Chapter 7

Basic truths regarding acquisitions

immediately after the announcement of a planned acquisition, the stock price of the majority of acquiring firms declines.

shareholders of acquired firms often earn above-average returns from an acquisition.

the majority of acquisitions decrease long-term value for the acquiring firm.

shareholders of acquiring firms typically earn returns from the transaction that are close to zero.

Compared to internal product development, acquisitions allow

Research has shown that the more ____, the greater is the probability that an acquisition will be successful.

related the acquired and acquiring firms are

Related versus unrelated acquisitions

Problems associated with acquisitions include all of the following (Figure 7.1)

Managers overly focused on acquisitions.

Integration difficulties.

Large or extraordinary debt.

Cultural conflicts

The rationale for making an acquisition includes each of the following (Figure 7.1)

Vertical acquisitions versus horizontal acquisitions

Attributes of successful mergers/acquisitions (Table 7.1)

Dragonfly Publishers of children’s books has purchased White Rabbit, a wholesale distributor of children’s books. Both companies’ books are sold to the same retail stores and schools. Their content is different, since Dragonfly produces children’s literature, whereas White Rabbit focuses on child-level scientific and nature topics.

This is a vertical acquisition.

The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market share to the Mars/Wrigley integrated firm. It allowed Mars to gain _______because it could sell its products above the market level or reduce its costs below the market level.

Research shows that about ____ percent of mergers and acquisitions are successful.

The fastest and easiest way for a firm to diversity its portfolio of...