WPC 480 Final Exam Questions with Complete Answers
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Course
WPC 480
Institution
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...
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
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
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
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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