FI 561 MERGERS & ACQUISITIONSWEEK 5 HOMEWORK ANSWER KEY

Question 11.1 (Chapter 11, p. 299)The three primary forms of restructuring are asset sales, equity carve-outs, and spinoffs.

Questions 14.1, 14.11 & 14.2 - (Chapter 14 - p. 376)14.1: How do joint ventures differ from merger activity? In what ways are they similar?

Similarities:a. Both involve the combination of two (or more) firms.b. Timing characteristics are similar for both M&A activity and joint ventures; both are stimulated by factors which affect overall investment activity.c. Goals may be similar (acquisition of complementary resources; economies of scale; risk diversification, etc.)

Differences:a. Joint ventures involve only a subset of each participating firm's assets, rather than a complete fusion of the firms.b. Joint ventures are of limited duration.c. A joint venture is a new entity separate from and in addition to the participating firms.

14.11: What are the key characteristics of industries that employ franchising?

The economic role of franchising is to minimize monitoring costs by having independent operators whose returns are tied to their own efforts and performance. The operations of outlets with independent owners can be compared to the performance of outlets owned by the franchisor. Franchising is widely used in activities such as motels and hotels, automobile dealerships, tax services, travel agents, pest control services, weight control, etc. Continuing monitoring is critical because the business activities are labor intensive and expansion requires individual operations that are widely dispersed geographically.

14.12 : Compare the strategies of growth employed by McDonalds and Cisco Systems.

McDonalds used the franchising technique to spread its business worldwide. Its competitive advantage initially was: control over the quality of the meat, economies of operations, speedy service. The strategy of Cisco Systems was to use acquisitions to develop capabilities to become a leader in technologies for the infrastructure of the rapidly expanding Internet system