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CS Professional · Corporate Restructuring, Valuation and Insolvency · Planning and Strategy

Two family-owned firms, Gomti Steel Ltd and Yamuna Alloys Ltd, both make similar products in the same region. Their boards plan an amalgamation mainly to eliminate duplicate plants, pool marketing and gain scale. Which expected benefit is the planning rationale described?

The rationale is operating synergy through economies of scale. Combining two similar firms lets them close duplicate plants, share marketing and spread fixed costs, lowering unit costs, which is different from diversification, tax arbitrage or a takeover defence.

  1. ATax arbitrage through a shell company
  2. BOperating synergy through economies of scaleCorrect
  3. CDiversification into unrelated businesses
  4. DDefence against a hostile bid

Explanation

Removing duplicate plants, pooling marketing and gaining scale are cost and efficiency gains, i.e. operating synergy from economies of scale. The facts mention no unrelated business, hostile bidder or tax shell.

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