determining how this incremental value should be shared
betweentheacquiringfirmandtargetfirmstockholders.We
willlook atthespecifics ofeach typeof synergy,but the
basic proposition for fair sharing is a simple one. Since
synergyrequiresskillsandstrengthscontributedbyboththe
acquiring and target firms for its existence, the acquiring
company’sshareofthesynergywilldependonhowunique
arethestrengthsitbringstothemix.Inthelimitingcase,if
onlytheacquiringfirmhasthecomponentsnecessaryforthe
synergy, it should receive the lion’s share of the synergy
benefits.Iftheacquiringfirm’sstrengthsarenotuniqueand
couldbeofferedbyotherfirmsaswell,thebargainingpower
shiftstothetargetfirmanditsstockholdersshouldreceivethe
bulkof thebenefits.Applying thisprincipleto eachofthe
sources of synergy described earlier yields the following
conclusions:
- Cost saving synergies. As we noted earlier, cost
savings synergies are usually by-products of
horizontalmergers.Ifthecostsavingsareuniqueto
theacquiringfirm,itwillbeabletodemandahigher
percentageofthesynergybenefits.Thiswilloftenbe
the case with locational synergies. When Bank of
AmericaacquiredSecurityPacificinthelate1990s,a
majorcost-savingitemwastheoverlappingbranches
thatthesebankshadinCaliforniaspecificallyandon
theWestCoastmoregenerally.Itisunlikelythatany
otherlargebank(otherthanBankofAmerica)would
havebeen able to generatethesame savings, thus
givingBankofAmericaanadvantageinthebidding
process. If the cost savings are more general and
wouldbeavailabletoanyotherpeergroupfirm,the
targetfirmstockholdersarelikelytoreceivealarger