Podcast
Questions and Answers
What type of acquisition occurs when one firm buys a controlling interest in another firm?
What type of acquisition occurs when one firm buys a controlling interest in another firm?
In a failed acquisition, what is the organization likely to do?
In a failed acquisition, what is the organization likely to do?
What is a leveraged buyout?
What is a leveraged buyout?
What type of bonds are unsecured obligations that are not tied to specific assets for collateral?
What type of bonds are unsecured obligations that are not tied to specific assets for collateral?
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Which of the following is NOT one of the three main restructuring strategies?
Which of the following is NOT one of the three main restructuring strategies?
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When the target firm does not solicit the acquiring firm's bid, it is referred to as a(n)?
When the target firm does not solicit the acquiring firm's bid, it is referred to as a(n)?
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What is the term used to describe a situation where two companies simultaneously compete in the same product areas or geographic markets?
What is the term used to describe a situation where two companies simultaneously compete in the same product areas or geographic markets?
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What is the primary concern of corporate-level strategy?
What is the primary concern of corporate-level strategy?
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Which of the following is an internal firm incentive to diversify?
Which of the following is an internal firm incentive to diversify?
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Which acquisition would be considered the least related?
Which acquisition would be considered the least related?
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What is the downside of synergy in a diversified firm?
What is the downside of synergy in a diversified firm?
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What is the term used to describe the market where companies compete to acquire other companies?
What is the term used to describe the market where companies compete to acquire other companies?
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What is the term for when firms compete against each other in several geographic or product markets?
What is the term for when firms compete against each other in several geographic or product markets?
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Which of the following factors affects the awareness and motivation of a firm to undertake actions and responses?
Which of the following factors affects the awareness and motivation of a firm to undertake actions and responses?
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What is the primary concern for companies operating in fast-cycle markets?
What is the primary concern for companies operating in fast-cycle markets?
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What type of market is characterized by incremental changes in products and seeking loyalty to brand names?
What type of market is characterized by incremental changes in products and seeking loyalty to brand names?
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What is the term for the gains or losses a firm will experience if it attacks a rival or responds to an attack by a rival?
What is the term for the gains or losses a firm will experience if it attacks a rival or responds to an attack by a rival?
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Which of the following is NOT a reason why companies in fast-cycle markets need to profit quickly from an innovative product?
Which of the following is NOT a reason why companies in fast-cycle markets need to profit quickly from an innovative product?
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Study Notes
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
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Description
Test your knowledge of different types of mergers and acquisitions, including leveraged buyouts and the consequences of failed acquisitions. Learn about the various ways firms can combine or restructure, and the implications for the organization.
