Q&A Hero

Q: What are the limitations of the valuation methodology employed in this case?

Q: In an emerging market economy, a country often faces severe fiscal imbalances before a financial crisis initiates.

Q: What other assumptions might you consider?

Q: The Internet stock market bubble of the late 1990s led to one of the worst financial crises in U.S. history. Banks lost billions of dollars as Internet companies went bankrupt.

Q: Which of the following is generally not true about communication during the integration period?a. Communication should be as frequent as possibleb. Employees should be sheltered from bad newsc. The CEO of the combined firms should lead the effort to communicate to employees at all levelsd. Regularly scheduled employee meetings are often the best way to communicate progress to plane. The reasons for changing work practices and compensation must be thoroughly explained to employees

Q: Debt deflation refers to the decline in debt values as creditors agree to lower interest rates as an alternative to defaults.

Q: How might Daimler have better managed the postmerger integration?

Q: Bank failures have been a feature of all U.S. financial crises from 1800 to 1944.

Q: Explain why Oracles willingness to pay such a high premium for PeopleSoft and its willingness to change its position on supporting PeopleSoft products and retaining the firm's employees may have had a negative impact on Oracle shareholders. Be specific.

Q: The failure of Ohio Life Insurance and Trust in 1857 did not signal the start of a recession due to prompt actions by the Fed.

Q: How did the commitments Oracle made to PeopleSoft's customers have affected its ability to realize anticipated synergies? Be specific.

Q: During a bank panic, many banks fail in a very short time period.

Q: One justification for the merger was the cross-selling opportunities it would provide. Comment on the challenges that might be involved in making such a marketing strategy work.

Q: Factors that can lead to worsening conditions in financial markets include increasing interest rates and asset price booms.

Q: In what sense is the initial divergence in Travelers operational orientation and Citigroups marketing and planning orientation an excellent justification for the merger? Explain your answer.

Q: The impact of the 2007-2009 financial crisis was widespread, including A) the first major bank failure in the UK in over 100 years. B) the failure of Bear Stearns, the fifth-largest U.S. investment bank. C) the bailout of Fannie Mae and Freddie Mac by the U.S. Treasury. D) all of the above. E) only B and C of the above.

Q: When we refer to the shadow banking system, what are we talking about? A) hedge funds, investment banks, and other nonbank financial firms that supply liquidity B) the "underground" banking system used for illegal activities C) the subsidiaries of depository institutions D) none of the above

Q: Identify the key differences between Travelers and Citibanks corporate cultures. Discuss ways you would resolve such differences.

Q: Describe the management challenges you think may face Citigroups management team due to the increasing global complexity of Citigroup?

Q: Approximately how large was the U.S. subprime mortgage market in 2007? A) $100 million B) $100 billion C) $500 billion D) $1 trillion

Q: Why did Citibank and Travelers resort to a co-CEO arrangement? What are the advantages and disadvantages of such an arrangement?

Q: Which of the following led to the U.S. financial crisis of 2007-2009? A) financial innovation in mortgage markets B) agency problems in mortgage markets C) an increase in moral hazard at credit rating agencies D) all of the above E) only A and B of the above

Q: How did the interests of the various stakeholders to the merger affect the complexity of the integration process?

Q: What is a credit default swap? A) a swap agreement where two parties swap credit payments B) an agreement to swap interest payments when one party defaults C) a type of insurance against bond defaults D) a swap between credit rating agencies

Q: Why did American choose to use managers from both airlines to direct the integration of the two companies? What are the specific benefits in doing so?

Q: Argentina's 2001-2002 financial crisis was precipitated by A) a weak and poorly supervised banking system. B) a lending boom that fueled a stock market bubble. C) difficulty financing a large budget deficit. D) a decline in interest rates.

Q: In your opinion, what are the advantages and disadvantages of moving to integrate operations quickly? What are the advantages and disadvantages of moving more slowly and deliberately?

Q: Institutional features of debt markets in Asia that propelled several countries into financial crises include A) debt contracts with long durations. B) firms with debt denominated in U.S. dollars. C) governments that could not intervene to protect depositors. D) all of the above. E) only A and C of the above.

Q: What else could Allianz have done to minimize potential culture clash? Be specific.

Q: Which of the following factors led up to the Mexican financial crisis of 1994? A) speculative attacks on the peso and a rise in actual and expected inflation B) a rise in domestic interest rates and a deterioration in bank balance sheets C) a rise in foreign interest rates and domestic stock market declines D) all of the above E) only B and C of the above

Q: How did the potential for culture clash affect the way Alliance acquired Pimco?

Q: Stock market declines preceded a full-blown financial crisis A) in the United States in 1987. B) in the United States in 2000. C) in Indonesia in 1997. D) in all of the above. E) in none of the above.

Q: How did Allianz attempt to retain key employees? In the short run? In the long run?

Q: Prior to the financial crisis in Mexico in 1994, Mexico ran a budget deficit of around ________ of GDP. A) 120% B) 40% C) 15% D) 1%

Q: Cite examples of expenses you believe are commonly incurred in integrating target companies.

Q: Adverse selection and moral hazard problems increased in magnitude during the early years of the Great Depression as A) stock prices declined to 10 percent of their levels in 1929. B) banks failed. C) the aggregate price level declined. D) a result of all of the above. E) a result of A and B of the above.

Q: In your judgment, do you think acquirers commonly (albeit not deliberately) understate integration costs? Why or why not?

Q: In addition to having a direct effect on increasing adverse selection problems, increases in interest rates also promote financial crises by ________ firms' and households' interest payments, thereby ________ their cash flow. A) increasing; increasing B) increasing; decreasing C) decreasing; increasing D) decreasing; decreasing

Q: In your judgment, are acquirers more likely to under- or overestimate anticipated cost savings? Explain your answer.

Q: Most financial crises in the United States have begun with A) a steep stock market decline. B) an increase in uncertainty resulting from the failure of a major firm. C) a steep decline in interest rates. D) all of the above. E) only A and B of the above.

Q: What could CNH have done differently to slow or reverse its loss of market share?

Q: Factors that lead to worsening conditions in financial markets include A) declining interest rates. B) anticipated increases in the price level. C) bank panics. D) only A and C of the above. E) only B and C of the above.

Q: Why is rapid integration important? Illustrate with examples from the case study.

Q: What does the "twin crises" in an emerging market financial crisis refer to? A) both the currency crisis and the financial crisis B) both the fiscal crisis and the banking crisis C) both the inflation crisis and the asset bubble crisis D) both the fiscal crisis and political crisis

Q: What evidence do you have that the high price-to-earnings ratio associated with Ciscos stock during the late 1990s may have caused the firm to overpay for many of its acquisitions? How might overpayment have complicated the integration process at Cisco?

Q: Factors that lead to worsening conditions in financial markets include A) increases in interest rates. B) declining stock prices. C) increasing uncertainty in financial markets. D) all of the above. E) only A and B of the above.

Q: Why did Cisco have a no layoff policy? How did this contribute to maintaining or increasing the value of the companies it acquired?

Q: In Stage Two of an financial crisis in an emerging economy, speculators engage in massive ________ of a currency if it is fixed against the U.S. dollar. A) sales B) purchases C) either A or B can be correct D) neither A nor B is correct

Q: Describe how Cisco institutionalized the integration process. What are the advantages and disadvantages to the approach adopted by Cisco?

Q: In an emerging market economy, there are typically two paths to a financial crisis: financial liberalization/globalization and ________. A) asset pricing bubbles B) severe fiscal imbalances C) a global financial crisis D) none of the above

Q: Why might it take so long to integrate manufacturing operations and certain functions such as purchasing?

Q: In an emerging market economy, bank regulators typically provide ________ supervision. A) overbearing B) adequate C) weak D) expert

Q: What were the principal risks to the merger?

Q: In an emerging market economy, a country typically faces a ________ fiscal policy before a crisis initiates. A) solid B) poor C) weakening D) uncertain

Q: What are the major cultural differences between Daimler and Chrysler?

Q: Debt deflation refers to A) an increase in net worth, leading to a relative fall in general debt levels. B) a decline in general debt levels due to deleveraging. C) a decline in bond prices as default rates rise. D) a decline in net worth as price levels fall while debt burden remains unchanged.

Q: Identify ways in which the merger combined companies with complementary skills and resources?

Q: Stage Three of a financial crisis in an emerging market economy features A) a general increase in inflation. B) debt deflation. C) an increase in general price levels. D) a full-fledged financial crisis.

Q: What would you have done differently following closing to overcome the cultural challenges faced by the Tribune? Be specific.

Q: Why do you believe the Tribune thought it could overcome the substantial cultural differences between itself and the Times Mirror Corporation? Be specific.

Q: Stage Three of a financial crisis in an advanced economy features A) a general increase in inflation. B) debt deflation. C) an increase in general price levels. D) a full-fledged financial crisis.

Q: Stage Two of a financial crisis in an emerging market economy usually involves a ________ crisis. A) currency B) stock market C) banking D) commodities

Q: How might this emphasis on integrating "customer-facing" systems have affected the new firm's ability to realize anticipated synergies? Be specific.

Q: Stage Two of a financial crisis in an advanced economy usually involves a ________ crisis. A) currency B) stock market C) banking D) commodities

Q: Do you agree with Coty management's decision to focus on integrating "customer-facing" systems first? Explain your answer.

Q: During the 1800s, many U.S. financial crises were precipitated by an increase in ________, often originating in London. A) interest rates B) housing prices C) gasoline prices D) heating oil prices

Q: Cite key cultural differences between the two organizations. How were they resolved?

Q: When asset prices fall following a boom, A) moral hazard may increase in companies that have lost net worth in the bust. B) financial institutions may see the assets on their balance sheets deteriorate, leading to deleveraging. C) both A and B are correct. D) none of the above are correct.

Q: What did HP learn by studying other mergers? Give examples.

Q: The process of deleveraging refers to A) cutbacks in lending by financial institutions. B) a reduction in debt owed by banks. C) both A and B. D) none of the above.

Q: Explain how premerger planning aided in the integration of HP and Compaq.

Q: What is a credit boom? A) an explosion in a credit cycle, which can increase or decrease lending in the short-run B) essentially a lending spree on the part of banks and other financial institutions C) when credit card receivables rise due to low initial interest rates D) the signal of the end of a credit spree, with credit contracting rapidly

Q: When does it make sense to buy a minority interest, a majority interest, or 100 percent of the publicly traded shares of another company?

Q: Describe the advantages and disadvantages of owning less than 100 percent of another company.

Q: In an emerging market economy, a financial crisis generally begins with A) mismanagement of financial liberalization or innovation. B) asset pricing booms and busts. C) an increase in uncertainty caused by failure of financial institutions. D) all of the above.

Q: In what way would you characterize this transaction as a merger of equals? In what ways should it not be considered a merger of equals?

Q: In an advanced economy, a financial crisis can begin in several ways, including: A) mismanagement of financial liberalization or innovation. B) asset pricing booms and busts. C) an increase in uncertainty caused by failure of financial institutions. D) all of the above.

Q: Why do you think mergers, both domestic and cross-border, are often communicated by the acquirer and target firms management as mergers of equals?

Q: Financial crises A) cause failures of financial intermediaries and leave only securities markets to channel funds from savers to borrowers. B) are a recent phenomenon that occur only in developing countries. C) invariably lead to debt deflation. D) all of the above. E) none of the above.

Q: Financial crises A) are major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms. B) occur when adverse selection and moral hazard problems in financial markets become more significant. C) frequently lead to sharp contractions in economic activity. D) are all of the above. E) are only A and B of the above.