Question

A firm implementing a diversification strategy has just acquired what it claims is a strategically related target firm but announces that it is not going to change this recently acquired firm in any way. Why or why not would this type of diversifying acquisition enable the firm to realize any valuable economies of scope that could not be duplicated by outside investors on their own?

Answer 1

This form of diversifying transaction is unlikely to help the company leverage opportunities of scale that can't be achieved by foreign buyers on its own. To exploit economies of scale, the newly purchased company must be connected in the portfolio of the purchasing firm with the current companies. The chapter looks at a variety of ways of realizing economies of scope – organizational economies, financial economies, etc. Because the newly purchased business were linked to the rest of the enterprise (which will entail improvements to it), the corporation will not be able to achieve economies of scale in a manner that stock investors would do on their own.

****Please please please LIKE THIS ANSWER, so that I can get a small benefit, Please****