure that the owners of target firms appropriate whatever value is created by a merger or acquisition, managers in these target firms should
create a thinly traded market for their firm.
seek information from bidders.
close the acquisition deal quickly.
limit the number of bidders involved in the bidding competition.
________ is (are) a maneuver in which a target firm's management purchases any of the target firm's stock owned by a bidder and does so for a price that is greater than the current market value of that stock.
Standstill agreements
Poison pills
Shark repellents
Greenmail
Firms using ________ fend off an acquisition by taking over the firm or firms bidding for them.
shark repellents
a crown jewel sale
the Pac Man defense
a golden parachute
A ________ is a compensation arrangement between a firm and its senior management team that promises these individuals substantial cash payment if their firm is acquired and they lose their jobs in the process.
white knight agreement
greenmail agreement
shark repellent
golden parachute
Mergers and acquisitions used to create diversification strategies should be managed through the
M-form structure.
functional structure.
U-form structure.
matrix structure.
The most significant challenge in integrating bidding and target firms has to do with
accounting differences.
cultural differences.
operational differences.
logistic differences.
A ________ is another bidding firm that agrees to acquire a particular target in the place of the original bidding firm.
greenmail
white knight
crown jewel
________ include a variety of relatively minor corporate governance changes that, in principle, are supposed to make it more difficult to acquire a target firm.
White knights
Supermajority voting rules are an example of a
poison pill.
white knight.
golden parachute.
shark repellent.
________ does not affect the wealth of target firm equity holders.
Blue Man defense
Pac Man defense
Golden parachute
Silver parachute
________ is an example of an ineffective and inconsequential response with the idea that sometimes a bidding firm is interested in just a few of the businesses currently being operated by the target firm.
A Pac Man defense
A Blue Man defense
A crown jewel sale
A golden parachute defense
If P&G's bid for Gillette was invited by Gillette's management, this would be an example of a
hostile acquisition.
friendly acquisition.
If Gillette's total market value on the day the deal was announced was $48.30 billion, P&G's $57 billion offer would represent a(n)
18% acquisition premium.
82% acquisition discount.
82% acquisition premium.
18% acquisition discount.
Since both P&G and Gillette are consumer products firms, this acquisition is best described as a
vertical merger.
horizontal merger.
market extension merger.
conglomerate merger.
P&G's acquisition of Wella in 2003 is an example of a
product extension merger.
P&G's purchase of AG-Hutchison Ltd in 2004 is an example of a
conglomerate acquisition.
If one of the reasons P&G acquired Gillette was to gain greater market power in key industries, this would be an example of ________ economies.
technical
pecuniary
diversification
If P&G wanted to increase the probability that it would be able to earn superior economic performance from its acquisition of Gillette, P&G should
share information about Gillette with other potential bidders.
share information about strategic fit potential between P&G and Gillette with Gillette.
wait to submit its bid for Gillette until there are multiple interested bidders.
close the acquisition deal as quickly as possible.
If Gillette's managers wanted to maximize the value that Gillette received from its acquisition by P&G, they should
seek information from P&G about the value that P&G will receive from its acquisition of Gillette.
not engage in negotiations with any bidder but P&G.
close the acquisition as quickly as possible.
stop the acquisition.
If P&G's acquisition of Wella had been delayed because it had to overcome a stipulation in Wella's corporate bylaws requiring that more than 50% of Wella's board of directors had to approve the takeover, this would be an example of
the Pac Man defense.
a poison pill.
greenmail.
a shark repellent.
The most significant challenge P&G is likely to face in integrating each of the acquired companies into P&G's operations is likely to be ________ differences between P&G and each of the companies.
logistical
cultural
operational
distribution
