chapt 4 - merger strategy

Question 1

some motives and determinants of mergers

Answer 1

1. buying business models
2. defensive
3. intellectual property
4. local market expertise
5. access to distribution channel
6. target firm distress

Question 2

explain economy of scope & scale

Answer 2

scope : offer wider range of services or product
scale : reduce per unit cost as output rises

Question 3

explain the AvgCost curve

Answer 3

right is diseconomies of scale and at the left is economies of scale

Question 4

2 types of synergies

Answer 4

1. cost reducing synergy
2. revenue enhancing synergy (harder to predict & achieve)(cross-selling)

Question 5

list example of synergies

Answer 5

lowering cost of capital
diversification

Question 6

some advantage of horizontal acquisiton

Answer 6

• eliminate duplicate facilities
• broader product line
• market power
• higher executive compensation
  -improved mngmt
• tax benefit

Question 7

explain backward vs forward expansion

Answer 7

back : towards the source of supply (cie. buy another one with large reserve)
for: towards the consumer (cie buy one with large network)

Question 8

explain hubris vs managerialism

Answer 8

hubris: manager believe their valuation is superior so overpay
mana: manager might know they’re overpaying but they do so to pursue their own goals

Question 9

P/E game

Answer 9

d.30 chapt 4