Chapter 10 - Mergers and Acquisitions

Question 1

Question

A firm engages in a(n) ________ when it purchases a second firm.

Answer

acquisition
joint venture
strategic alliance
equity alliance

Question 2

Question

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.

Answer

market stake
equity share
controlling share
equity stake

Question 3

Question

A(n) ________ acquisition occurs when the management of a target firm wants to be acquired.

Answer

hostile
admirable
strategic
friendly

Question 4

Question

When a firm has not sold shares on the public stock market, it is known as

Answer

closely held.
privately held.
publicly traded.
a small cap stock.

Question 5

Question

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

Answer

acquisition premium.
acquisition discount.
acquisition margin.
acquisition price.

Question 6

Question

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)

Answer

joint venture.
acquisition.
merger.
equity agreement.

Question 7

Question

The price of each of a firm's shares multiplied by the number of shares outstanding represents the firm's

Answer

total equity base.
current market value.
total market share.
current market share.

Question 8

Question

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.

Answer

$10,000
$20,000
$50,000
$0.00

Question 9

Question

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.

Answer

vertical
horizontal
market extension
product extension

Question 10

Question

If eBay were to acquire a smaller online auction company, this would be an example of a ________ merger.

Answer

conglomerate
vertical
market extension
horizontal

Question 11

Question

In a ________ merger, firms acquire complementary products through their merger and acquisition activities.

Answer

vertical
market extension
product extension
horizontal

Question 12

Question

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.

Answer

product extension
market extension
conglomerate
vertical

Question 13

Question

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.

Answer

conglomerate
vertical
horizontal
product extension

Question 14

Question

________ 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.

Answer

Pecuniary
Diversification
Technical
Vertical

Question 15

Question

Which of the following is a source of diversification economies?

Answer

marketing
production
scheduling
portfolio management

Question 16

Question

________ economies are achieved by the ability of firms to dictate prices by exerting market power.

Answer

Pecuniary
Technical
Diversification
Production

Question 17

Question

________ economies are achieved by improving a firm's performance relative to its risk attributes or lowering its risk attributes relative to its performance.

Answer

Technical
Diversification
Pecuniary
Market

Question 18

Question

Which of the following is a financial motivation for why bidding firms might want to engage in merger and acquisition strategies?

Answer

to increase leverage opportunities
to capture economies of scale
to adopt more efficient production or organizational technology
to engage in vertical integration

Question 19

Question

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?

Answer

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

Question 20

Question

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

Answer

$0.00.
less than $80,000.
more than $80,000.
$80,000.

Question 21

Question

Wealthy individuals who provide capital to entrepreneurs to help them grow their businesses are known as

Answer

business angels.
venture capitalists.
stockholders
CEOs.

Question 22

Question

________ firms typically raise money from numerous smaller investors, which they then invest in a portfolio of entrepreneurial firms.

Answer

Business angel
Venture capital
Closely held
Private equity

Question 23

Question

In a(n) ________, a firm, typically working with an investment banker, sells its equity to the public at large.

Answer

FTC
merger
IPO
acquisition

Question 24

Question

Entrepreneurs must rely on capital generated from their ongoing operations or ________ and debt capital provided by banks.

Answer

initial public offering
retained earnings
venture capital firms
operating budgets

Question 25

Question

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

Answer

ensure survival.
improve firm reputation.
reduce agency problems.
reduce managerial hubris.

Question 26

Question

Which of the following actions should bidding firm managers take to help earn superior performance in an acquisition strategy?

Answer

Share information with other bidders.
Delay the closing of the deal.
Avoid winning bidding wars.
Operate in competitive acquisition markets.

Question 27

Question

A thinly traded market is a market where

Answer

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.

Question 28

Question

To ensure that the owners of target firms appropriate whatever value is created by a merger or acquisition, managers in these target firms should

Answer

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.

Question 29

Question

________ 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.

Answer

Standstill agreements
Poison pills
Shark repellents
Greenmail

Question 30

Question

Firms using ________ fend off an acquisition by taking over the firm or firms bidding for them.

Answer

shark repellents
a crown jewel sale
the Pac Man defense
a golden parachute

Question 31

Question

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.

Answer

white knight agreement
greenmail agreement
shark repellent
golden parachute

Question 32

Question

Mergers and acquisitions used to create diversification strategies should be managed through the

Answer

M-form structure.
functional structure.
U-form structure.
matrix structure.

Question 33

Question

The most significant challenge in integrating bidding and target firms has to do with

Answer

accounting differences.
cultural differences.
operational differences.
logistic differences.

Question 34

Question

A ________ is another bidding firm that agrees to acquire a particular target in the place of the original bidding firm.

Answer

golden parachute
greenmail
white knight
crown jewel

Question 35

Question

________ include a variety of relatively minor corporate governance changes that, in principle, are supposed to make it more difficult to acquire a target firm.

Answer

Shark repellents
White knights
Greenmail
Poison pills

Question 36

Question

Supermajority voting rules are an example of a

Answer

poison pill.
white knight.
golden parachute.
shark repellent.

Question 37

Question

________ does not affect the wealth of target firm equity holders.

Answer

Blue Man defense
Pac Man defense
Golden parachute
Silver parachute

Question 38

Question

________ 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.

Answer

A Pac Man defense
A Blue Man defense
A crown jewel sale
A golden parachute defense

Question 39

Question

If P&G's bid for Gillette was invited by Gillette's management, this would be an example of a

Answer

hostile acquisition.
joint venture.
friendly acquisition.
merger.

Question 40

Question

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)

Answer

18% acquisition premium.
82% acquisition discount.
82% acquisition premium.
18% acquisition discount.

Question 41

Question

Since both P&G and Gillette are consumer products firms, this acquisition is best described as a

Answer

vertical merger.
horizontal merger.
market extension merger.
conglomerate merger.

Question 42

Question

P&G's acquisition of Wella in 2003 is an example of a

Answer

market extension merger.
conglomerate merger.
vertical merger.
product extension merger.

Question 43

Question

P&G's purchase of AG-Hutchison Ltd in 2004 is an example of a

Answer

conglomerate merger.
vertical merger.
market extension merger.
conglomerate acquisition.

Question 44

Question

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.

Answer

technical
pecuniary
diversification
vertical

Question 45

Question

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

Answer

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.

Question 46

Question

If Gillette's managers wanted to maximize the value that Gillette received from its acquisition by P&G, they should

Answer

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.

Question 47

Question

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

Answer

the Pac Man defense.
a poison pill.
greenmail.
a shark repellent.

Question 48

Question

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.

Answer

logistical
cultural
operational
distribution

	Created by Strategy IO about 8 years ago

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Chapter 10 - Mergers and Acquisitions

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Question 1

Question 2

Question 3

Question 4

Question 5

Question 6

Question 7

Question 8

Question 9

Question 10

Question 11

Question 12

Question 13

Question 14

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Question 19

Question 20

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Question 22

Question 23

Question 24

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Question 27

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Question 30

Question 31

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Question 48

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