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Exam 6: Corporate-Level Strategy: Creating Value Through Diversification

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Question 1

True/False

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Restructuring requires the corporate office to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.

A) True
B) False

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Question 2

Multiple Choice

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If a multinational company's motive for the acquisition may have been to enhance executive powers and prestige rather than to improve shareholder return, this can lead to

A) divestiture.
B) cost savings.
C) expansion.
D) acquisition.

E) B) and D)
F) All of the above

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Question 3

Multiple Choice

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

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.

At times, the only other people who may have benefited from a merger-acquisition were the shareholders of the acquired firms or the investment bankers advising the acquiring firm.

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

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 using the related diversification vertical integration initiative to enhance their market power.

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

Divestment is useful to help a firm reverse an earlier acquisition that did not result in successful growth.

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

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

It is not necessary for a core competence to be difficult to imitate or to be non-substitutable.

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

Core competencies do not create value in a business.

Poison pills are used by a company to take away shareholder rights in the event of a takeover by another firm.

When Oracle launched a hostile bid for PeopleSoft in 2003, CEO Larry Ellison accused PeopleSoft of launching a poison pill campaign. The outcome of the bitter fight was a better financial reward for PeopleSoft shareholders.

Compared to mergers and acquisitions, firms that engage in internal development capture the value created by their own innovative activities by not having to share the wealth with alliance partners or face the difficulties associated with combining activities across the value chains of several firms or merging corporate cultures.

The Cisco acquisition of Pure Digital Technologies, the parent of the Flip video camera, failed because

IBM, Memorial Sloan Kettering, and Cedars-Sinai have a _________ whereby IBM receives expert medical knowledge that it uses to leverage its technological skills to develop new medical insights.

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