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Exam 7: Merger and Acquisition Strategies

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Question 71

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Currently, the rationale for making an acquisition includes each of the following EXCEPT

A) To increase market power.
B) To decrease taxes paid by shareholders.
C) To overcome entry barriers.
D) To increase diversification.

E) None of the above
F) All of the above

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Question 72

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According to the Chapter 7 Strategic Focus, China's recent approach to acquisitions has been to focus on hard assets (e.g., mineral deposits or R&D facilities) instead of established branded products because

A) China's initial acquisition activities in branded products was highly successful and it wanted to apply those successful techniques to hard assets which would create more value for Chinese firms.
B) hard assets around the world had appreciated rapidly and China wanted to take advantage of that appreciation.
C) China's currency had depreciated relative to currencies in developed countries making acquisition of hard assets in those countries cheaper.
D) it did not always have the managerial capability to realize successful performance of branded products.

E) A) and D)
F) B) and C)

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Question 73

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Research shows that about ____ percent of mergers and acquisitions are successful.

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.

What is an LBO and what have been the results of such activities?

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.

Firms often use the downscoping and downsizing strategies simultameously as did Citigroup in its restructuring ( Chapter 7 Strategic Focus).

Downscoping represents a reduction in the number of a firm's employees and sometimes in the number of its operating units, but it may or may not represent a change in the composition of businesses in the corporation's portfolio.

SpeakEasy, a U.S. software company that specializes in voice-recognition software, wishes to rapidly enter the growing technical translation software market. This market is dominated by firms making highly differentiated products. To enter this market, SpeakEasy would be best served if it considers a/an

A horizontal acquisition involves two firms in the same industry.

The strategy of Citigroup under CEO Sanford Weill was to create a "financial supermarket" where customers shop for a variety of financial services within the same company. This strategy was executed via a series of acquisitions but ultimately failed. This situation was the result of

____ are unsecured obligations that are not tied to specific assets for collateral.

The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a market.

Case Scenario : Barracuda Inc. Barracuda Inc. has diversified beyond its early base as a lamp fixture manufacturer into multiple hardware and plumbing fixture products that it sells to professionals (i.e., plumbers and electricians) and through the large volume do-it-yourself (DIY) stores like The Home Depot and Lowe's. While this successful growth has been achieved primarily through acquisition, the company tends to let the acquired businesses run independently. It has done so by looking to fragmented industries to acquire small firms with efficient operations and good management teams. It then grows these businesses through a combination of internal cash flow and debt, and directs new sales to the professional and DIY channels. Barracuda has been particularly successful in the faucet segment, which it practically reinvented though such technological innovations as the washerless faucet, and marketing innovations like branding and good-better-best merchandising. Barracuda has leveraged this merchandising strategy across its businesses and, coupled with the explosive growth of the DIY channel, is spectacularly profitable with a net profit after tax (NPAT) of 18%. The firm's management is looking to broaden its revenue base and has identified the home furnishings business as sharing many characteristics with faucets, prior to Barracuda's entry into faucets. It plans to enter this industry through large-scale acquisitions. The landscape of the U.S. home furnishings manufacturing industry consists of many players, none with controlling share, and serious issues of overcapacity. There are presently 2500 home furnishings firms, and only 600 of those have over 15 employees. Average NPAT is between 4 and 5%, which also reflects the fact that few firms have good managers. While the industry is still primarily comprised of single-business family-run firms, which manufacture furniture domestically, imports are increasing at a fairly rapid rate. Some of the European imports are leaders in contemporary design. Relatively large established firms are also diversifying into the home furnishings industry via acquisition. Supplier firms to the home furnishings industry are in relatively concentrated industries (like lumber, steel, and textiles), and therefore typically offer fewer accommodations to the small furniture manufacturers. Retailers, the intermediate customer of the home furnishings industry, are becoming increasingly concentrated and the few large, successful furniture companies actually have their own stores or have dedicated showrooms in the larger department stores. Customers have many products to choose from, at many different price points, and few home furnishing products beyond those of the larger companies have established brands. Also, customers can switch easily among high and low-priced furniture and other discretionary expenditures (spanning plasma TVs to the choice of postponing any furniture purchase entirely). -(Refer to the above Case Scenario) Given Barracuda's history, what threats does Barracuda face in entering the furniture industry through acquisition?

In the current global landscape, firms from North America and Europe use the acquisition strategy more frequently than firms from other nations.

As noted in the Chapter 7 Strategic Focus, the current Chinese crossborder strategy is to focus on buying global berands, sales networks, and goodwill in in branded products.

An acquisition of a firm in a highly related industry is referred to as a horizontal acquisition.

According to the Chapter 7 Opening Case, the difference between Google's and Microsoft's acquisition approaches is that

Magma, Inc., acquired Vulcan, Inc., three years ago. Effective integration of the two companies' culture was never achieved, and the two firms' assets were not complementary. It is very likely that Magma will

According to the Chapter 7 Strategic Focus, what was the reason for Citigroup's restructuring?