Mergers and Acquisitions Quiz

Types of Acquisitions

• One firm buys a controlling interest in another firm
• Two firms agree to integrate their operations on a relatively coequal basis
• Two firms combine to create a third separate entity
• One firm breaks into two firms

Failed Acquisition

• The organization will typically restructure
• bankruptcy is not a typical outcome
• Focus on building private synergy is not a typical outcome
• Increasing integration is not a typical outcome

Leveraged Buyout

• A restructuring action where a party buys all of the assets of a business, financed largely with debt, and takes the firm private
• It is not a firm restructuring itself by selling off unrelated units
• It is not a firm pursuing its core competencies by seeking to build a top management team
• It is not an action where the management of the firm and/or an external party buys all of the assets of a business financed largely with equity

Junk Bonds

• Unsecured obligations that are not tied to specific assets for collateral
• They are not bearer bonds, no-load stocks, or penny stocks

Restructuring Strategies

• Realigning is a restructuring strategy
• Downsizing is a restructuring strategy
• Downscoping is a restructuring strategy
• Leveraged buyouts are not a restructuring strategy

Barriers to Entry

• The presence of barriers to entry in a particular market will generally make acquisitions less likely as an entry strategy

Acquisition Types

• A hostile acquisition is when the target firm does not solicit the acquiring firm's bid
• It is not a stealth raid, market for corporate control, or board of directors

Incentives to Diversify

• Overall firm risk reduction is an internal firm incentive to diversify
• Uncertain future cash flows is an internal firm incentive to diversify
• Stricter interpretation of antitrust laws is not an internal firm incentive to diversify
• Low performance is not an internal firm incentive to diversify

Related Acquisitions

• An acquisition is considered least related when the firms are not similar in their product or service offerings
• Examples of related acquisitions include a candy manufacturer purchasing a chemical laboratory, a chain of garden centers acquiring a landscape architecture firm, and a hospital acquiring a long-term care nursing home

Multipoint Competition

• Multipoint competition occurs when two companies, such as UPS and FedEx, simultaneously compete in the same product areas or geographic markets

Corporate-Level Strategy

• Concerned with what product markets and businesses the firm should be in
• Not concerned with whether the firm should invest in global or domestic businesses
• Not concerned with whether the portfolio of businesses should generate immediate above-average returns or should be troubled businesses that will create above-average returns only after restructuring

Synergy

• The downside of synergy in a diversified firm is increasing independence of businesses
• It is not competing against the firm in multiple markets

Multimarket Competition

• Occurs when firms compete against each other in several geographic or product markets
• Not when firms sell different products to the same customer
• Not when firms have a high level of awareness of their competitors' strategic intent
• Not when firms simultaneously enter into an attack strategy

Competitive Analysis

• Both market commonality and resource similarity affect the awareness and motivation of a firm to undertake actions and responses
• Not first-mover advantages and corporate size
• Not management capabilities and competitive analysis
• Not speed of management decisions and management actions

Responsiveness

• Relates to the gains or losses a firm will experience if it attacks a rival or responds to an attack by a rival
• Not motivation, awareness, or ability

Fast-Cycle Markets

• Companies in fast-cycle markets need to profit quickly from an innovative product because the technology used is not proprietary
• Because product prices fall quickly in fast-cycle markets
• Because counterattacks from rivals come quickly
• Not because the prices of component parts tend to rise rapidly