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Exam 10: Corporate Strategy

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Question 1

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Companies diversify for a number of general reasons. Which of the following is not one of those reasons?

A) seeking growth
B) to increase the number of shareholders
C) to gain market power
D) to reduce financial risk

E) None of the above
F) C) and D)

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Question 2

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Operational fit occurs when an acquiring corporation can take advantage of synergies stemming from the support activities of the value chain, such as in human resource management or research and development.

A) True
B) False

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Question 3

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A variety of studies over the years conclude that diversification is nearly as likely to ________ shareholder value as it is to ________ shareholder value.

Gains in pricing authority, increased bargaining power, and mutual forbearance all underlie the ________ reason for diversification.

High-yield debt that is rated below investment grade at the time of purchase and, beginning in the 1980s, has often been used in mergers and acquisitions is called

The kinds of decisions typically made by those engaged in corporate strategy include establishing business unit investment priorities, deciding which industries to enter and exit, and making resource and management transfers.

The two major types of diversification are ________ and ________ diversification.

The GE Business Development Matrix and the BCG Growth Share Matrix are both examples of a portfolio management tool used to direct investment among businesses in a diversified firm.

Describe the restructuring process for a company. If businesses are to be divested, how should they be chosen and how will the divestment be accomplished?

Drawbacks of portfolio techniques include the dynamic view that they present and the overly precise recommendations for businesses in different areas of the matrices.

Post-acquisition efforts likely to improve the chances for a successful combination include the immediate establishment of an integration team, the visible involvement of senior managers, and early and frequent communication.

The high performance of a company subsequent to an acquisition depends on managers who are pressed to make up for having paid a high acquisition premium; without that incentive performance is likely to be low.

A company in which 70-95 percent of revenues comes from a single business is known as a(n)

In the 1980s conglomerates began to shed unrelated businesses and leveraged buyouts (LBOs) were one tool used to accomplish this. An LBO is when a company is bought primarily using debt and often it is the managers of the company who buy it with the help of this financial tool.

General Electric is an example of a conglomerate while Warren Buffet's company, Berkshire Hathaway, is an example of a holding company.

Diversified corporations are a significant part of the business landscape in the United States; indeed, they comprise most of the Fortune 500 companies.

When a corporation reduces its level of diversification and strategically refocuses on core businesses it is

One of the benefits of market power (a reason for diversification) is that a firm can have more influence with the EPA and other government agencies.

One of the important, if not the most important, uses of portfolio management tools is

How would you describe the evolution of merger and acquisition activity in the U.S. since about 1960?