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WPC 480 Final Exam Questions with Complete Answers

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  • Course
  • WPC 480
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  • WPC 480

Merger - Answer-two firms agree to integrate their operations on a relatively co-equal basis ex: at&t and time warner JP Morgan chase Acquisition - Answer-Controlling 100% interest to make acquired firm a subsidiary business within its portfolio ex: Cisco Chase (Hostile) Takeover - Answ...

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  • October 21, 2024
  • 15
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
  • WPC 480
  • WPC 480
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WPC 480 Final Exam Questions with
Complete Answers
Merger - Answer-two firms agree to integrate their operations on a relatively co-equal
basis
ex:
at&t and time warner
JP Morgan chase

Acquisition - Answer-Controlling 100% interest to make acquired firm a subsidiary
business within its portfolio
ex:
Cisco
Chase

(Hostile) Takeover - Answer-Target firm did not solicit the acquiring firm's bid but they
eventually agree
ex:
AOL and Time Warner
Bayer and Monsanto

Acquiring firms - Answer-About zero return on the average

Acquired firms - Answer-Often earn above-average returns

Advantages to acquisitions - Answer-- it is a quick way to grow
- there can be synergistic gains
- acquire the necessary strategic capabilities
- overcomes barriers to entry
- can choose a target that fits best
- Enhances reputation with finance providers

Disadvantages to acquisitions - Answer-- can be very expensive
- synergies are not automatic
- can lead to cultural clashes
- there may be legal barriers to overcome
- All parts of the target are acquired (including its problems)
- requires good change management skills

Why are Acquisitions (mergers) done? - Answer-- Increased market power
- Overcome entry barriers
- substitute for product development
- Change scope of business portfolio
- Managerial opportunism

, Market power - Answer-Bigger firms with more resources and capabilities (and
customers) may achieve increased market power
- can sell goods or services at prices above competitive levels
- can drive costs below those of competitors

Horizontal Acquisitions - Answer-Acquisition of a firm in the same industry (bigger, more
resources)

Cost-based synergies - Answer-- Buyer power
- economies of scale

Revenue-based synergies - Answer-- Supplier Power
- Monopoly-like advantages:
--Airlines
-- Cable

Vertical acquisitions - Answer-Acquisitions of a supplier or distributor to the firm
- Increases a firm's market power by controlling additional parts of the value chain

Entry barriers - Answer-Factors associated with making it expensive and difficult for new
firms to gain market access
- Differentiated products
- Economies of scale

Differentiated products - Answer-Differentiation (VW bought bugatti, bentley,
lamborghini, porsche, Ducati)

Economies of scale (and scope) - Answer-Cost leadership (Buy competitor, larger firm;
walmart and jet.com)

Often reason behind cross-border acquisitions - Answer-Cultural and political
differences (need local knowledge and initial foothold in new market)

Acquisitions to substitute for new product & capability development - Answer-Gain
access to new products and capabilities
- Special (technological) capability
- Increase knowledge base:
-- Lower risk

Change firm scope - Answer-Reduce dependence on one or more products or markets
(unattractive and mature markets)
- Microsoft bought LinkedIn

- Both related and unrelated diversification strategies can be implemented through
acquisitons

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