growth firm with little cash (and great investment
opportunities)cometogether,thesharingofbenefits
willdependagreatdealonwhichofthesestrengths
(cash orgrowthopportunities)is scarceracrossthe
market. In an emerging market economy where
investmentopportunities aboundbut companies are
cash poor(perhapsbecause capitalmarketsarenot
well developed), we would expect cash-rich
companiestogetalargershareofthesynergygains
from cash slack. In more mature economies with
opencapitalmarkets,wewouldexpectthecompanies
withgrowthopportunitiestohavetheupperhandin
the bargaining process.- Taxbenefits.Thetaxbenefitsfromanacquisitioncan
come from either higher tax deductions after the
merger(fromdepreciationwrite-upsoramortization)
oralowertaxrate.Withbothofthesesavings,the
acquiringfirm’ssharewilldependonhowintegralit
is to receivingthose tax benefits.If any acquiring
firm can write up a target firm’s assets after an
acquisition, we would expect the target firm’s
stockholderstogetalmostallofthesynergybenefit.
Iftheacquiringfirmparticipationisessentialtothe
taxbenefitbeinggenerated,itwillcommandalarger
share of the premium.
Overlayingthis discussionisa practicalissue. Foratarget
firmtobeabletoextractthebulkofthesynergypremium,it
hastobeabletoopenupthebargainingprocessandforcethe
acquiring firm to match the bids of others. With publicly
tradedtargetfirms,thisiseasytodosincethemarketplays
theroleofacompetingbidderandforcestheacquiringfirm
toanteuplargerandlargersharesofthesynergypremium.In