Chapter 9 - Test 3 Flashcards
1
Q
The use of strategic alliances to manage economic exchanges has grown substantially over the last several years.
A
T
2
Q
A strategic alliance exists whenever three or more independent organizations cooperate in the development, manufacture, or sale of products or services.
A
f
3
Q
In a nonequity alliance, firms create a legally independent firm in which they invest and from which they share any profits that are created.
A
f
4
Q
In an equity alliance, cooperating firms supplement contracts with equity holdings an alliance partners.
A
t
5
Q
When a firm cannot realize the cost savings from economies of scale all by itself, it may join in a strategic alliance with other firms so that together both firms will have sufficient volume to be able to gain the cost advantages of economies of scale.
A
t
6
Q
In general, due to the intangible nature of knowledge, firms are not able to use alliances to learn from their competitors.
A
f
7
Q
When both parties to an alliance are seeking to learn something from that alliance, a learning race can evolve.
A
t
8
Q
Network industries are characterized by decreasing returns to scale.
A
f
9
Q
Firms with high levels of absorptive capacity will learn at higher rates than firms with low levels of absorptive capacity, even if these two firms are trying to learn exactly the same things in an alliance.
A
t
10
Q
Learning race dynamics are particularly common in relations among large, well-established firms.
A
f
11
Q
In network industries with increasing returns to scale where standards are unimportant, strategic alliances can be used to create a more favorable competitive environment.
A
f
12
Q
Explicit collusion exists when firms directly communicate with each other to coordinate their levels of production or their prices and is legal in most countries.
A
f
13
Q
Tacit collusion exists when firms coordinate their pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate.
A
t
14
Q
Strategic alliances can help create the social setting within which tacit collusion may develop.
A
t
15
Q
Research shows that joint ventures between firms in the same industry may have collusive implications and that these kinds of joint ventures are relatively common.
A
f
16
Q
Alliances to facilitate entry into new industries are only valuable when the skills needed in these industries are complex and difficult to learn.
A
f
17
Q
When information asymmetry exists between firms that currently own assets and firms that may want to purchase these assets, the selling firm will often have difficulty obtaining the full economic value of these assets.
A
t
18
Q
In new and uncertain environments it is not unusual for firms to develop numerous strategic alliances.
A
t
19
Q
Research shows that as many as two-thirds of strategic alliances do not meet the expectations of at least one alliance partner.
A
f
20
Q
When potential cooperative partners misrepresent the skills, abilities, and other resources that they will bring to an alliance, this is a form of cheating known as adverse selection.
A
t
21
Q
In general, the less tangible the resources and capabilities that are to be brought to a strategic alliance, the less costly it will be to estimate their value before an alliance is created and the more likely it is that adverse selection will occur.
A
f
22
Q
Moral hazard occurs when partners in an alliance possess high-quality resources and capabilities of significant value in an alliance but fail to make those resources and capabilities available to alliance partners.
A
t
23
Q
The existence of moral hazard in a strategic alliance proves that at least one of the parties is either malicious or dishonest.
A
f
24
Q
In an alliance a holdup occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance.
A
t
25
Research on international joint ventures suggests that the existence of transaction-specific investments in their relationships makes these agreements relatively immune to holdup problems.
f
26
Although holdup is a form of cheating in strategic alliances, the threat of holdup can also be a motivation for creating an alliance.
t
27
For a strategic alliance to be a source of sustained competitive advantage it must be valuable in that it exploits an opportunity but avoids a threat and it must also be rare and costly to imitate
t
28
The rarity of strategic alliances depends solely on the number of competing firms that have already implemented an alliance.
f
29
In the short-run, firms can gain some advantages by cheating their alliance partners but research suggests that cheating does not pay in the long run.
t
30
Successful strategic alliances are often based on socially complex relations among alliance partners but virtually every firm in a given industry is likely to have the organizational and relationship-building skills required for alliance building making the possibility of direct duplication of strategic alliances very high.
f
31
In general, firms will prefer to go it alone rather than enter into a strategic alliance when the level of transaction-specific investment required to complete an exchange is low.
t
32
Capabilities theory suggests that an alliance will be preferred over going it alone when an exchange partner possesses valuable, rare, and costly-to-imitate resources and capabilities.
t
33
When there is low uncertainty about the future value of an exchange, an alliance will be preferred to going it alone.
f
34
Transaction cost economics suggests that going it alone is not a substitute for strategic alliances since they are best chosen only when other alternatives are not viable.
t
35
An alliance will be preferred to an acquisition when there are legal constraints on acquisitions.
t
36
The primary purpose of organizing a strategic alliance is to enable partners in the alliance to gain all the benefits associated with cooperation while minimizing the probability that cooperating firms will cheat on their cooperative agreements.
t
37
In general, contracts are sufficient to resolve all the problems associated with cheating in an alliance.
f
38
Sometimes the value of cheating in a joint venture is sufficiently large that a firm cheats even though doing so hurts the joint venture and forecloses future opportunities.
t
39
In comparison to strategic alliances, joint ventures increase the threat of cheating by partners.
f
40
When the probability of cheating in a cooperative relationship is lowest, a joint venture is usually the preferred form of cooperation.
f
41
```
In the computer technology-based industries, over ________ alliances were created between 2001 and 2005.
A) 5,700
B) 1,200
C) 2,200
D) 3,100
```
c
42
```
A(n) ________ exists whenever two or more independent organizations cooperate in the development, manufacture, or sale of products or services.
A) vertical market
B) strategic alliance
C) initial public offering
D) market transaction
```
b
43
```
A ________ is a form of nonequity alliance that exists when one firm allows another to use its brand name to sell its products.
A) supply agreement
B) distribution agreement
C) licensing agreement
D) joint venture
```
c
44
```
In a ________, cooperating firms create a legally independent firm in which they invest and from which they share any profits that are created.
A) licensing agreement
B) supply agreement
C) distribution agreement
D) joint venture
```
d
45
Strategic alliances can create economic value through helping firms improve their current operations by
A) facilitating the development of technology standards.
B) facilitating tacit collusion.
C) exploiting economies of scale.
D) managing uncertainty.
c
46
```
When both parties to an alliance are seeking to learn something from that alliance, a ________ can evolve.
A) learning race
B) dynamic race
C) learning dynamic
D) learning curve
```
a
47
```
Network industries are characterized by
A) increasing diseconomies of scale.
B) increasing returns to scale.
C) decreasing returns to scale.
D) decreasing economies of scale.
```
b
48
```
A firm's ability to learn is known as its
A) competitive position.
B) competitive advantage.
C) distinctive competence.
D) absorptive capacity.
```
d
49
```
In one study almost ________ percent of the managers in entrepreneurial firms felt unfairly exploited by their large-firm alliance partners.
A) 80
B) 20
C) 50
D) 10
```
a
50
```
________ exists when firms directly communicate with each other to coordinate their levels of production and/or their prices.
A) Economies of scale
B) Explicit collusion
C) A learning race
D) Tacit collusion
```
b
51
```
________ exists when firms coordinate their production and pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate.
A) Economies of scale
B) Explicit collusion
C) A learning race
D) Tacit collusion
```
d
52
```
Strategic alliances are particularly valuable in facilitating market entry and exit when the value of market entry or exit is
A) high.
B) low.
C) moderate.
D) uncertain.
```
d
53
Although joint ventures between firms in the same industry ________ collusive implications, research has shown that these kinds of joint ventures are ________.
A) may have; relatively rare
B) are not likely to have; relatively rare
C) may have; relatively common
D) are not likely to have; relatively common
a
54
As long as the cost of ________ to enter a new industry is less than the cost of ________, an alliance can be a valuable strategic opportunity.
A) vertically integrating; learning new skills and capabilities
B) learning new skills and capabilities; using an alliance
C) using an alliance; learning new skills and capabilities
D) learning new skills and capabilities; vertically integrating
c
55
```
Consistent with a real options perspective, firms in new and uncertain environments are likely to
A) avoid using strategic alliances.
B) develop numerous strategic alliances.
C) develop few strategic alliances.
D) engage in vertical integration.
```
b
56
```
Research shows that as many as ________ of all strategic alliances do not meet the expectations of at least one alliance partner.
A) one-third
B) five-eighths
C) one-half
D) two-thirds
```
a
57
```
If TeleCo were to enter into a strategic alliance with a partner that promised it could deliver a high quality wireless infrastructure when in fact the potential partner had neither the skills nor abilities to provide this infrastructure, TeleCo could be said to be impacted by
A) moral hazard.
B) adverse selection.
C) holdup.
D) tacit collusion.
```
b
58
Adverse selection in a strategic alliance is likely only when
A) it is difficult or costly to observe the resources or capabilities that a partner brings to an alliance.
B) a potential partner can easily see the resources and capabilities that a firm is bringing to an alliance.
C) it is difficult or costly to know how competitors will react to the strategic alliance.
D) there are significant transaction-specific assets devoted to the alliance.
a
59
```
In general, the ________ tangible the resources and capabilities that are to be brought to a strategy alliance, the ________ costly it will be to estimate their value before an alliance is created, and the ________ likely it is that adverse selection will occur.
A) more; more; more
B) less; more; less
C) less; more; more
D) more; more; less
```
c
60
```
________ occurs when partners in an alliance possess high-quality resources and capabilities of significant value in an alliance but fail to make those resources and capabilities available to alliance partners.
A) Moral hazard
B) Adverse selection
C) Holdup
D) Explicit collusion
```
a
61
```
Often both parties in a failed alliance accuse each other of
A) adverse selection.
B) tacit collusion.
C) moral hazard.
D) holdup.
```
c
62
```
When one firm makes more transaction-specific investments in a strategic alliance than partner firms make, that firm may be subject to a form of cheating called ________ that occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance.
A) adverse selection
B) holdup
C) moral hazard
D) noncompliance
```
b
63
```
Research suggests that ________ are the type of alliance where existence of transaction-specific investments often leads to holdup problems.
A) licensing agreements
B) equity alliances
C) joint ventures
D) distribution agreements
```
c
64
The rarity of strategic alliances
A) depends solely on the number of competing firms that have already implemented an alliance.
B) depends solely on whether or not the benefits that firms obtain from their alliances are not common across firms in the industry.
C) depends not only on the number of competing firms that have already implemented an alliance but also on whether or not the benefits that firms obtain from their alliances are not common across competing firms in the industry.
D) depends solely on the number of substitutes available for alliances.
c
65
One of the reasons why the benefits that accrue from a particular strategic alliance may be rare is that
A) relatively few firms may have the complementary resources and abilities needed to form an alliance.
B) there is a relatively large number of alliance partners available.
C) relatively many firms may have the complementary resources and abilities needed to form an alliance
D) there may be a relatively low amount of transaction-specific assets to enter into similar alliances.
a
66
Research indicates that the most common reason that alliances fail to meet the expectations of partner firms is
A) the lack of financial resources.
B) the necessity of transaction-specific investments.
C) the lack of transaction-specific investments.
D) the partners' inability to trust one another.
d
67
```
To the extent that a strategic alliance is based on ________ relations, it will make the alliances costly to imitate.
A) socially complex
B) tacit collusion
C) explicit collusion
D) moral hazard
```
a
68
Two possible substitutes for strategic alliances include
A) going it alone and tacit collision.
B) going it alone and acquisitions.
C) acquisitions and explicit collusion.
D) explicit collusion and tacit collusion
b
69
```
Firms ________ when they attempt to develop all the resources and capabilities they need to exploit market opportunities and neutralize market threats by themselves.
A) engage in tacit collusion
B) form joint ventures
C) go it alone
D) engage in explicit collusion
```
c
70
Alliances will be preferred to going it alone when
A) the level of transaction-specific investments required to complete an exchange is low.
B) there are no transaction-specific investments required to complete an exchange is low.
C) when there is low uncertainty about the future value of an exchange.
D) the level of transaction-specific investments required to complete an exchange is moderate.
d
71
```
________ theory suggests that under conditions of high uncertainty, firms may be unwilling to commit to a particular course of action by engaging in an exchange with a firm and will choose, instead, the strategic flexibility associated with alliances.
A) Capabilities
B) Real options
C) Transaction cost economics
D) Resource-based
```
b
72
Alliances will be preferred to acquisitions when
A) alliances limit a firm's flexibility under conditions of high uncertainty.
B) there is minimal unwanted organizational "baggage" in an acquired firm.
C) there are legal constraints on acquisitions.
D) the value of a firm's resources and capabilities does not depend on its independence.
c
73
```
An example of a contractual clause that deals with operating issues would be a
A) noncompete clause.
B) minority protection clause.
C) put options clause.
D) termination clause.
```
a
74
```
All of the following are methods firms can use to reduce the threat of cheating in strategic alliances except
A) contracts.
B) equity investments.
C) joint ventures.
D) tacit collusion.
```
d
75
Which of the following is a limitation of the reputational control of cheating in a strategic alliance?
A) Subtle cheating in an alliance is likely to become public knowledge.
B) Even if one firm is clearly cheating in an alliance, the other firm may not be sufficiently tied into a network of firms to make this information public.
C) The effect of a tarnished reputation forecloses future opportunities for a firm and it helps reduce the current losses of the firm that was cheated.
D) The reputation of the firm that was impacted by the cheating may be impacted as significantly as the firm that committed the cheating.
b
76
```
When the probability of cheating in a cooperative relationship is greatest, a(n) ________ is the preferred form of cooperation.
A) equity agreement
B) licensing agreement
C) joint venture
D) distribution agreement
```
c
77
```
________ may enable partners to explore exchange opportunities that they could not explore if only legal and economic organizing mechanisms were in place.
A) Trust
B) Joint ventures
C) Reputational effects
D) Equity investments
```
a
78
```
While it is often the case that there will be important information asymmetries between firms in an alliance, these asymmetries are likely to be ________ when alliances partners come from different countries.
A) much less
B) about the same as
C) much greater
D) marginally greater
```
c
79
```
________ collusion exists when firms coordinate their production and pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate.
A) Explicit
B) Tacit
C) Real
D) Virtual
```
b
80
```
________ collusion exists when firms directly communicate with each other to coordinate their levels of production, their prices, and so forth.
A) Tacit
B) Virtual
C) Real
D) Explicit
```
d
81
1) A firm engages in an acquisition when it purchases a second firm.
t
82
2) For a firm to gain a controlling share in an acquisition, it must purchase more than 51% of the acquired firm's assets.
f
83
3) When the management of a target firm wants the firm to be acquired, this is known as a hostile takeover.
f
84
4) A privately held firm has not sold any shares on the public stock market
t
85
5) In an acquisition a tender offer can only be made with the support of the management of the acquired firm.
f
86
6) When the assets of two similar-sized firms are combined, this is known as a merger.
t
87
7) While mergers typically begin as a transaction between equals, that is, between firms of equal size and profitability, they often evolve after a merger such that one firm is more dominant in the management of the merged firm than the other.
t
88
8) In the first 11 months of 2008, there were 9,900 mergers and acquisitions in the United States.
f
89
9) In 2007, the total value of mergers and acquisition deals in the United States was $10 trillion
f
90
10) The price of each of a firm's shares multiplied by the number of shares outstanding is known as the firm's current market value.
t
91
11) In all acquisitions bidding, firms will be willing to pay a price for a target up to the value that the firm adds to the bidder once it is acquired.
t
92
12) The acquisition of strategically unrelated targets will generate substantial economic profits for both the bidding and the target firms.
f
93
13) If there is any hope that mergers and acquisitions will be a source of superior performance for bidding firms, it must be because of some sort of strategic relatedness between bidding and target firms.
t
94
14) In principle, the Federal Trade Commission will allow any acquisition involving firms with headquarters in the United States that could have the potential for generating monopoly or oligopoly profits in an industry.
f
95
15) According to the Federal Trade Commission, a firm engages in a horizontal merger when it acquires former suppliers or customers.
f
96
16) In a product extension merger, a firm acquires complementary products through merger and acquisition activities.
t
97
17) Despite the popularity of conglomerate mergers in the 1960s, most mergers and acquisitions among strategically related firms are divested shortly after they are completed.
f
98
18) Diversification economies are achieved by the ability of firms to dictate prices by exerting market power.
f
99
19) To be economically valuable, links between bidding and target firms must meet the same criteria as diversification strategies.
t
100
20) If bidding and target firms are strategically related, then the economic value of these two firms combined is greater than their economic value as separate entities
t
101
21) Firms should pursue merger and acquisition strategies only to obtain valuable economies of scope that outside investors find too costly to create on their own
t
102
22) The existence of strategic relatedness between bidding and target firms is sufficient for the equity holders of bidding firms to earn economic profits from their acquisition strategies.
f
103
23) In an initial public offering, a firm (typically working with an investment banker) sells its equity to the public at large.
t
104
24) One study that reviewed 40 empirical merger and acquisition studies in the finance literature concluded that acquisitions, on average, increased the market value of bidding firms by about 25 percent and left the market value of the target firms unchanged.
f
105
25) Strategy researchers have found that in mergers and acquisitions, the more strategically related bidding and target firms are, the more economic value these mergers and acquisitions create
t
106
26) In mergers and acquisitions, the owners of the bidding firm appropriate the economic value created by the transaction.
f
107
27) The cumulative abnormal return for a merger or acquisition can be positive or negative depending on whether the stock in question performs better or worse than what was expected without an acquisition.
t
108
28) Free cash flow is simply the amount of cash a firm has to invest after all positive net present-value investments in its ongoing businesses have been funded.
t
109
29) Managerial hubris is the well-founded belief held by managers in bidding firms that they can manage the assets of a target firm more efficiently than the target firm's current management.
f
110
30) The market for corporate control is the market that is created when multiple firms actively seek to acquire one or several firms.
t
111
31) The difference between the unexpected value of an acquisition actually obtained by a bidder and the price the bidder paid for the acquisition is a profit for the equity holders of the target firm.
f
112
32) One of the main reasons why bidding firms do not obtain competitive advantages from acquiring strategically related target firms is that several other bidding firms value the target firm the same way.
t
113
33) One of the keys for a bidding firm to earn superior performance in an acquisition strategy is to make sure that multiple bidders are pursuing the same target.
f
114
34) When acquiring a publicly traded firm a bidder has to release all the information it has about the potential value of that target in combination with itself.
f
115
35) A thinly traded market is a market where there are only a small number of buyers and sellers, where information about the opportunities in this market is not widely known, and where interests besides purely maximizing the value of a firm can be important.
t
116
36) Mergers and acquisitions designed to create vertical integration should be managed through the M-form structure.
f
117
37) Perhaps the most significant challenge in integrating bidding and target firms has to do with cultural differences.
t
118
38) Operational, functional, strategic, and cultural differences between bidding and target firms can all be compounded by the merger and acquisition processespecially if that process was unfriendly.
t
119
39) Unfriendly takeovers can generate anger and animosity among the target firm management that is directed toward the management of the bidding firm.
t
120
40) The value that a bidding firm brings to a target firm through an acquisition should be discounted by the cost of strategizing to implement an acquisition.
f
121
```
41) A firm engages in a(n) ________ when it purchases a second firm.
A) acquisition
B) joint venture
C) strategic alliance
D) equity alliance
```
a
122
```
42) When one firm acquires a(n) ________ of another firm, it has acquired enough of that firm's assets so that the acquiring firm is able to make all the management and strategic decisions in the target firm.
A) market stake
B) equity share
C) controlling share
D) equity stake
```
c
123
```
43) A(n) ________ acquisition occurs when the management of a target firm wants to be acquired.
A) hostile
B) admirable
C) strategic
D) friendly
```
d
124
```
44) When a firm has not sold shares on the public stock market, it is known as
A) closely held.
B) privately held.
C) publicly traded.
D) a small cap stock.
```
b
125
```
45) The difference between the current market price of a target firm's shares and the price a potential acquirer offers to pay for those shares is known as an
A) acquisition premium.
B) acquisition discount.
C) acquisition margin.
D) acquisition price.
```
a
126
```
46) When Sears and Kmart, two retail firms of relatively equal size in the United States, agreed to combine their assets, this was an example of a(n)
A) joint venture.
B) acquisition.
C) merger.
D) equity agreement.
```
c
127
```
47) In 2007, the total value of announced merger and acquisition activities in the United States was
A) $2.5 trillion
B) $1.7 trillion.
C) $3.0 trillion.
D) $5.0 trillion.
```
b
128
```
48) In the first 11 months of 2008, there were ________ acquisitions or mergers in the United States.
A) 3,290
B) 4,160
C) 5,270
D) 8,190
```
d
129
```
49) The price of each of a firm's shares multiplied by the number of shares outstanding represents the firm's
A) total equity base.
B) current market value.
C) total market share.
D) current market share.
```
b
130
```
50) In an unrelated acquisition, if 5 firms are interested in acquiring a firm and each of the bidding firms had a current market value of $30,000 while the current market value of the target firm is $20,000, this acquisition is likely to generate economic profits of ________ for the acquiring firm.
A) $10,000
B) $20,000
C) $50,000
D) $0.00
```
d
131
```
51) If an electronics manufacturer were to acquire a chain of retail electronic stores to sell its products, this would be an example of a ________ merger.
A) vertical
B) horizontal
C) market extension
D) product extension
```
a
132
```
52) If eBay were to acquire a smaller online auction company, this would be an example of a ________ merger.
A) conglomerate
B) vertical
C) market extension
D) horizontal
```
d
133
```
53) In a ________ merger, firms acquire complementary products through their merger and acquisition activities.
A) vertical
B) market extension
C) product extension
D) horizontal
```
c
134
```
54) When eBay acquired Baaze.com, an Indian auction firm, in order to enter the Indian online auction market, this was an example of a ________ merger.
A) product extension
B) market extension
C) conglomerate
D) vertical
```
b
135
```
55) If there are no vertical, horizontal, product extension, or market extension links between firms, the FTC defines the merger or acquisition activity between firms as a ________ merger.
A) conglomerate
B) vertical
C) horizontal
D) product extension
```
a
136
```
56) ________ economies are scale economies that occur when the physical processes inside a firm are altered so that the same amounts of input produce a higher quantity of outputs.
A) Pecuniary
B) Diversification
C) Technical
D) Vertical
```
c
137
```
57) Which of the following is a source of diversification economies?
A) Marketing
B) Production
C) Scheduling
D) Portfolio management
```
d
138
```
58) ________ economies are achieved by the ability of firms to dictate prices by exerting market power.
A) Pecuniary
B) Technical
C) Diversification
D) Production
```
a
139
```
59) ________ economies are achieved by improving a firm's performance relative to its risk attributes or lowering its risk attributes relative to its performance.
A) Technical
B) Diversification
C) Pecuniary
D) Market
```
b
140
60) Which of the following is a financial motivation for why bidding firms might want to engage in merger and acquisition strategies?
A) To increase leverage opportunities
B) To capture economies of scale
C) To adopt more efficient production or organizational technology
D) To engage in vertical integration
a
141
61) Which one of the following is not one of the reasons that Jensen and Ruback listed as to why bidding firms might want to engage in merger and acquisition strategies?
A) To reduce production or distribution costs
B) To gain market power in product markets
C) To expand individual managers' power within an organization
D) To eliminate inefficient target management
c
142
```
62) In a related acquisition, if there is one target firm and ten bidding firms, and the value of each of the bidding firms as a stand-alone entity is $50,000 and the value of the target firm as a stand-alone entity is $30,000, the market value of the combined entity will be
A) $0.00.
B) less than $80,000.
C) $80,000.
D) more than $80,000.
```
d
143
```
63) Wealthy individuals who provide capital to entrepreneurs to help them grow their businesses are known as
A) business angels.
B) venture capitalists.
C) stockholders.
D) CEOs.
```
a
144
```
64) ________ firms typically raise money from numerous smaller investors, which they then invest in a portfolio of entrepreneurial firms.
A) Business angel
B) Venture capital
C) Closely held
D) Private equity
```
b
145
```
65) In a(n) ________, a firm, typically working with an investment banker, sells its equity to the public at large.
A) FTC
B) merger
C) IPO
D) acquisition
```
c
146
66) Research suggests that, on average, acquisitions increased the market value of target firms by about ________ percent and ________.
A) 50; left the market value of the bidding firms unchanged
B) 25; left the market value of the bidding firms unchanged
C) 50; increased the market value of the bidding firms by 25 percent
D) 25; increased the market value of the bidding firms by 15 percent
b
147
```
67) Managers of bidding firms continue to engage in merger or acquisition strategies even though they usually do not generate profits for bidding firms in order to
A) ensure survival.
B) generate free cash flow.
C) reduce agency problems.
D) reduce managerial hubris.
```
a
148
68) Which of the following actions should bidding firm managers take to help earn superior performance in an acquisition strategy?
A) Share information with other bidders.
B) Delay the closing of the deal.
C) Avoid winning bidding wars.
D) Operate in competitive acquisition markets
c
149
69) A thinly traded market is a market where
A) there are only a small number of buyers and sellers.
B) many firms are implementing acquisition strategies.
C) information about opportunities in this market is widely known.
D) the only important interest is to maximize the value of a firm.
a
150
70) To ensure that the owners of target firms appropriate whatever value is created by a merger or acquisition, managers in these target firms should
A) create a thinly traded market for their firm.
B) seek information from bidders.
C) close the acquisition deal quickly.
D) limit the number of bidders involved in the bidding competition.
b
151
```
71) ________ is (are) a maneuver in which a target firm's management purchases any of the target firm's stock owned by a bidder and does so for a price that is greater than the current market value of that stock.
A) Standstill agreements
B) Poison pills
C) Shark repellents
D) Greenmail
```
d
152
```
72) Firms using ________ fend off an acquisition by taking over the firm or firms bidding for them.
A) shark repellents
B) a crown jewel sale
C) the Pac Man defense
D) a golden parachute
```
c
153
```
73) A ________ is a compensation arrangement between a firm and its senior management team that promises these individuals substantial cash payment if their firm is acquired and they lose their jobs in the process.
A) white knight agreement
B) greenmail agreement
C) shark repellent
D) golden parachute
```
d
154
```
74) Mergers and acquisitions used to create diversification strategies should be managed through the
A) M-form structure.
B) functional structure.
C) U-form structure.
D) matrix structure.
```
a
155
```
75) The most significant challenge in integrating bidding and target firms has to do with
A) accounting differences.
B) cultural differences.
C) operational differences.
D) logistic differences.
```
b
156
```
76) A ________ is another bidding firm that agrees to acquire a particular target in the place of the original bidding firm.
A) golden parachute
B) greenmail
C) white knight
D) crown jewel
```
c
157
```
77) ________ include a variety of relatively minor corporate governance changes that, in principle, are supposed to make it more difficult to acquire a target firm.
A) Shark repellents
B) White knights
C) Greenmail
D) Poison pills
```
a
158
```
78) Supermajority voting rules are an example of a
A) poison pill.
B) white knight.
C) golden parachute.
D) shark repellent.
```
d
159
```
79) ________ does not affect the wealth of target firm equity holders.
A) Blue Man defense
B) Pac Man defense
C) Golden parachute
D) Silver parachute
```
b
160
```
80) ________ is an example of an ineffective and inconsequential response by a target firm.
A) A Pac Man defense
B) A Blue Man defense
C) A crown jewel sale
D) A golden parachute defense
```
c
161
```
81) If P&G's bid for Gillette was invited by Gillette's management, this would be an example of a
A) hostile acquisition.
B) joint venture.
C) friendly acquisition.
D) merger.
```
c
162
```
82) If Gillette's total market value on the day the deal was announced was $48.30 billion, P&G's $57 billion offer would represent a(n)
A) 18% acquisition premium.
B) 82% acquisition discount.
C) 82% acquisition premium.
D) 18% acquisition discount.
```
a
163
```
83) Since both P&G and Gillette are consumer products firms, this acquisition is best described as a
A) vertical merger.
B) horizontal merger.
C) market extension merger.
D) conglomerate merger.
```
b
164
```
84) P&G's acquisition of Wella in 2003 is an example of a
A) market extension merger.
B) conglomerate merger.
C) vertical merger.
D) product extension merger.
```
d
165
```
85) P&G's purchase of AG-Hutchison Ltd in 2004 is an example of a
A) conglomerate merger.
B) vertical merger.
C) market extension merger.
D) conglomerate acquisition.
```
c
166
```
86) If one of the reasons P&G acquired Gillette was to gain greater market power in key industries, this would be an example of ________ economies.
A) technical
B) pecuniary
C) diversification
D) vertical
```
b
167
87) If P&G wanted to increase the probability that it would be able to earn superior economic performance from its acquisition of Gillette, P&G should
A) share information about Gillette with other potential bidders.
B) share information about strategic fit potential between P&G and Gillette with Gillette.
C) wait to submit its bid for Gillette until there are multiple interested bidders.
D) close the acquisition deal as quickly as possible.
d
168
88) If Gillette's managers wanted to maximize the value that Gillette received from its acquisition by P&G, they should
A) seek information from P&G about the value that P&G will receive from its acquisition of Gillette.
B) not engage in negotiations with any bidder but P&G.
C) close the acquisition as quickly as possible.
D) stop the acquisition.
a
169
```
89) If P&G's acquisition of Wella had been delayed because it had to overcome a stipulation in Wella's corporate bylaws requiring that more than 50% of Wella's board of directors had to approve the takeover, this would be an example of
A) the Pac Man defense.
B) a poison pill.
C) greenmail.
D) a shark repellent.
```
d
170
```
90) The most significant challenge P&G is likely to face in integrating each of the acquired companies into P&G's operations is likely to be ________ differences between P&G and each of the companies.
A) logistical
B) cultural
C) operational
D) distribution
```
b
