Bautista, Katleen Grace M.

BSBA III – Operations Management

KEY TERMS

1. Acquisition – is a strategy through which one firm buys a controlling, or 100 percent, interest in
another firm with the intent of making the acquired firm a subsidiary business within its
portfolio.
2. Merger – is a strategy through which two firms agree to integrate their operations on a
relatively coequal basis.
3. Restructuring – is a strategy through which a firm changes its set of businesses or its financial
structure.
4. Takeover – is a special type of acquisition wherein the target firm does not solicit the acquiring
firm’s bid; thus, takeovers are unfriendly acquisitions

REVIEW QUESTIONS

1. Why are merger and acquisition strategies popular in many firms competing in the global
economy?
- Firms use merger and acquisition strategies to improve their ability to create more value for
all stakeholders including shareholders.
2. What reasons account for firm’s decisions to use acquisition strategies as a means in achieving
strategic competitiveness?
- A. Increased Market Power
B. Overcoming Entry Barriers
C. Cost of New Product Development and Increased Speed to Market
D. Lower Risk Compared to Developing New Products
E. Increased Diversification
F. Reshaping the Firm’s Competitive Scope
G. Learning and Developing New Capabilities
3. What are the seven primary problems that affect a firm’s effort to successfully use an acquisition
strategy?
- A. Integration Difficulties
B. Inadequate Evaluation of Target
C. Large or Extraordinary Debt
D. Inability to Achieve Synergy
E. Too Much Diversification
F. Managers Overly Focused on Acquisitions
G. Too Large
4. What are the attributes associated with a successful acquisition strategy?
- A. Acquired firm has assets or resources that are complementary to the acquiring firm’s core
business.
B. Acquisition is friendly
C. Acquiring firm conducts effective due diligence to select target firms and evaluate the
target firm’s health (financial, cultural, and human resources)
D. Acquiring firm has financial slack (cash or a favorable debt position)
E. Merged firm maintains low to moderate debt position
F. Acquiring firm has sustained and consistent emphasis on R&D and innovation
G. Acquiring firm manages change well and is flexible and adaptable
5. What is the restructuring strategy, and what are its common forms?
- Restructuring is a strategy through which a firm changes its set of businesses or its financial
structure.
- A. Downsizing
B. Downscoping
C. Leveraged Buyouts

CASE RESTRICTION

1. Of the “Reasons for Acquisitions” section in the chapter, which reasons of the primary drivers of
Cisco’s acquisition strategy?
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2. Of the acquisition Cisco has completed, which ones are horizontal acquisitions and which ones
are vertical acquisitions? Which of these acquisitions do you believe has strongest likelihood of
being successful and why?
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3. Explain John Chambers’ views about acquisition. How have his views affected the nature Cisco’s
acquisition strategy?
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4. Describe the core plan Cisco has in place to guide the integration of an acquired firm into its
operations. What are the strengths of this plan, and what are its potential weaknesses?
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