Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) According to Strategy Spotlight 6.3, JAB Holding Co., a Luxembourg-based holding
company, uses divestiture to extract value from the many firms it has acquired.

⊚ false

2) According to the study in Insights from Research on CEO temporal focus and negative
media coverage of acquisitions, top managers of firms appear to be sensitive to the evaluation of
their decisions by the media and if they received negative evaluations of their acquisitions in one
year, they increased their spending on acquisition the following year.

⊚ false

3) Research shows that most acquisitions of public corporations result in value creation
rather than value destruction.

⊚ false

4) The Hewlett-Packard and Autonomy merger in 2011 is an example of a successful

merger.

⊚ false

5) Many acquisitions ultimately result in divestiture.

⊚ true

6) Diversification initiatives must be justified by the creation of value for shareholders.

⊚ true

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7) When firms diversify into unrelated businesses, the primary potential benefits are
horizontal relationships, i.e., businesses sharing tangible and intangible resources.

⊚ false

8) Benefits derived from horizontal and hierarchical relationships are mutually exclusive.

⊚ false

9) For a core competency to create value and provide a viable basis for synergy among the
businesses in a corporation, it must at least create superior customer value and it must be difficult
to imitate.

⊚ true

10) Gillette developed the Fusion and Mach 3 shaving systems. These products created
superior customer value as a result of the company core competency in research and
development.

⊚ true

11) It is necessary for a core competence to be difficult to imitate and to be non-substitutable.

⊚ true

12) With unrelated diversification, potential benefits can be gained from vertical or
hierarchical relationships; that is, the creation of synergies from the interaction of the corporate
office with outside stakeholders.

⊚ false

13) Restructuring requires the corporate office to find either exceptionally performing firms
with realized potential or firms in industries on the threshold of significant, negative change.

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 ⊚ false

14) Portfolio management should be considered as the primary basis for formulating
corporate-level strategies.

⊚ false

15) Diversified public corporations, such as Berkshire Hathaway and Virgin Group, create
value through management expertise by improving plans and budgets. This is an example of a
related diversification strategy.

⊚ false

16) Portfolio models such as the BCG Portfolio matrix are limited in value because they only
compare the SBU on four dimensions.

⊚ false

17) A disadvantage of mergers and acquisitions is that they can enable a firm to rapidly enter
new product markets.

⊚ false

18) Through joint ventures, firms can directly acquire the assets and competencies of other
firms.

⊚ false

19) The potential advantages of strategic alliances and joint ventures include entering new
markets as well as developing and diffusing new technologies.

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 ⊚ true

20) In recent years, many high-tech firms such as Priceline.com have suffered from the
negative impact of uncontrolled growth.

⊚ true

21) Greenmail is an offer by a company, threatened by takeover, to offer its stock at a

reduced price to a third party.

⊚ false

22) A golden parachute is a prearranged contract with managers specifying that, in the event
of a hostile takeover, the target company managers will be paid a significant severance package.

⊚ true

23) According to the Learning from Mistakes case in Chapter 6, the merger of Newell and
Jarden failed because of poor post-merger integration of Jarden.

⊚ true

24) According to Strategy Spotlight 6.1, Geely, a Chinese auto manufacturer, bought Volvo
from Ford in order to improve its designs through the integration of Volvo’s core competencies.

⊚ true

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
25) JAB Holding Co., was a diversified holding company. Recently it has been acquiring
companies in the beverage and food industries. Why?

D) It wanted to remake itself into a focused, related diversifier.

26) According to Strategy Spotlight 6.5 Honda now competes by leveraging ________ to
develop key technologies.

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C) multiple alliances

27) Which of the following potential advantages of strategic alliances best describes the
current Honda solution, according to Strategy Spotlight 6.5?

C) developing and diffusing new technologies

28) When PGA and LPGA, golf tours, joined together in a strategic alliance, which of the
following best explains the potential advantage?

D) reducing costs in the value chain

29) Zara, a Spanish clothing company, often uses strategic alliances when entering new
geographic markets. Which of the following best explains the potential advantage for them?

A) gaining knowledge about different cultures and regulatory environments

30) Ford and VW signed a memorandum of understanding to work together to develop

autonomous vehicles. Which of the following best explains the potential advantage for them?

C) developing and diffusing new technologies

31) Disney intends to compete against Netflix, Amazon, and other streaming services by

B) diversifying its operations.

32) Disney has chosen to discontinue its content distribution agreements with Netflix and
Amazon. Why?

B) Netflix and Amazon are developing their own content.

33) Chinese automaker, Geely, acquired Volvo from Ford, because it mostly needed the
Volvo ________ to compete on the global stage.

C) core competencies

34) Which of the following is not a reason for merger and acquisition failures?

C) The acquisition leads to value creation.

35) Corporate-level strategy focuses on

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 A) gaining long-term revenue.

36) An acquisition that results in ________ commonly indicates that expectations were not
met.

B) divestiture

37) In 2012, Microsoft admitted to a major ________ mistake when it wrote off essentially
the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in
2007.

C) acquisition

38) Yahoo purchased Tumblr for 1.1 billion in 2013 but wrote off 80 percent of the
investment by the middle of 2016. They considered this to be a poor

C) acquisition.

39) AOL purchased Time Warner for 114 billion USD in 2001. By 2003, AOL Time Warner
had lost 150 billion USD in market valuation. This is an example of a

D) failed acquisition.

40) If a multinational firm is unable to understand how the assets of the acquired company
would fit with their own lines of business, this can lead to

B) divestiture.

41) If a multinational firm paid too high a premium for the common stock of the company,
this can lead to

A) divestiture.

42) If a multinational firm fails to effectively integrate their acquisitions, this can result in

D) divestiture.

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43) One of the reasons it is said that only the investment banker wins when a company is
acquired is that they

C) collect huge up-front fees regardless of the outcome afterwards.

44) Diversification initiatives include all the following except

C) shareholder development.

45) Polaris, a manufacturer of snowmobiles, motorcycles, watercraft, and off-road vehicles,

shares manufacturing operations across its businesses. It also has a corporate research and
development facility and staff departments that support all the Polaris operating divisions. This is
an example of creating value by using

B) related diversification to acquire economies of scope by sharing.

46) Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by
producing much of its own polypropylene fiber, a key input to its manufacturing process. This is
an example of creating value by using

C) related diversification to acquire market power by integrating vertically.

47) At Cooper Industries, there are few similarities in the products it makes or the industries
in which it completes. The corporate office adds value through such activities as improving their
accounting activities and centralizing union negotiations. This is an example of creating value by
using

D) unrelated diversification to acquire synergies through corporate restructuring and parenting.

48) The corporate office of Novartis, formerly Ciba-Geigy, acts to improve many key
activities, including resource allocation and reward and evaluation systems. This is an example
of creating value by using

B) unrelated diversification to acquire financial synergies through portfolio management.

49) 3M leverages its competencies in adhesives technologies to many industries, including

automotive, construction, and telecommunications. This is an example of creating value by using

C) related diversification to acquire economies of scope by leveraging core competencies.

50) Many leading high-tech firms such as Google, Apple, and Intel have dramatically
enhanced their revenues, profits, and market values through a wide variety of diversification
initiatives. Which of the following is not such an initiative?

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C) stockholder enhancement

51) Firms have several choices of diversification initiatives that can be used to create value.
Which of the following is not one of them?

D) using related diversification to acquire parenting and restructuring synergies

52) ConAgra, a diversified food producer, increases its power over suppliers by centrally
purchasing huge quantities of packaging materials for all its food divisions. This is an example of
using

B) related diversification to acquire market power by leveraging pooled negotiating power.

53) Proctor and Gamble is a large multinational organization that has many business sharing
distribution resources. Diversification strategies take advantage of the ________ that exist in
their organization.

D) synergies

54) Microsoft offered in 2016 to buy LinkedIn for 26.2 billion USD which was 50 percent
higher than the value for LinkedIn the day before. This high premium offer was necessary for
Microsoft to complete ________ initiative.

C) a diversification

55) When a firm diversifies into ________ businesses, the primary potential benefits to be
derived come from ________ relationships—those businesses that share intangible and tangible
resources.

C) related; horizontal

56) When a firm diversifies into ________ businesses, the primary potential benefits to be
derived come from ________ relationships where value creation is derived from the corporate
office.

A) unrelated; hierarchical

57) Casio, a giant electronic products producer, synthesizes it abilities in miniaturization,

microprocessor design, material science, and ultrathin precision castings to produce digital
watches. It uses the same skills to produce card calculators, digital cameras, and other small
electronics. These collective skills are

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B) core competencies.

58) For a core competence to be a viable basis for the corporation strengthening a new
business unit, there are three requirements. Which one of the following is not one of these
requirements?

C) The new business must have an established large market share.

59) Sharing core competencies is one of the primary potential advantages of diversification.
For diversification to be most successful, it is important that the

B) value chains of the firm be similar enough in at least one way to allow for the leveraging of
the core competencies of the firm.

60) When management uses common production facilities or purchasing procedures to

distribute different but related products, they are

D) sharing activities.

61) Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by
producing much of its own polypropylene fiber, a key input into its manufacturing process. This
is an example of

A) vertical integration.

62) The risks of vertical integration include all the following except

B) lack of control over valuable assets.

63) Unbalanced capacities that limit cost savings, difficulties in combining specializations,
and reduced flexibility are disadvantages associated with

B) vertical integration.

64) A firm should consider vertical integration when

C) the suppliers of raw materials to the firm are unable to maintain quality standards.

65) Transaction costs include all the following costs except

D) agency costs.

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66) Vertical integration is attractive when

B) transaction costs are higher than administrative costs.

67) Vertical integration is more likely to be attractive when the end consumer market is

B) stable.

68) ________ diversification is when a firm enters a different business that has little
horizontal interaction with other businesses of a firm.

D) Unrelated

69) ________ is when the corporate office helps subsidiaries make wise choices in their own
acquisitions, divestures, and new ventures, thereby creating value within business units.

A) Parenting

70) Diversified public corporations such as Berkshire Hathaway and Virgin Group are
examples of companies that create value using

B) parenting expertise.

71) ________ is when a firm tries to find and acquire either poorly performing firms with
unrealized potential or firms in industries on the threshold of significant, positive change,
thereby creating value within business units.

C) Restructuring

72) According to the text, corporate restructuring includes

B) capital restructuring, asset restructuring, and management restructuring.

73) Asset restructuring involves the sale of ________ assets, or even whole lines of
businesses that are peripheral.

C) unproductive

74) Capital restructuring involves changing the ________ mix.

C) debt-equity

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75) Management restructuring typically involves changes in the composition of the
________, organizational structure, and reporting relationships.

B) top management team

76) Common steps in management restructuring include all the following except

C) penalties for missing short- to medium-term performance goals.

77) Portfolio management matrices are applied to what level of strategy?

C) corporate level

78) Research shows that a key competence of high-performance diversified firms is the
ability to

C) effectively allocate financial capital.

79) Portfolio models are used to assist a firm in

C) achieving a balanced portfolio of businesses.

80) When using a BCG matrix, a ________ is a business that currently holds a large market
share in a rapidly growing market and has minimal or negative cash flow.

A) star

81) In the BCG Matrix, a ________ is a business that has a low market share in an industry
characterized by high market growth.

C) question mark

82) Portfolio management frameworks, such as the BCG matrix, share which of the following
characteristics?

B) Grid dimensions are based on external environments and internal capabilities-market

positions.

83) A cash cow, in the BCG framework, refers to a business that has

D) low market growth and relatively high market share.

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84) In managing the corporate portfolio, the BCG matrix would suggest that

D) question marks can represent future stars if their market share is increased.

85) In the BCG Growth Share Matrix, the suggested strategy for stars is to

C) maintain position and after the market growth slows use the business to provide cash flow.

86) Which of the following is not a way a corporation tries to create shareholder value in
using portfolio strategy approaches?

C) The corporate office is not able to provide financial resources to the business units on
favorable terms.

87) Which of the following is not a downside of portfolio models used to assist a firm in
balancing its portfolio of businesses?

C) Portfolio models rely on loose rules regarding resource allocation across the SBUs.

88) When Cabot Corporation used the BCG matrix to evaluate its carbon black
manufacturing business, the model led them to move away from ________ and to diversify into
unrelated businesses listed as stars by the model. This resulted in a decline on return on assets.
They eventually returned to carbon black manufacturing and divested the unrelated businesses;
resulting in smaller, but more focused firms.

B) its core market

89) The primary means by which a firm can diversify are ________, ________, and
________.

B) mergers and acquisitions; joint ventures and strategic alliances; internal development

90) ________ is when one firm buys another through a stock purchase, cash or the issuance
of debt.

A) An acquisition

91) ________ is when a new legal entity is formed by a combination or consolidation of two
firms.

B) A merger

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92) The Marriott International purchase of Starwood Hotels for 13.6 billion USD is an
example of a(n)

A) acquisition.

93) According to BNP Paribas chief economist, Julia Coronado, when businesses feel
confident about the future they are more aggressive in looking for ways to grow and expand their
operations. You would expect the volume of mergers and acquisitions to ________ during this
period.

C) increase

94) Factors that directly affect the merger and acquisition environment include all the
following except

D) managerial style.

95) In 2014, Apple purchased Beats Electronics for billion USD. While Apple valued the
product portfolio of Beats, its primary aim was to pull the founders of Beats, Jimmy Iovine and
Dr. Dre (aka Andrew Young), into the Apple family. This is an example of acquiring firms using
acquisitions to acquire

B) critical human capital.

96) The downsides or limitations of mergers and acquisitions include all of the following
except

A) it is a slow means to enter new markets and acquire skills and competences.

97) Divesting of businesses can accomplish many different objectives, except

D) dispersing manager focus.

98) Cooperative relationships such as ________ have potential advantages such as entering
new markets, reducing manufacturing (or other) costs in the value chain, and developing and
diffusing new technologies.

D) joint ventures and strategic alliances

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99) Which of the following is not part of a good guideline list for managing strategic
alliances?

C) relying primarily on a contract to make the joint venture work

100) Which of the following statements regarding internal development as a means of

diversification is false?

B) An advantage of internal development is that it is generally faster than other means of

diversification.

101) Internal development may be time consuming and, therefore, firms may forfeit the
benefits of speed that growth through ________ and ________ can provide.

C) mergers; acquisitions

102) Firms that choose to diversify through internal development must develop ________ that
allow them to move ________ from initial opportunity recognition to market introduction.

B) capabilities; quickly

103) According to Michael Porter, there is a tremendous allure to ________. It is the big play,
the dramatic gesture. With one stroke of the pen, you can add billions to size, get a front-page
story, and create excitement in markets.

C) mergers and acquisitions

104) The antitakeover tactic, ________, is when a firm offers to buy shares of their stock from
a company (or individual) planning to acquire their firm at a higher price than the unfriendly
company paid for it.

C) greenmail

105) ________ is an antitakeover tactic in which existing shareholders have the option to buy
additional shares of stock at a discount to the current market price.

C) A poison pill

106) The term "golden parachute" refers to

B) pay given to executives fired because of a takeover.

107) Antitakeover tactics include all the following except

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D) golden handcuffs.

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