• PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY
• This is an INDIVIDUAL assignment. You ARE NOT permitted to consult with
ANYONE about the assignment.
• Word limits where specified will be strictly enforced.
• You may use any of the material covered in the course (readings, cases,
class discussions, videos etc..) and the information provided to you in the
question to formulate your answers. Please do not use any additional sources
of information (e.g. articles/news sources/readings that were not part of the
course content or the question). Note that the scenarios described may be
fictional, even if they use the names of real companies.
• The intent of this exam is to test your ability to understand and apply the
concepts and ideas covered in the course. It is not a test of your general
business sense / acumen. Answers based purely on the latter, that do not
connect to course content, will not receive full credit.
•
Q1) Read this press release from Netflix announcing the acquisition of Next Games,
and answer the questions that follow –
https://about.netflix.com/en/news/netflix-to-acquire-next-games
a) Using the 4C framework, describe the synergies Netflix is likely to be anticipating
from this acquisition (max. 200 words). [4 points]
b) Based on the concepts from the course, explain why Netflix might have decided to
acquire this company now rather than continue to have a partnership with it (max.
200 words) [4 points]

Q2) The following is a compilation of quotes from CEOs at press conference
following acquisitions made by their companies. Based on the material covered in
the course, state in each case whether you would consider the statement
problematic and explain why [max. 150 words for each answer] [4 points each]
a) “Well, I can’t do much better than to point to their (the target company’s) stellar
performance over the past few years. They have shown themselves to be
consistently the most innovative player in their sector, and they are among the best
positioned organizations to navigate the rapidly evolving environment. Their track
record speaks for itself, so I had no qualms about completing this deal.”
b) “I have always maintained since I took over as CEO that the future for us lies in
expanding into the analytics side of our industry. And when it comes to analytics, we
have always known there was not going to be a better option for us than (the target
company). In fact, this acquisition is something we have been planning for years. We
always knew that it would be tough for us to beat out the competition, but we were
determined to do whatever it took to complete this purchase.”
c) “I’ve always considered cultural compatibility to be the key source of value when
making an acquisition. And the number 1 reason I am confident this deal will create
value for us is that culturally the two organizations are very similar. A number of their
employees have previously worked for us and have strong relationships with people
here. We expect this would make the integration of their operations relatively
smooth.”
d) “Right now, for us the focus above all things is growth. I have tried to cultivate that
growth mindset throughout our organization. (The target company) is in an emerging
market niche that promises to grow at three times the rate of our existing core
sectors for the next decade. And that, quite simply, is why we have decided to make
this move, to capture that growth for our shareholders.”
Q3) You have been hired by BigIce, a company that produces packaged ice cream
and distributes it primarily via supermarkets, as a consultant to advise them on the
post-merger integration of Froot, a smaller ice cream producer. The principal source
of value that has been identified in the deal is scale – purchasing economies are
expected to be substantial and there is some redundancy in facilities that can also be
exploited to improve operating efficiencies. In addition, Froot have renowned
capabilities in product development, they consistently produce new creative flavors
and ice-cream variants that consumers love, whereas BigIce’s offering are fairly
standard and have evolved little over time. Hence, there is an interest in leveraging
those capabilities to improve BigIce’s practices in this area. The following are some
of the issues that you have been asked to advise on.

a) Two years ago, BigIce acquired a small chain of ice cream parlors / shops to
vertically integrate into retail. The target company had mostly been left autonomous
since then with some minor integration of retail data into BigIce planning processes,
and the opening of consumer testing sites at a few retail locations. Overall, the
acquisition had generated value and is perceived as a success. Based on that, there
is a feeling among BigIce management that the best overall approach to PMI is to
give the acquired company autonomy, and they intend to follow a similar approach
again in relation to Froot. Do you agree? Why? (max. 150 words) [4 points]
b) The head of corporate development is concerned that the sourcing managers
within BigIce have a negative perception of Froot’s operations, and may be resistant
to working with them. She would like to address the issue immediately, but this is
opposed by BigIce’s head of supply chain who argues that this would create
unnecessary disruptions, and that this issue could be tackled after the acquisition is
completed. Whose arguments would you support? Why? (max. 150 words) [4
points]
c) To capitalize on Froot’s distinctive product development practices, the CEO wants
scientists, engineers and other staff in product development from both organizations
to start working closely together so as to disseminate best practices across the joint
company. To do so, he plans to immediately transfer a third of BigIce’s product
development personnel to Froot offices and vice versa so as to facilitate rapid
learning. He asks you if you think this is a good idea. Do you agree with the CEO?
Why? (max. 150 words) [4 points]
d) Another BigIce executive argues that they have to make sure to treat all
departments of the acquired company equally. He feels that the sense of perceived
injustice among the employees of this company will be greatly heightened if they
integrate one division one way and another a different way. He asks you if you agree
with this. How would you respond? (max. 150 words) [4 points]
e) There is a concern that Froot’s employees are mistrustful of BigIce and wary of
changes that will come following the acquisition. Rumors have also been circulating
that many of them are seeking to exit the company. A senior executive at BigIce
suggests that, to offer them reassurance, an announcement be made immediately
following the completion of the acquisition that there will be no job losses and that
there are no immediate plans to change anyone’s designation or responsibilities.
This suggestion seems to have the support of much of the senior management, but
they look to you for your advice on this. What would you tell them? (max. 150 words)
[4 points]

Q4) Johnswood co. (Market cap = $8 billion, 40 million shares outstanding at $200
per share), would like to acquire Regents co. (Market cap = $4 billion, 25 million
shares outstanding at $160 per share). They anticipate synergies of $2 billion from
combining the two companies. Regents co. is seeking a price of $200 per share to
agree to the sale.
a) As they carry out their diligence, Johnswood co. management realize that, while
the potential synergies in the deal are indeed as high as they initially anticipated, a
number of exogenous factors could impact whether they will be realized. Thus, there
is greater uncertainty over those synergies. Should this uncertainty make them more
inclined to pay for the acquisitions with cash or stock? Why? (max. 100 words) [3
points]
b) What are the gains realized by the shareholders of Johnswood co. if they pay
$200 per share in cash to complete this acquisition, assuming 100% of the
anticipated synergies are realized? [3 points]
c) If they pay for the deal with 50% cash and 50% Johnswood co. stock (i.e. $100
cash + 0.5 shares in Johnswood co. for each share of Regents co.), what are the
gains realized by the original shareholders of Johnswood co.? (still assuming 100%
of the anticipated synergies are realized) [5 points]
Q5) Glaxo Smithkline recently announced that it would divest its consumer
healthcare division to create a new company named Haleon. This new company will
sell over-the-counter medicines such as Panadol as well as other consumer brands
such as Sensodyne toothpaste and Centrum vitamin supplements. GSK will divest
80% of its holding to existing GSK shareholders who will receive shares in the new
company, and will retain the remaining 20%. GSK had earlier rejected a £50bn offer
for this business from Unilever. State whether the following (in and of themselves)
are conceptually valid / invalid reasons for their actions and explain why in 150
words or fewer in each case [4 points each]
(a) The consumer healthcare landscape is increasingly competitive and the advent of
a number of low-cost players has impaired this division’s growth prospects.
(b) Unilever’s offer means that the market will value the new company at £50bn or
more, making the shares very attractive to GSK’s shareholders.
(c) The Pharmaceutical and Vaccine divisions of GSK have been under pressure to
grow, and GSK believes their leadership’s ability to focus on this will be enhanced by
reducing the need to also manage the consumer healthcare division.

(d) GSK believes there are other consumer products companies such as Reckitt,
Colgate-Palmolive, or Procter & Gamble who have greater synergies with this
business than it does.
(e) Within GSK, the managers in the consumer healthcare division had poor
motivation due to their incentives being tied to the performance of GSK as a whole,
over which they had little influence
———- END OF EXAM ———-