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Strategy & Organization > 8.1 Strategic Acquisition and Restructuring > Flashcards

8.1 Strategic Acquisition and Restructuring Flashcards

1
Q

What returns do shareholders of acquired firms earn?

A

Above-average returns

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2
Q

What returns do shareholders of acquiring firms earn?

A

Returns close to zero

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3
Q

What fractions of acquisition stock pile fall after intended transaction is announced?

A

2/3rd

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4
Q

Define a merger.

A

A strategy where two firms integrate their operations on a relatively coequal basis.

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5
Q

Are mergers an often occurrence? Why or why not?

A

No because one firm tends to be more dominant.

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6
Q

Are mergers generally hostile or friendly?

A

Friendly

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7
Q

Define a takeover.

A

A special type of acquisition strategy where the target firm does not solicit the acquiring firm’s bid.

Takeovers are unfriendly acquisitions.

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8
Q

Does hostile takeover or friendlier acquisition deliver higher shareholder value?

A

Takeovers

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9
Q

Define an acquisition.

A

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.

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10
Q

Are acquisitions more common than mergers and takeovers?

A

Yes

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11
Q

What is a reason for acquisition?

A

Increased market power

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12
Q

What are the two traits that indicate market power?

A

1) Selling goods/services above competitive level.

2) Costs of value chain activities are lower than its competitors.

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13
Q

What is a goal of achieving market power?

A

To become a market leader.

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14
Q

What are the three types of acquisition to increase market power?

A

Horizontal, Vertical, Related

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15
Q

Define horizontal acquisition.

A

Acquisition of a company competing in the same industry.

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16
Q

What happens during horizontal acquisitions?

A

Firms combine resources and skills, gain access to more distribution channels, gain market share quickly.

17
Q

How do horizontal acquisitions increase market power?

A

By exploiting cost-based and revenue-based synergies.

18
Q

Define a cost-based synergy.

A

Reduced costs by combining firms.

19
Q

Define a revenue-based synergy.

A

Increased revenue by combining firms.

20
Q

What factor leads to higher performance with horizontal acquisitions?

A

Firms that have similar resources.

21
Q

Define vertical acquisition.

A

Acquisition of a supplier or distributor in the firm’s industry.

Essentially controlling more parts of the value chain.

22
Q

Define related acquisition.

A

Acquisition of a firm in a highly related industry.

It creates synergy through exchange of resources and capabilities.

23
Q

Does high barrier to entry make acquisition more likely?

A

Yes

24
Q

Define cross-border acquisition.

A

Acquisition between countries.

It allows firms to enter fast growing economies; BRIC (Brazil, Russia, India, China)

25
Q

What percentage of innovations fail to make adequate returns?

A

88%

26
Q

How much percentage of innovations are successfully within four years after obtaining a patent?

A

60%

27
Q

How does acquisition relate to innovations?

A

Acquiring firms can gain quick access to new products.

It is lower risk, but acquisition should not act as a substitute for innovation.

28
Q

Why is acquisition more predictable compared to internal product development processes?

A

Acquired firm’s products can be assessed prior to completing the acquisition.

29
Q

What types of diversification can be implemented through acquisition?

A

Related and unrelated diversification.

30
Q

Will related or unrelated diversification regarding acquisition be more successful?

A

Related.

31
Q

How does acquisition that reduces dependence on a specific market benefit firms?

A

It broadens the competitive scope.

32
Q

How does acquisition benefit firms in terms of skills and capabilities?

A

Helps firms be flexible when dealing with rapidly changing situations.

33
Q

How much percentage of mergers and acquisitions are:

  • successful
  • disappointing
  • clear failures
A

Successful: 20%
Disappointing: 60%
Clear failures: 20%

Strategy & Organization (14 decks)

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