Merger Rationale Cholern Electric Company (CEC) is a public utility that provides electricity to the central Colorado area. Recent events at its Mile-High Nuclear Station have been discouraging. Several shareholders have expressed concern over last year’s financial statements.

Income Statement Last Year

($ in millions)

Balance Sheet End of Year

($ in millions)

Revenue $110 Assets $400 Fuel 50 Debt 300 Other expenses 30 Equity 100 Interest 30 Net income $ 0 Recently, a wealthy group of individuals has offered to purchase half of CEC’s assets at fair market price. Management recommends that this offer be accepted because “We believe our expertise in the energy industry can be better exploited by CEC if we sell our electricity generating and transmission assets and enter the telecommunications business. Although telecommunications is a riskier business than providing electricity as a public utility, it is also potentially very profitable.”

Should the management approve this transaction? Why or why not?