Chapter 7—Acquisition and Restructuring Strategies
TRUE/FALSE
1. Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the
acquiring firm.
ANS: F PTS: 1 DIF: Medium REF: 183
OBJ: 07-01 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
2. Evidence suggests that returns to shareholders of acquired firms are greater than those for acquiring
firms.
ANS: T PTS: 1 DIF: Medium REF: 183
OBJ: 07-01 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
3. Typical returns on acquisitions for acquiring firms are close to zero.
ANS: T PTS: 1 DIF: Medium REF: 183
OBJ: 07-01 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
4. A merger is defined as a transaction in which one firm purchases controlling interest in another firm.
ANS: F PTS: 1 DIF: Medium REF: 184
OBJ: 07-01 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
5. Takeovers are unsolicited and unwanted acquisitions which are uniformly hostile.
ANS: F PTS: 1 DIF: Medium REF: 184
OBJ: 07-01 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
6. An acquisition occurs when one firm buys a controlling interest in another firm and the acquired firm
becomes a subsidiary business.
ANS: T PTS: 1 DIF: Medium REF: 184
OBJ: 07-01 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
, 7. Most acquisitions that are designed to achieve greater market power entail buying a competitor, a
supplier, a distributor, or a business in a highly related industry.
ANS: T PTS: 1 DIF: Medium REF: 184-185
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
8. Moon-in-June, a designer and manufacturer of wedding dresses, has decided to purchase a retail
chain specializing in bridal wear. This purchase will be useful in gaining more market power for
Moon-in-June.
ANS: T PTS: 1 DIF: Easy REF: 184-185
OBJ: 07-02 TYPE: application
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
9. An acquisition of a firm in a highly related industry is referred to as a horizontal acquisition.
ANS: F PTS: 1 DIF: Medium REF: 186
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
10. Research evidence suggests that horizontal acquisitions of firms with dissimilar characteristics result
in higher performance levels.
ANS: F PTS: 1 DIF: Hard REF: 186
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
11. Research evidence suggests that horizontal acquisitions result in higher performance when the firms
have similar strategy, assets, and capabilities.
ANS: T PTS: 1 DIF: Medium REF: 186
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
12. A related acquisition involves two firms in the same industry.
ANS: F PTS: 1 DIF: Medium REF: 187
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
13. Firms are more likely to enter a market through acquisition when high product loyalty is present in
the industry.
, ANS: T PTS: 1 DIF: Medium REF: 187
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
14. The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a
market.
ANS: F PTS: 1 DIF: Medium REF: 187
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Environmental Influence |
Dierdorff & Rubin: Managing strategy & innovation
15. In most nations, regulations limiting acquisition activity has been strengthened.
ANS: F PTS: 1 DIF: Hard REF: 187-188
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Multicultural & Diversity | Management: Environmental Influence | Dierdorff & Rubin:
Managing strategy & innovation
16. A major problem with buying other companies in order to gain access to their product lines is that
the acquiring firm may lose its own ability to innovate.
ANS: T PTS: 1 DIF: Medium REF: 188-189
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
17. Firms can increase their speed to market for new products by pursuing an internal product
development strategy rather than an acquisition strategy.
ANS: F PTS: 1 DIF: Easy REF: 188-189
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
18. Research has shown that the more different the acquired firm is in terms of competencies and
resources than the acquiring firm, the more likely the acquisition is to be successful
ANS: F PTS: 1 DIF: Medium REF: 189
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
19. The quickest and easiest way for a firm to diversify its portfolio of businesses is to make acquisitions.
ANS: T PTS: 1 DIF: Easy REF: 189-190
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
, 20. GE transformed its scope by acquiring several financial service firms.
ANS: T PTS: 1 DIF: Easy REF: 190
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
21. The post-acquisition integration phase is less important for acquisition success than characteristics of
the deal itself.
ANS: F PTS: 1 DIF: Easy REF: 192
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
22. The reasons why a firm would overpay for a company that it acquires include inadequate due
diligence.
ANS: T PTS: 1 DIF: Easy REF: 192-193
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing decision-making processes
23. Large or extraordinary debt is defined as overpaying for an acquired firm.
ANS: F PTS: 1 DIF: Easy REF: 192-193
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
24. Due diligence is performed by investment banking firms because of laws protecting shareholders
during acquisitions.
ANS: F PTS: 1 DIF: Hard REF: 192-193
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing decision-making processes
25. The effect of leverage on an acquiring firm’s financial returns is negative and thus should be avoided.
ANS: F PTS: 1 DIF: Hard REF: 193
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing decision-making processes
26. Junk bonds are financial instruments commonly used to finance risky acquisitions that provide
potential high returns for the bondholders.
ANS: T PTS: 1 DIF: Easy REF: 193
TRUE/FALSE
1. Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the
acquiring firm.
ANS: F PTS: 1 DIF: Medium REF: 183
OBJ: 07-01 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
2. Evidence suggests that returns to shareholders of acquired firms are greater than those for acquiring
firms.
ANS: T PTS: 1 DIF: Medium REF: 183
OBJ: 07-01 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
3. Typical returns on acquisitions for acquiring firms are close to zero.
ANS: T PTS: 1 DIF: Medium REF: 183
OBJ: 07-01 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
4. A merger is defined as a transaction in which one firm purchases controlling interest in another firm.
ANS: F PTS: 1 DIF: Medium REF: 184
OBJ: 07-01 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
5. Takeovers are unsolicited and unwanted acquisitions which are uniformly hostile.
ANS: F PTS: 1 DIF: Medium REF: 184
OBJ: 07-01 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
6. An acquisition occurs when one firm buys a controlling interest in another firm and the acquired firm
becomes a subsidiary business.
ANS: T PTS: 1 DIF: Medium REF: 184
OBJ: 07-01 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
, 7. Most acquisitions that are designed to achieve greater market power entail buying a competitor, a
supplier, a distributor, or a business in a highly related industry.
ANS: T PTS: 1 DIF: Medium REF: 184-185
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
8. Moon-in-June, a designer and manufacturer of wedding dresses, has decided to purchase a retail
chain specializing in bridal wear. This purchase will be useful in gaining more market power for
Moon-in-June.
ANS: T PTS: 1 DIF: Easy REF: 184-185
OBJ: 07-02 TYPE: application
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
9. An acquisition of a firm in a highly related industry is referred to as a horizontal acquisition.
ANS: F PTS: 1 DIF: Medium REF: 186
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
10. Research evidence suggests that horizontal acquisitions of firms with dissimilar characteristics result
in higher performance levels.
ANS: F PTS: 1 DIF: Hard REF: 186
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
11. Research evidence suggests that horizontal acquisitions result in higher performance when the firms
have similar strategy, assets, and capabilities.
ANS: T PTS: 1 DIF: Medium REF: 186
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
12. A related acquisition involves two firms in the same industry.
ANS: F PTS: 1 DIF: Medium REF: 187
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
13. Firms are more likely to enter a market through acquisition when high product loyalty is present in
the industry.
, ANS: T PTS: 1 DIF: Medium REF: 187
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
14. The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a
market.
ANS: F PTS: 1 DIF: Medium REF: 187
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Environmental Influence |
Dierdorff & Rubin: Managing strategy & innovation
15. In most nations, regulations limiting acquisition activity has been strengthened.
ANS: F PTS: 1 DIF: Hard REF: 187-188
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Multicultural & Diversity | Management: Environmental Influence | Dierdorff & Rubin:
Managing strategy & innovation
16. A major problem with buying other companies in order to gain access to their product lines is that
the acquiring firm may lose its own ability to innovate.
ANS: T PTS: 1 DIF: Medium REF: 188-189
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff &
Rubin: Managing strategy & innovation
17. Firms can increase their speed to market for new products by pursuing an internal product
development strategy rather than an acquisition strategy.
ANS: F PTS: 1 DIF: Easy REF: 188-189
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
18. Research has shown that the more different the acquired firm is in terms of competencies and
resources than the acquiring firm, the more likely the acquisition is to be successful
ANS: F PTS: 1 DIF: Medium REF: 189
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
19. The quickest and easiest way for a firm to diversify its portfolio of businesses is to make acquisitions.
ANS: T PTS: 1 DIF: Easy REF: 189-190
OBJ: 07-02 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
, 20. GE transformed its scope by acquiring several financial service firms.
ANS: T PTS: 1 DIF: Easy REF: 190
OBJ: 07-02 TYPE: knowledge
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
21. The post-acquisition integration phase is less important for acquisition success than characteristics of
the deal itself.
ANS: F PTS: 1 DIF: Easy REF: 192
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
22. The reasons why a firm would overpay for a company that it acquires include inadequate due
diligence.
ANS: T PTS: 1 DIF: Easy REF: 192-193
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing decision-making processes
23. Large or extraordinary debt is defined as overpaying for an acquired firm.
ANS: F PTS: 1 DIF: Easy REF: 192-193
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing strategy & innovation
24. Due diligence is performed by investment banking firms because of laws protecting shareholders
during acquisitions.
ANS: F PTS: 1 DIF: Hard REF: 192-193
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing decision-making processes
25. The effect of leverage on an acquiring firm’s financial returns is negative and thus should be avoided.
ANS: F PTS: 1 DIF: Hard REF: 193
OBJ: 07-03 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff & Rubin:
Managing decision-making processes
26. Junk bonds are financial instruments commonly used to finance risky acquisitions that provide
potential high returns for the bondholders.
ANS: T PTS: 1 DIF: Easy REF: 193
