MAF 640 (DEC 2013) a) Refer page 177 Yes, it is a good idea for Z House of Fashion to employ the

horizontal acquisition strategy because : 1) To increase market power. - When Z House of Fashion decided to acquire her competitors first before others, it showed the company has market power in intense competition within the industry. - Company able to see its goods or services above competitive levels or the cost of goods or activities are lower than the competitors. 2) Result in higher performance. Since the acquired firm have similar characteristics, such as strategy managerial styles, and resources allocation patterns it will definitely benefits Z House of Fashion and lower the risk when developing new design.

3) More effective - When Z House of Fashions combined its own assets with the acquired company, the company can recover back their cost from the acquisition earlier. Other than that, the companys revenue
will increase in market share as well as expanding a product range within industry.

b) Page 191 1) Friendly acquisition. - Z House of Fashion works together with the acquired firm to find the ways to integrate their operation to create synergy. - Disagreement between the top management teams should be avoided as to create harmonious working relations of the newly created firm. 2) Acquiring firm that has financial slack. (Cash or favorable debt position) - When substantion debt was used to finance the acquisition, company with the successful acquisition reduced the debt quickly. For example, selling off the assets from the acquired firm, especially poorly performing assets. 3) Emphasis on innovation. - Demonstrated by continuing investments in R&D activities. - Significant R&D innovation which indirectly showed the successful of acquisition. c) 2 potential problems. - Too large. - Too much diversification. - Inability to achieve synergy. - Inadequate evaluation of target.

Large or extraordinary debt. Managers overly focused on acquisition.