Question

Which of the following would be the most appropriate line(s) of thought for the CEO of ABC to adopt in response to the offer by LMN?
I. Once bitten twice shy. There is simply no way I can think of resuming talks with LMN after their unethical behaviour the previous time around. I would rather spend my time on merger discussions with other companies.
II. The deal may make less business sense this time around. However, if it goes through, I will become the CEO of the world’s largest telecom company. So let us try our luck once more.
III. I will resume talks only if they provide guarantees as to the reimbursement of our expenses incurred, in the event of the deal not materializing.
IV. Let me not be biased against dealing with LMN, if we can secure the deal at a reasonably low price, benefiting our shareholders, let us go ahead with it.
V. I am not sure if we can raise the money now. In any event, they are the ones facing greater financial problems. So let’s not hurry now. We might have an opportunity to buy them out at a cheaper price later.

• A. i and iii
• B. ii and iv
• C. ii and iii
• D. i and iv
• E. iv and v
• A. The new entrants in the telecom market were coming with better offers for the customers.
• B. The market would be as competitive as ever for the resultant entity, thus providing no guarantee for success.
• C. The combined management did present any grand strategies to the investors.
• D. ABC’s management was giving in to Mr. Das who was a known opportunist.
• J. LMN was using high-cost debt to purchase another company in the same industry facing similar problems with no visible advantage for the combined entity over competitors.

Answer 1

Step 1: Identify the CEO’s responsibility.
The CEO must act in the best interests of the company and its shareholders. Decisions should not be driven by personal ego, past resentment, or the desire for position. Profitability and timing matter most.

Step 2: Evaluate each statement.
- (I) Refusal due to past bitterness is an emotional reaction, not a rational business decision. ✗
- (II) The desire to become CEO of the largest telecom company is an ambition-driven motive, not necessarily aligned with shareholder interests. ✗
- (III) Asking for reimbursement guarantees is cautious, but it does not directly consider profitability or long-term benefit. Only partial relevance. ✗
- (IV) This is practical — if the deal is reasonably priced and benefits shareholders, it is worth pursuing. ✓
- (V) This is also rational — waiting could allow ABC to buy LMN at a cheaper price since LMN is in deeper financial trouble. ✓

Step 3: Select the best combination.
Statements IV and V both emphasize maximizing shareholder benefit and strategic timing, making them the most appropriate. \[ \boxed{\text{iv and v}} \]

Answer 2

Step 1: Investor’s viewpoint.
An investor evaluates risk, profitability, and sustainability. High debt burden, lack of competitive edge, or weak strategy are red flags that discourage investment.

Step 2: Assess each option.
- (A) New entrants may offer better deals, but that does not necessarily make the merger unattractive by itself. ✗
- (B) Market competitiveness is always a factor, but by itself it is too generic — does not provide a strong reason to avoid investment. ✗
- (C) Absence of “grand strategies” is vague; investors look for concrete disadvantages rather than presentation style. ✗
- (D) Blaming opportunism of an individual (Mr. Das) is personal, not a solid financial reason. ✗
- (E) This highlights the most critical issue: LMN financed the merger with \emph{high-cost debt}, and the combined entity still faces the same structural problems as before. There is no new advantage, but higher liabilities, making this a strong reason to avoid investing. ✓

Step 3: Final conclusion.
Since the company now carries expensive debt while offering no competitive edge, investing is risky. Thus, option E is the strongest reason. \[ \boxed{\text{E}} \]