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Answer (B) is correct . Financial synergy may result from the combination. The cost of capital for both firms may be decreased because the cost of issuing both debt and equity securities is lower for larger firms. Moreover, uncorrelated cash flow streams will provide for increased liquidity and a lower probability of bankruptcy. Still another benefit is the availability of additional internal capital. The acquired company is often able to exploit new investment opportunities because the acquiring company has excess cash flows. The strategic position of the combined firm also will be improved because G-Tech provides a beachhead in the field of genetically engineered pharmaceuticals. Finally, G-Tech is a development stage enterprise that most likely has a net operating loss carryforward that Ogden, a successful conglomerate, can use to reduce its tax liability.

Answer (A) is incorrect because Operating synergies and market power are not likely to be involved.
Answer (C) is incorrect because Undervaluation is not an issue. G-Tech is privately held, so its stock cannot be acquired in the open market at a bargain price.
Answer (D) is incorrect because Market power is not likely to be involved. It will be several years before either of G-Tech’s products can be marketed.