3. The Blue Tag Company and the Pink Label Corporation both make packaging and labeling equipment. The following facts are relevant.

• Both firms use similar production and sales methods.

• Pink Label has been losing money for years, while Blue Tag has been and is expected to continue to be profitable.

• There is a great deal of overhead in label making.

• The industry is dominated by the much larger Yellow Marker Co., which is difficult to compete with because of its size advantage.

The managements of the two companies are considering a merger. What arguments can be made in favor of such a combination?