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MGT 3830 FINAL EXAM STUDY GUIDE CHPTS 9-12 (97% in the course

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Department
Management
Course
MGT 3830
Professor
All Professors
Semester
Spring

Description
MGT3830FINALEXAMSTUDYGUIDEChapter7MergersandAcquisitionStrategiesReasonsforAcquisitiono1IncreasedmarketpowerHorizontalacquisitiontheacquisitionofacompanycompetinginthesameindustryastheacquiringfirmExToysRUsacquisitionofspecialtytoyretailerFAOWorksbestwhenfirmshavesimilarstrategiesmanagerialstylesandresourceallocationpatternsVerticalacquisitiontheacquisitionofasupplierordistributorofoneormoreofitsgoodsservicesannowcontrolsadditionalpartsofvaluechainExCVSacquiredCaremarkRxRelatedacquisitiontheacquisitionoffirminahighlyrelatedindustryFirmsseektocreatevaluethroughthesynergythatcanbegeneratedbyintegratingsomeoftheirresourcesandcapabilitieso2BarrierstoEntryEntrybarriersthateconomiesofscaleanddifferentiatedproductscreatecanmakeitdifficulttoentermarketAcquiringanestablishedcompanycanbemoreeffectiveThehigherthebarrierstoentrythegreatertheprobabilitythatafirmwillacquireanexistingfirmtoovercomethemThekeyadvantageofusinganacquisitionstrategytoovercomeentrybarrierstheacquiringfirmgainsIMMEDIATEACCESStoamarketimportantwheninternationalCompletingacrossborderacquisitionofalocaltargetallowsafirmtoquicklyenterfastgrowingeconomiesoCrossborderacquisitionacquisitionsmadebetweencompanieswithheadquartersindifferentcountrieso3CostofNewProductDevelopmentandIncreasedSpeedtoMarketInternalproductdevelopmenthighriskactivityAcquisitionsareameansafirmcanusetogetaccesstonewproductsandcurrentproductsthatarenewtothefirminsteadofdevelopingtheminternallyProvidemorepredictablereturnsfastermarketentryAcquisitionsenablefirmstoentermarketsquicklyandtoincreasethepredictabilityofreturnsontheirinvestmentso4LowerRiskComparedtoDevelopingNewProductsLessriskycomparedtointernalproductdevelopmentBUTacquisitioncanbecomeasubstituteforinnovationACQUISITIONSSHOULDALWAYSBESTRATEGICANDNOTDEFENSIVEo5IncreasedDiversificationUsedtodiversifyfirmssincemostlacktheexperiencetointernallydevelopdifferentproductsfromtheirownUsedtosupportbothrelatedandunrelateddiversificationstrategiesThemorerelatedtheacquiredfirmistotheacquiringfirmthegreaterprobabilityofsuccessoHorizontalandrelatedacquisitionsbesto6ReshapingtheFirmsCompetitiveScopeAcquisitionscanlessenthedependenceononeormoreproductsmarketsinordertoreducethenegativeeffectsofanintenserivalryReducingdependenceonspecificmarketsshapesthefirmscompetitivescopeo7LearningandDevelopingNewCapabilitiesAcquisitionshelpgainaccesstocapabilitiesfirmslackExAcquireaspecialtechnologicalcapabilityBroadensknowledgebasefirmsshouldseektoacquirecompanieswithdifferentbutrelatedandcomplementarycapabilitiesinordertobuildtheirownknowledgebaseProblemsinAchievingAcquisitionSuccessoAcquisitionstrategiesarenotproblemfreeoOnly20ofallmergersandacquisitionsaresuccessfuloForacquisitionsuccessfirmsmustbeableto1Selecttherighttarget2Avoidpayingtoohighapremium3Effectivelyintegratetheoperationsoftheacquiringfirm4Retainthetargetfirmshumancapitaltofullyunderstandthetargetfirmsoperationsandcapabilitieso1IntegrationDifficultiesThesinglemostimportantdeterminantofshareholdervaluecreationIntegrationiscomplexandinvolvesanumberofactivitieso2InadequateEvaluationofTargetDuediligenceprocessthroughwhichapotentialacquirerevaluatesatargetfirmforacquisitionThefailuretocompleteaneffectiveduediligenceprocessmayresultinthefirmpayinganexcessivepremiumforthetargetRatherthanenteringabiddingwarfirmsshouldonlyextendbidsthatareconsistentwithresultsfromduediligenceprocess
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