share of the benefits. This would be the case, for
instance,inamergeroftwoconsumerproductfirms
where the primary cost savings will come from
integratingtheiradvertisingdepartmentsandsaving
on the resulting reduction in costs.
- Growthsynergies.Growthsynergiescantakemany
forms,buthereagaintheacquiringcompany’sshare
islikelytodependonwhatitbringstothetableasits
strength. Consider two simple examples. Suppose
Coca-Cola is contemplating the acquisition of an
emergingmarketconsumerproductcompany,hoping
to useits marketingmuscle toincrease growth for
bothitsownandthetargetcompany’sproducts.The
strength that Coca-Cola brings to the negotiating
process is marketing expertise, but there are other
consumerproductcompanies(Diageo,PepsiCo)that
could match it. In contrast, Cisco frequently buys
youngtechnologycompaniesinitsbusinessdomain,
andusesitsskillinconvertingpromisingtechnology
into commercial products to generate incremental
value. This skill, which requires a blend of
technologicalandmarketingskill,ismoredifficultto
replicate.WewouldexpectCiscotogetalargershare
of synergy benefits than Coca-Cola when making
acquisitions.
- Debt capacity. In synergies motivated by debt
capacity and/or lower costs of debt,thetwo firms
involved should be in different businesses and be
riskyasstand-aloneentities.Giventhatneitherfirm
hasanyuniquestrengths, wewouldexpecta fairly
equal sharing of synergy benefits.
- Cashslack.Sincecashslackisbestexploitedwhena
mature firm with a significant cash balance and a
