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Exam 7: Merger and Acquisition Strategies

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Question 81

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According to the Chapter 7 Opening Case, Google's acquisition strategy is different than Microsoft in that Google usually acquires earlier-stage companies such as YouTube.

A) True
B) False

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Question 82

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It is relatively common for a firm to develop new products internally to diversify its product lines.

A) True
B) False

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Question 83

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The March 2011 announcement that AT&T was acquiring T-Mobile USA from Deutsche Telekom is a _________ acquisition and is intended to _________ .

According to the Chapter 7 Strategic Focus, research suggests that emerging market firms tend to __________ than other firms and that government ownership of those firms leads to __________ for the acquisition.

Ambrose is a scientist working for a pharmaceutical company. His company was acquired by a rival pharmaceutical company, and now it is involved in downsizing and downscoping. Ambrose is concerned about his job security, since he is actively involved in amateur sports in his community and does not wish to disrupt his current lifestyle. Ambrose's job will be most likely to be secure if

A(an) ____ occurs when one firm buys a controlling, or 100% interest, in another firm.

Firms are more likely to enter a market through acquisition when high product loyalty is present in the industry.

In a merger

Case Scenario 2: Raptec Raptec was incorporated in 1991 and went public on the Nasdaq Stock Market in 1996. Raptec's strategy is to become the global leader in innovative storage solutions. Raptec is an S&P 500 and a Nasdaq Stock Market 100 member. The company's hardware and software solutions for eBusiness and Internet applications move, manage, and protect critical data and digital content. Raptec operates in three principal business segments: Direct Attached Storage ("DAS"), Storage Networking Solutions ("SNS") and Software. These hardware and software products are found in high-performance networks, servers, workstations, and desktops from the world's leading OEMs, and are sold through distribution channels to Internet service providers, enterprises, medium and small businesses, and consumers. Since the time it went public, Raptec has experienced rapid growth and consistently profitable operations. In early 2007, the company announced its plan to spin-off the software segment, subsequently incorporated as Axio, Inc., in the form of a fully independent and separate company. Software was Raptec's most profitable and fastest growing segment. By mid-2007 Raptec had completed the initial public offering of approximately 15% of Axio's stock, and then distributed the remaining Axio stock to Raptec's stockholders in a tax-free distribution. -(Refer to Case Scenario 2) What risks does Raptec run in spinning off Axio?

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

Case Scenario 2: Raptec Raptec was incorporated in 1991 and went public on the Nasdaq Stock Market in 1996. Raptec's strategy is to become the global leader in innovative storage solutions. Raptec is an S&P 500 and a Nasdaq Stock Market 100 member. The company's hardware and software solutions for eBusiness and Internet applications move, manage, and protect critical data and digital content. Raptec operates in three principal business segments: Direct Attached Storage ("DAS"), Storage Networking Solutions ("SNS") and Software. These hardware and software products are found in high-performance networks, servers, workstations, and desktops from the world's leading OEMs, and are sold through distribution channels to Internet service providers, enterprises, medium and small businesses, and consumers. Since the time it went public, Raptec has experienced rapid growth and consistently profitable operations. In early 2007, the company announced its plan to spin-off the software segment, subsequently incorporated as Axio, Inc., in the form of a fully independent and separate company. Software was Raptec's most profitable and fastest growing segment. By mid-2007 Raptec had completed the initial public offering of approximately 15% of Axio's stock, and then distributed the remaining Axio stock to Raptec's stockholders in a tax-free distribution. -(Refer to Case Scenario 2) Leveraged buyouts such as the Axio spinoff is a form of restructuring strategy that is only used to correct for managerial mistakes or because the firm's managers were making decisions that only served their own interests rather than those of the shareholders.

Case Scenario 1: Syco Inc. (SI). Syco, Inc. (SI) was founded the late 1800s and grew through acquisition from being primarily a large discount retailer into a highly diversified firm. Beyond retailing (still SI's dominant business), by the middle of the 1990s its lines of business included significant market positions in insurance, consumer credit cards, stock brokerage, commercial and residential real estate brokerage, and an online Internet portal. Each of the non-retail businesses was average in its relative industry performance. Consistent with the decentralized structure at SI and arms-length corporate oversight, each of these businesses was also rapidly developing their own unique brands and customer following. However, within a short period of time it became apparent that the retail business was failing. SI's vast mall-based department store holdings were suffering from deferred maintenance and merchandising that did not appear to be popular with its once large consumer base. At the same time, highly efficient and focused low-cost competitors like Wal-Mart were beginning to take significant market share from SI. On the verge of bankruptcy by early 2000, SI's management chose to sell off its insurance, real estate and stock brokerage units; it also spun off its credit card and portal businesses in separate public offerings. -(Refer to Case Scenario 1) Syco's acquisition strategy was appropriate since it would allow the firm to have market power over its competitors.

Downscoping makes management of the firm more effective because it allows the top management team to better understand the remaining businesses.

A horizontal acquisition involves two firms in the same industry.

Because acquisitions may become a substitute for innovation, Teva Pharmaceutical's acquisition of Cephalon should be driven by ___________ rather than _________________.

When the actual results of an acquisition strategy fall short of the projected results, firms consider using restructuring strategies.

Manny Inc. recently completed the purchase of its primary supplier. Manny intends to begin expanding the market to which the suppliers' products are sold. This purchase is a(an)

Baby Doe's, a designer and manufacturer of children's clothing, has decided to purchase a retail chain specializing in children's clothing. This purchase is a(an)

Which of the following statements is FALSE?

Which of the following is NOT one of the primary reasons many pharmaceutical firms use acquisitions as exemplified by Teva's frendly acquisition of Cephalon?