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MGMT 466 - Ch 7
Aquisition and Restructuring Strategies
29
Management
Undergraduate 4
10/16/2009

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Term
above average, close to zero
Definition
shareholders of the acquired firm often earn __ returns while shareholders of the acquiring firm earn __ return
Term
merger
Definition
a __ is a strategy through which two firms agree to integrate their operations on a relatively coequal basis
Term
acquisition
Definition
a __ is a strategy through which one firm buys a controlling interest in another firm with the intent of making the acquired firm a subsidiary business with its portfolio
Term
takeover
Definition
a __ is a special type of an acquisition strategy wherein the target firm does not solicit the acquiring firm's bid
Term
1. increased market power (vertical, horizontal, related) 2. overcoming entry barriers (cross border) 3. cost of new product development and increased speed to market 4. lower risk compared to developing new products 5. increased diversification 6. reshaping the firm's competitive scope 7. learning and developing new capabilities
Definition
7 reasons for acquisitions
Term
market power
Definition
__ exists when a firm is able to sell its g&s above competitive levels or when the costs of its primary or support activities are lower than those of its competitors. __ usually is derived from the size of the firm and its resources and capabilities to compete in the marketplace
Term
horizontal acquisition
Definition
the acquisition of a company competing in the same industry as the acquiring firm is a __
Term
vertical acquisition
Definition
a __ refers to a firm acquiring a supplier or distributor of one or more of its g&s
Term
related acquisition
Definition
the acquisition of a firm in a highly related industry is a __. (hardware company moving into services and software)
Term
barriers to entry
Definition
__ are factors associated with the market or firms operating in it, which increase the expense and difficulty faced by new ventures trying to enter that particular market
Term
cross border acquisitions
Definition
acquisitions made between companies with headquarters in different countries are called __
Term
cost of new product development and increased speed to market
Definition
acquisitions are another means a firm can use to gain access to new products and to current products that are new to the firm. it's cheaper and quicker
Term
lower risk compared to developing new products
Definition
outcomes of an acquisition can be estimated more easily and accurately than the outcomes of an internal product development process
Term
reshaping the firm's competitive scope
Definition
to reduce the negative effect of an intense rivalry on their financial performance, firms may use acquisitions to lessen their dependence on one or more products or markets
Term
learning and developing new capabilities
Definition
acquisition used to acquire a special technological capability. broaden their knowledge base and reduce inertia through acquisitions.
Term
integration difficulties
Definition
__ an issue related to Increased Market Power reason for acquisition. human capital may flea
Term
due diligence
Definition
__ is a process through which a potential acquirer evaluates a target firm for acquisition
Term
inadequate evaluation of target
Definition
the failure to complete an effective due-diligence process may easily result in an excessive premium paid. during times of high or increasing stock prices, due diligence is often relaxed and long-run performance of the merged firm suffers
Term
junk bonds
Definition
__ are a financing option through which risky acquisitions are financed with debt that provides a large potential return to bondholders
Term
large or extraordinary debt
Definition
some companies significantly increased their level of debt in the 1980s and 90s to finance acquisitions. junk bonds are used much less often now, but companies still use debt to acquire. negative effects include: 1. downgrading firm's credit rating and stock price
Term
synergy
Definition
__ exists when the value created by units working together exceeds the value those units could create working independently
Term
1. direct 2. indirect
Definition
2 costs from attempting to create anticipated revenue and cost based synergies
Term
direct
Definition
__ costs (related to synergy) include legal fees and charges from investment bankers performing due diligence
Term
indirect
Definition
__ costs (synergy) include managerial time to evaluate target firms and then to complete negotiations, as well as loss of key employees following acquisition
Term
1. complementary assets 2. effective due-diligence process 3. emphasis on innovation 4. flexibility 5. adaptability
Definition
5 attributes of a successful acquisition
Term
restructuring
Definition
__ is a strategy through which a firm changes its set of businesses or its financial structure
Term
downsizing
Definition
__ is a reduction in the number of a firms employees, and sometimes, in the number of its operating units, but it may or may not change the composition of businesses in the company's portfolio
Term
downscoping
Definition
__ refers to divestiture, spin off, or some other means of eliminating businesses that are unrelated to firm's core business. afterwards, a firm can be managed more effectively
Term
leveraged buyout (LBO)
Definition
a __ is a restructuring strategy whereby a party buys all of a firm's assets in order to take the firm private. after this, the company's stock is no longer traded publicly. this is done by a private equity firm. usually financed by debt
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