Case-ktm-ready to race

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Reference no: EM132907821

Based on case: KTM-Ready To Race

Whether or not diversification is good for shareholders rests on a question of "synergy", or the whole being worth more than the sum of the parts. So the question should be:

Can one company that makes dirt bikes and on-road bikes give shareholders bigger long-term returns than what they could get for themselves by investing separately in two companies, one of which makes only dirt bikes and the other of which makes only on-road bikes?

Because if you think about the mechanics of diversification, the company is essentially saying "We have these profits that we could give back to you as a dividend, and which you could then use to invest in a different industry or line of business yourself, but instead we're going to keep it and invest it in a different industry for you". They should only do that if they can create bigger returns for you than what you could get investing it yourself.

Reference no: EM132907821

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