The basic premise of unrelated diversification is that
A)the least risky way to diversify is to seek out businesses that are leaders in their respective industry.
B)the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale.
C)the best way to build shareholder value is to acquire businesses with strong cross-business financial fit.
D)any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity.
E)the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

Question

Quizplus · Accepted Answer

The basic premise of unrelated diversification is to acquire any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential, regardless of whether it has any connection to the acquiring company's current business or industry. In other words, the goal is to diversify the portfolio of businesses without seeking any synergy or strategic fit between them. This approach can allow the diversifying company to hedge against risks and opportunities in one industry by having exposure to others.

The Basic Premise of Unrelated Diversification Is That