8.1 Strategic Acquisition and Restructuring Flashcards
What returns do shareholders of acquired firms earn?
Above-average returns
What returns do shareholders of acquiring firms earn?
Returns close to zero
What fractions of acquisition stock pile fall after intended transaction is announced?
2/3rd
Define a merger.
A strategy where two firms integrate their operations on a relatively coequal basis.
Are mergers an often occurrence? Why or why not?
No because one firm tends to be more dominant.
Are mergers generally hostile or friendly?
Friendly
Define a takeover.
A special type of acquisition strategy where the target firm does not solicit the acquiring firm’s bid.
Takeovers are unfriendly acquisitions.
Does hostile takeover or friendlier acquisition deliver higher shareholder value?
Takeovers
Define an acquisition.
A strategy where one firm buys another with the intent to make the acquired firm a subsidiary business within its portfolio.
Subsidiary: controlled by a parent company; less important but relevant.
Are acquisitions more common than mergers and takeovers?
Yes
What is a reason for acquisition?
Increased market power
What are the two traits that indicate market power?
1) Selling goods/services above competitive level.
2) Costs of value chain activities are lower than its competitors.
What is a goal of achieving market power?
To become a market leader.
What are the three types of acquisition to increase market power?
Horizontal, Vertical, Related
Define horizontal acquisition.
Acquisition of a company competing in the same industry.
What happens during horizontal acquisitions?
Firms combine resources and skills, gain access to more distribution channels, gain market share quickly.
How do horizontal acquisitions increase market power?
By exploiting cost-based and revenue-based synergies.
Define a cost-based synergy.
Reduced costs by combining firms.
Define a revenue-based synergy.
Increased revenue by combining firms.
What factor leads to higher performance with horizontal acquisitions?
Firms that have similar resources.
Define vertical acquisition.
Acquisition of a supplier or distributor in the firm’s industry.
Essentially controlling more parts of the value chain.
Define related acquisition.
Acquisition of a firm in a highly related industry.
It creates synergy through exchange of resources and capabilities.
Does high barrier to entry make acquisition more likely?
Yes
Define cross-border acquisition.
Acquisition between countries.
It allows firms to enter fast growing economies; BRIC (Brazil, Russia, India, China)
What percentage of innovations fail to make adequate returns?
88%
How much percentage of innovations are successfully within four years after obtaining a patent?
60%
How does acquisition relate to innovations?
Acquiring firms can gain quick access to new products.
It is lower risk, but acquisition should not act as a substitute for innovation.
Why is acquisition more predictable compared to internal product development processes?
Acquired firm’s products can be assessed prior to completing the acquisition.
What types of diversification can be implemented through acquisition?
Related and unrelated diversification.
Will related or unrelated diversification regarding acquisition be more successful?
Related.
How does acquisition that reduces dependence on a specific market benefit firms?
It broadens the competitive scope.
How does acquisition benefit firms in terms of skills and capabilities?
Helps firms be flexible when dealing with rapidly changing situations.
How much percentage of mergers and acquisitions are:
- successful
- disappointing
- clear failures
Successful: 20%
Disappointing: 60%
Clear failures: 20%
