SEVI 3013 FINAL EXAM QUESTIONS
WITH COMPLETE ANSWERS
What are the risks of mergers and acquisitions? - Answer-- too large
- integration difficulties
- inadequate eval of target
- managers overly focused on acquisitions
- extraordinary debt
- too much diversification
- inability to achieve synergy
How do mergers impact competitive advantage and value creation? - Answer--
reduction in competitive industry (changes industry structure)
- lower costs (economy of scale)
- increased differentiation (fills product gaps)
What principal-agent issues impact the ability of mergers/acquisitions to positively
impact shareholder value? - Answer-- income, job security, prestige, power
- buying a business more interesting than running a business
- ego, managerial hubris
Why do firms enter into strategic alliances? - Answer-- strengthen competitive position
- enter new markets
- hedge against certainty
- access critical complementary assets
- learn new capabilities
Non-equity alliance - Answer-- partnership based on contracts
- supply agreements, distribution agreements, licensing agreements, franchise
Equity alliance - Answer-- one partner takes partial equity stake in other (GM/Lyft)
Joint venture - Answer-- standalone organization, created and jointly owned by 2 or
more parent companies (Hulu)
What is meant by co-opetition and the learning race, as they relate to strategic
alliances? - Answer-- Co-opetition: cooperation by competitors to achieve a strategic
objective
- Learning Race: situations where both partners in a strategic alliance are motivated to
form an alliance for learning, but the rate at which the firms learn may vary.
--example) Toyota & GM - alliance w/ competitor
, whoever learned what they need to learn first, Toyota, dissolved the alliance and exited
the race
What three components contribute to effective alliance management capability? -
Answer-1. Partner selection & alliance formation
2. Alliance design & governance
3. Post-formation alliance mgmt.
Mergers - Answer-joining of 2 independent companies to form a combined entity
Acquisitions - Answer-- purchase of one company by another
- can be friendly / unfriendly (hostile)
Takeovers - Answer-one company takes control over another
Hostile takeovers - Answer-target company does not wish to be acquired
Why do firms pursue mergers? - Answer-Horizontal Integration
- merger w/ a competitor
- leads to industry consolidation
Why do firms pursue acquisitions? - Answer-to access new markets and distribution
channels
- overcome entry barriers
- pre-empt rivals:
ex. FB acquisitions of IG, WhatsApp, Oculus
What are the benefits of mergers and acquisitions? - Answer-- reduction in competitive
intensity: changes industry structure
- lower costs: economy of scale
- Increased differentiation: fills product gaps
What is meant by strategic preemption? - Answer-reductions in competitive intensity as
a motivation to acquire
ex. Facebook bought Oculus, not because it was great, but because they didn't want
Apple to have them
What is managerial hubris? - Answer-Ego
a form of self-delusion in which managers convince themselves of their superior skills in
the face of clear evidence to the contrary.
What is corporate governance? - Answer-a strategic control mechanism focused on
relationships among shareholders, management, and the board of directors
WITH COMPLETE ANSWERS
What are the risks of mergers and acquisitions? - Answer-- too large
- integration difficulties
- inadequate eval of target
- managers overly focused on acquisitions
- extraordinary debt
- too much diversification
- inability to achieve synergy
How do mergers impact competitive advantage and value creation? - Answer--
reduction in competitive industry (changes industry structure)
- lower costs (economy of scale)
- increased differentiation (fills product gaps)
What principal-agent issues impact the ability of mergers/acquisitions to positively
impact shareholder value? - Answer-- income, job security, prestige, power
- buying a business more interesting than running a business
- ego, managerial hubris
Why do firms enter into strategic alliances? - Answer-- strengthen competitive position
- enter new markets
- hedge against certainty
- access critical complementary assets
- learn new capabilities
Non-equity alliance - Answer-- partnership based on contracts
- supply agreements, distribution agreements, licensing agreements, franchise
Equity alliance - Answer-- one partner takes partial equity stake in other (GM/Lyft)
Joint venture - Answer-- standalone organization, created and jointly owned by 2 or
more parent companies (Hulu)
What is meant by co-opetition and the learning race, as they relate to strategic
alliances? - Answer-- Co-opetition: cooperation by competitors to achieve a strategic
objective
- Learning Race: situations where both partners in a strategic alliance are motivated to
form an alliance for learning, but the rate at which the firms learn may vary.
--example) Toyota & GM - alliance w/ competitor
, whoever learned what they need to learn first, Toyota, dissolved the alliance and exited
the race
What three components contribute to effective alliance management capability? -
Answer-1. Partner selection & alliance formation
2. Alliance design & governance
3. Post-formation alliance mgmt.
Mergers - Answer-joining of 2 independent companies to form a combined entity
Acquisitions - Answer-- purchase of one company by another
- can be friendly / unfriendly (hostile)
Takeovers - Answer-one company takes control over another
Hostile takeovers - Answer-target company does not wish to be acquired
Why do firms pursue mergers? - Answer-Horizontal Integration
- merger w/ a competitor
- leads to industry consolidation
Why do firms pursue acquisitions? - Answer-to access new markets and distribution
channels
- overcome entry barriers
- pre-empt rivals:
ex. FB acquisitions of IG, WhatsApp, Oculus
What are the benefits of mergers and acquisitions? - Answer-- reduction in competitive
intensity: changes industry structure
- lower costs: economy of scale
- Increased differentiation: fills product gaps
What is meant by strategic preemption? - Answer-reductions in competitive intensity as
a motivation to acquire
ex. Facebook bought Oculus, not because it was great, but because they didn't want
Apple to have them
What is managerial hubris? - Answer-Ego
a form of self-delusion in which managers convince themselves of their superior skills in
the face of clear evidence to the contrary.
What is corporate governance? - Answer-a strategic control mechanism focused on
relationships among shareholders, management, and the board of directors
