After a leveraged buyout, _____ typically occur(s).

a. selling of assets

b. further rounds of acquisitions

c. due diligence

d. private synergy

Answer: selling of assets

A leveraged buyout refers to

a. a firm restructuring itself by selling off unrelated units of the company's portfolio.

b. a firm pursuing its core competencies by seeking to build a top management team that comes from a similar background.

c. a restructuring action whereby a party buys all of the assets of a business, financed largely with debt, and takes the firm private.

d. an action where the management of the firm and/or an external party buy all of the assets of a business financed largely with equity.

Answer: a restructuring action whereby a party buys all of the assets of a business, financed largely with debt, and takes the firm private.

The term "leverage" in leveraged buyouts refers to the

a. firm's increased concentration on the firm's core competencies.

b. amount of new debt incurred in buying the firm.

c. fact that the employees are purchasing the firm for which they work.

d. process of removing the firm's stock from public trading.

Answer: amount of new debt incurred in buying the firm.

Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT

a. large debt and increased financial risk.

b. failure to invest in R&D.

c. risk-averse management.

d. inefficient operations.

Answer: inefficient operations.

____ is often used when the acquiring firm paid too high a premium to acquire the target firm.

a. Management buyout

b. Leveraged buyout

c. Downscoping

d. Downsizing

Answer: Downsizing

____ refers to a divestiture, spin-off, or some other means of eliminating businesses that are unrelated to a firm's core business.

A. Hostile takeovers

B. Shakeouts

C. Downscoping

Answer: Downscoping

An investor is analyzing two firms in the same industry. She is looking for long-term performance from her investment. Both firms are basically identical except one firm is involved in substantial downsizing and the other firm is undertaking aggressive downscoping. The investor should invest in the

a. downscoping firm because the higher debt load will discipline managers to act in shareholders' best interests.

b. downscoping firm because of reduced debt costs and the emphasis on strategic controls derived from focusing on the firm's core businesses.

c. downsizing firm because it will be making decisions based on tactical strategies.

d. downsizing firm because it is eliminating employees who are essentially "dead weight" and are dragging down the firm's profitability.

Answer: downscoping firm because of reduced debt costs and the emphasis on strategic controls derived from focusing on the firm's core businesses.

Compared with downsizing, _____ has (have) a more positive effect on firm performance.

a. reconfiguring

b. downscoping

c. leveraged buyouts

d. acquisitions

Answer: downscoping

Ambrose is a scientist working for a pharmaceutical company. His company was acquired by a rival pharmaceutical company, and now it is involved in downsizing and downscoping. Ambrose is concerned about his job security, since he is actively involved in amateur sports in his community and does not wish to disrupt his current lifestyle. Ambrose's job will be most likely to be secure if

a. Ambrose's research is in a non-core activity.

b. the acquisition has been financed by junk bonds.

c. Ambrose is in a position to take a poison pill.

d. Ambrose is a key employee in the firm's primary business.

Answer: Ambrose is a key employee in the firm's primary business.

Magma, Inc., acquired Vulcan, Inc., 3 years ago. Effective integration of the two companies' culture was never achieved, and the two firms' assets were not complementary. It is very likely that Magma will

a. go public through an IPO.

b. review the due diligence information collected before the acquisition.

c. restructure.

d. review its tactical-level strategies.

Answer: restructure.

Which of the following is NOT one of the three main restructuring strategies?

a. realigning

b. downsizing

c. downscoping

d. leveraged buyouts

Answer: realigning

A friendly acquisition

a. raises the price that has to be paid for a firm.

b. enhances the complementarity of the two firms' assets.

c. facilitates the integration of the acquired and acquiring firms.

d. allows joint ventures to be developed.

Answer: facilitates the integration of the acquired and acquiring firms.

____ typically result(s) in the acquiring firm being able to prevent valuable human resources in the acquired firm from leaving.

A. Friendly acquisitions

B. High compensation

Answer: Friendly acquisitions

Which of the following is NOT an attribute of a successful acquisition?

a. The acquiring firm has a large amount of financial slack.

b. The acquired and acquiring firms have complementary assets and/or resources.

c. Innovation and R&D investments continue as part of the firm's strategy.

d. Investments in advertising and image building are made quickly.

Answer: Investments in advertising and image building are made quickly.

Typically, in a failed acquisition, the organization will

a. restructure.

b. go into bankruptcy.

c. focus on building private synergy.

d. increase integration.

Answer: restructure.

The strategy of Citigroup under CEO Sanford Weill was to create a "financial supermarket" where customers shop for a variety of financial services within the same company. This strategy was executed via a series of acquisitions but ultimately failed. This situation was the result of

a. Citigroup's managers focusing too much on acquisitions at the expense of managing their existing businesses.

b. key managers leaving from the acquired firms, which left the firms with inferior management talent.

c. the firm becoming too vertically integrated.

d. the firm becoming too focused on its core businesses.

Answer: Citigroup's managers focusing too much on acquisitions at the expense of managing their existing businesses.

All of the following were results of Citigroup's acquisition strategy EXCEPT

a. overly diversified.

b. a much smaller, though global, business financial service firm.

c. too large.

d. lacking in synergy.

Answer: a much smaller, though global, business financial service firm.

One problem with becoming too large is that large firms

a. tend to have less market power.

b. have less potential for economies of scale.

c. become attractive takeover targets.

d. usually increase bureaucratic controls.

Answer: usually increase bureaucratic controls.

Thomas is an upper-middle level manager for a firm that has been actively involved in acquisitions over the last 10 years. The firm has grown much larger as a result. Thomas has been dismayed to find that recently the managerial culture of the firm has been turning more and more to controls.

a. bureaucratic

b. strategic

c. tactical

d. organic

Answer: bureaucratic

Which of the following is NOT a result of over-diversification?

a. Executives do not have a rich understanding of all of the firm's business units.

b. Managers emphasize strategic controls rather than financial controls.

c. Firms use acquisition as a substitute for innovation.

d. Managers become short-term in their orientation.

Answer: Managers emphasize strategic controls rather than financial controls.