A merger should not take place simply for the purpose of:
A) diversification if shareholders can accomplish the same result on there own portfolios.
B) increasing the debt capacity for the tax shield gain.
C) acquiring free cash flow to be put to use by the acquirer.
D) reducing the cost of production.

Question

Quizplus · Accepted Answer

A merger should not take place simply for the purpose of diversification if shareholders can accomplish the same result on their own portfolios. This is because shareholders can easily diversify their portfolios by investing in different stocks or funds without the need for a merger. The merger should have a strategic and financial rationale that creates value for shareholders beyond just diversification.

A Merger Should Not Take Place Simply for the Purpose