Business Strategy Test 2 - Ch 7

Front 1

Transaction in which one firm buys a controlling interest in another firm to make a subsidiary or combine w/current businesses

Back 1

Acquisition

Front 2

An action plan that firm develops to successfully acquire other companies:

Back 2

Acquisition Strategy

Front 3

(Unsolicited/uninvited acquisition) A specialized type of acquisition in which the target firm does not solicit the acquiring firm's offer:

Back 3

Takeover

Front 4

The company has real value/brand. Unsolicited/unwanted acquisition. Devaluation happens (stock goes down):

Back 4

Hostile Takeover

Front 5

Two firms combining willingly. Firms agree to combine their operations on a relatively equal basis:

Back 5

Merger

Front 6

5 Reasons for Acquisitions:

Back 6

Reduce Costs

Gain Market Power

Increase Growth

Learn to Build Capabilities

Manage Risk and Other Financial Objectives

Front 7

Two ways to reduce costs:

Back 7

Horizontal acquisition

Vertical acquisition

Front 8

the purchase of a competitor competing in the same market or markets as the acquiring firm:

Back 8

Horizontal acquisition

Front 9

3 things Horizontal acquisition can lead to:

Back 9

Scale economies

Productivity increases

Competition reduction

Front 10

Efficiency gained as company gets larger:

Back 10

Scale economies

Front 11

All about learning. Once we learn, cost goes down:

Back 11

Productivity increases

Front 12

Happens because we bought competitors and comp. passes along cost savings:

Back 12

Competition reduction

Front 13

The purchase of a supplier, retailer, or distributor of one or more of a firm's goods or services
(buy the supply chain):

Back 13

Vertical Acquisition

Front 14

power that exists when the firm sells its products above competitive prices or when its costs are lower than those of its primary competitors:

Back 14

Market power

Front 15

Occurs when firms pay more than the current market value to acquire another firm (can lead us to restructure):

Back 15

Premium

Front 16

The rational process by which acquiring firms evaluate target firms:

Back 16

Due Diligence

Front 17

A transaction in which businesses are sold to other firms or spun off as independent enterprises:

Back 17

Divestiture

Front 18

A restructuring strategy in which a party buys all or part of a firm's assets in order to take the firm or a part of the firm private:

Back 18

Leveraged buyout (LBO)

Front 19

Market power

Horizontal & vertical acquisition

Reduce overcapacity

Premium

Restructuring

Back 19

Gain Market Power

Front 20

Relative (to our competitors) growth rate


First-mover (has) advantage (in):
-advantages in market power
-advantages in market position

Back 20

Increase Growth

Front 21

Learning

New capabilities

Target companies often have unique employee skills, organizational technologies, or superior knowledge that are available to the acquiring firm only through acquisitions

“Centers of excellence” (acquire companies, SCA to create)

Current vs. future advantages (focus is economies of scope)

Back 21

**Learn to Build Capabilities

Front 22

Operational diversification

Tax advantages

Reduction of business or financial risk

Back 22

Manage Risk & Other Financial Objectives
(Look for firms that are unvalued)

Front 23

Publicly vs. privately-traded firms

Cooperative relationship between acquiring and acquired firms

Due diligence

Back 23

Screening, Selecting & Negotiating

Front 24

Due Diligence

Real acquisition

Target firm’s value

Synergies

Acquiring firm’s walk-away offer price

Back 24

**Screening, Selecting & Negotiating

Front 25

More likely when an integration team, including employees from the acquiring firm and the acquired firm, is formed and charged with full responsibility to integrate the two companies to create value

Opportunities for increased growth as learning occurs

Leverage the capabilities of both firms to create value

Back 25

Integration Success

Front 26

Because combined firms often lose target firm managers through turnover, it is important to retain key executives and other valuable human capital, especially if the acquiring firm wants to gain new skills from the acquired firm

Anchoring & overconfidence
Excessive debt
Over-diversification
Managers overly focused on acquisition

Back 26

Pitfalls and Prevention

Front 27

Make for a better acquisition target (information is key):

Back 27

Publicly traded firm