BUSA 4980 EXAM 2 STUDY GUIDE
Merger - Answers - -two firms agree to integrate their operations on a "relatively" co-
equal basis
Acquisition - Answers - -one firm buys a controlling, or 100%, interest in another firm
with the intent of making the acquired firm a subsidiary business within its portfolio
Takeover - Answers - -an acquisition in which the target firm did not solicit the acquiring
firm's bid for outright ownership
Problems in achieving acquisition success - Answers - -integration difficulties
-inadequate target evaluation
-too large
-managers overly focused on acquisitions
-extraordinary debt
-too much diversification
-inability to achieve synergy
Due diligence - Answers - -the process of evaluating a target firm for acquisition
-examines:
--financing of the intended transaction
--differences in culture between the firms
--tax consequences of the transaction
--actions necessary to meld the two workforces
restructuring - Answers - -a strategy through which a firm changes its set of businesses
or financial structure
-failure of an acquisition strategy often precedes a restructuring strategy
-strategies include: downsizing, downscoping, and leveraged buyouts
Market Power Acquisitions: Horizontal Acquisitions - Answers - -acquisition of a firm in
the same industry in which the acquiring firm competes
-acquisitions with similar characteristics result in higher performance than those with
dissimilar characteristics
Market Power Acquisitions: Vertical Acquisitions - Answers - -acquisition of a supplier or
distributor of one or more of the firm's goods or services
--increase a firm's market power by controlling additional parts of the value chain.
Market Power Acquisitions: Related Acquisitions - Answers - -acquisition of a firm in a
highly related industry
, Acquisitions: Increased Market Power - Answers - factors increase market power when:
-there is the ability to sell goods or services above competitive levels
-costs of primary or support activities are below those of competitors
-a firm's size, resources and capabilities gives it a superior ability to compete
Acquisitions: Increased Market Power - Answers - -horizontal acquisitions of other firms
in the same industry
-vertical acquisitions of suppliers or distributors of the acquiring firm.
-related acquisitions of firms in related industries
Overcoming entry barriers - Answers - acquisitions can address issues with:
--economies of scale
--differentiated products
cross border acquisitions:
-acquisitions made between firms with headquarters in different countries:
--are often made to overcome entry barriers
--can be difficult to negotiate and operate because of the differences in foreign cultures
acquisitions: Cost of new-product development and increased speed to market -
Answers - -internal development of new products is often perceived as a high-risk
activity
-acquisitions allow a firm to gain access to new and current products that are new to the
firm.
-returns are more predictable because of the acquired firms' past experience with its
products.
acquisitions: lower risk compared to developing new products - Answers - -an
acquisition's outcomes can be estimated more easily and accurately than the outcomes
of an internal product development process
acquisitions: increased diversification - Answers - -using acquisitions to diversify a firm
is the quickest and easiest way to change its portfolio of businesses
-the more related the acquired firm is to the acquiring firm, the greater is the probability
that the acquisition will be successful
acquisition: reshaping the firm's competitive scope - Answers - an acquisition can:
-reduce the negative effect of an intense rivalry on a firm's financial performance
-reduce a firm's dependence on one or more products or markets
-reducing a firm's dependence on specific markets alters the firm's competitive scope.
acquisition: learning and developing new capabilities - Answers - -an acquiring firm can
gain capabilities that the firm does not currently possess:
-special technological capability
-a broader knowledge base
Merger - Answers - -two firms agree to integrate their operations on a "relatively" co-
equal basis
Acquisition - Answers - -one firm buys a controlling, or 100%, interest in another firm
with the intent of making the acquired firm a subsidiary business within its portfolio
Takeover - Answers - -an acquisition in which the target firm did not solicit the acquiring
firm's bid for outright ownership
Problems in achieving acquisition success - Answers - -integration difficulties
-inadequate target evaluation
-too large
-managers overly focused on acquisitions
-extraordinary debt
-too much diversification
-inability to achieve synergy
Due diligence - Answers - -the process of evaluating a target firm for acquisition
-examines:
--financing of the intended transaction
--differences in culture between the firms
--tax consequences of the transaction
--actions necessary to meld the two workforces
restructuring - Answers - -a strategy through which a firm changes its set of businesses
or financial structure
-failure of an acquisition strategy often precedes a restructuring strategy
-strategies include: downsizing, downscoping, and leveraged buyouts
Market Power Acquisitions: Horizontal Acquisitions - Answers - -acquisition of a firm in
the same industry in which the acquiring firm competes
-acquisitions with similar characteristics result in higher performance than those with
dissimilar characteristics
Market Power Acquisitions: Vertical Acquisitions - Answers - -acquisition of a supplier or
distributor of one or more of the firm's goods or services
--increase a firm's market power by controlling additional parts of the value chain.
Market Power Acquisitions: Related Acquisitions - Answers - -acquisition of a firm in a
highly related industry
, Acquisitions: Increased Market Power - Answers - factors increase market power when:
-there is the ability to sell goods or services above competitive levels
-costs of primary or support activities are below those of competitors
-a firm's size, resources and capabilities gives it a superior ability to compete
Acquisitions: Increased Market Power - Answers - -horizontal acquisitions of other firms
in the same industry
-vertical acquisitions of suppliers or distributors of the acquiring firm.
-related acquisitions of firms in related industries
Overcoming entry barriers - Answers - acquisitions can address issues with:
--economies of scale
--differentiated products
cross border acquisitions:
-acquisitions made between firms with headquarters in different countries:
--are often made to overcome entry barriers
--can be difficult to negotiate and operate because of the differences in foreign cultures
acquisitions: Cost of new-product development and increased speed to market -
Answers - -internal development of new products is often perceived as a high-risk
activity
-acquisitions allow a firm to gain access to new and current products that are new to the
firm.
-returns are more predictable because of the acquired firms' past experience with its
products.
acquisitions: lower risk compared to developing new products - Answers - -an
acquisition's outcomes can be estimated more easily and accurately than the outcomes
of an internal product development process
acquisitions: increased diversification - Answers - -using acquisitions to diversify a firm
is the quickest and easiest way to change its portfolio of businesses
-the more related the acquired firm is to the acquiring firm, the greater is the probability
that the acquisition will be successful
acquisition: reshaping the firm's competitive scope - Answers - an acquisition can:
-reduce the negative effect of an intense rivalry on a firm's financial performance
-reduce a firm's dependence on one or more products or markets
-reducing a firm's dependence on specific markets alters the firm's competitive scope.
acquisition: learning and developing new capabilities - Answers - -an acquiring firm can
gain capabilities that the firm does not currently possess:
-special technological capability
-a broader knowledge base
