Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

percent,suggestingthatfewfirmsenjoythepromised

benefitsfromacquisitions.Inanotherstudy,Kaplan

and Weisbach (1992)found that 44 percent of the

mergerstheystudiedwerereversed,largelybecause

theacquirerpaidtoomuchorbecausetheoperations

of the two firms did not mesh.

26

Reviewing theevidence,itis clear that marketsthink that
thereispotentialforsynergyatthetimeofmergers(albeitfar
lessthanmanagerassessmentsatthesametime),butitisalso
clear that only a small proportion of mergers deliver
substantialsynergy. Boththesefindingsareconsistentwith
the notion that synergy does exist but that it is far more
difficult to generate it in practice than it is on paper.

Sharing Synergy Gains

Ifsynergyaddssignificantvalue,asitsometimesdoes,the
next question becomes one of sharing these gains. Who
shouldgetthebenefitsofthissynergy?Inotherwords,should
itbestockholdersintheacquiringfirmorstockholdersinthe
targetfirm?Inthissection,webeginbydevisingawayof
sharingthisvaluefairlybetweentargetandacquiringfirms.
We then look at the evidence on how synergy benefits
actuallygetsharedbetweenacquirerandtarget.Weconclude
byexamininghowacquiringfirmscanimprovetheiroddsfor
getting a larger share of synergy benefits.

A Framework for Sharing

If synergy can create significant value under the right
conditionsinanacquisition,thenextquestionbecomesoneof