Case Study about a merger between Kennecott and Carborundum.

In 1968, Kennecott Copper Corporation made a hasty decision when it purchased Peabody Coal Company. In the years preceding the acquisition, Kennecott had experienced wide swings in its profitability, which it was looking to offset by diversification. Investing in another company in a different industry was an intelligent decision; however, Peabody was the wrong company to do this with. Although Peabody had been profitable and stable over the past few years leading up to the acquisition, …

…offer, Kennecott's stock was trading at $28 per share, which was $14.50 less than its book value. By not partaking in a stock repurchase, it appears as if Kennecott does not believe it can turn its own operations around. If it cannot fix its own business, it should not be expanding. Kennecott must take an inward look at itself and discover where its problems lie. Until this is done, it should put ambitions of expanding on hold.