One CEO justified the merger of his soft-drink company with a machine tool company in the following manner. This is a great merger. First the products are unrelated. This out company’s earnings volatility is likely to decrease. Second, our management team has proven that we are better managers than the former management team of the tool company, and this we are likely to discover new way to create and capture value within the tool company. Evaluate this explanation for the merger.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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One CEO justified the merger of his soft-drink company with a machine tool company in
the following manner. This is a great merger. First the products are unrelated. This out company’s
earnings volatility is likely to decrease. Second, our management team has proven that we are better
managers than the former management team of the tool company, and this we are likely to discover
new way to create and capture value within the tool company. Evaluate this explanation for the
merger.

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