OANDASAN, JAYJAY S

BSBA-FMA III

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. Down scoping
C. Leveraged Buyouts

CASE DISCUSSION

1. Of the “Reasons for Acquisitions” section in the chapter, which reasons are the primary driver of
Cisco’s acquisition strategy?

Acquisition is a plan of action that helps Cisco to focus on new opportunities and acquire product
extension. This is a good reason for Cisco to undergo acquisitions to gain market power. The entities of
Cisco systems were to dominate its own strength and innovation by focusing on new opportunities.
Another reason is to gain competitive edge. Cisco systems wanted to gain command over their rival
firms by using acquisition strategy.. The motto of Cisco is to enter into untapped markets with different
technological development.

2.Of the acquisition cisco has completed which one are horizontal acquisitions and which are vertical
acquisitions? Which of these acquisitions do you believe have the strongest likelihood of being
successful and why?
->Using a vertical strategy will help Cisco to integrate with different technological advancement and
meeting changing levels of demand. Cisco focuses on dominating the market of data network. Using the
vertical strategy they will be able to emphasize either strength on innovation.

3.Explain John Chambers’ views about acquisitions. How have his views affected the nature of Cisco’s
acquisition strategy?

->John chamber Cisco CEO has helped the firms move through the many transitransitions. In the IT
sector ,90 percent of acquisitions fail. However as chamber's note "although Cisco does better than
anyone else we know that a third of our acquisitions won't work" chamber's work for companies that
did not successfully make transitions.Wang laboratories missed a transition and after experiencing this
as an executive. Chambers learned how to have a "healthy paranoia". He adds more than anything" I've
tried Cisco a company that can see big transition and move". One way they do this is to "Listen to the
customers very closely" to understand the necessary changes.

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?

-> Cisco has used acquisitions strategically to move into new areas as its environment changes. The
strength of this plan is that they are updated on what is the latest technology and the weakness is that if
they encounter problem it will take time to solv3 because this was new to them.