SAILMAKER operates at full capacity but needs to meet increased demand for windsurfer sails. One of its main competitors has spare operating capacity and has approached SAILMAKER for a merger. The remaining competitors operate at full capacity and cannot meet the increased demand.

The deal would cost SAILMAKER €6 million, however. Given projected revenues and costs, the expected NPV resulting from the resulting synergy would be €22 million. This NPV would be divided between the two companies on the basis of their market values. The stock market value of the competitor s equity is €10 million. SAILMAKER ’s equity market value is €30 million.

The alternative to the merger would be buying for €5 million the manufacturing facilities of a bankrupt company. This purchase would increase the PV of transportation costs by €1.5 million after tax, however. Assuming both options offer the same operating capacity and the same delay to start-up, which should SAILMAKER accept?