Why do companies merge and acquire other companies? Synergy
is the textbook answer. Typically, the stockholders of the target company see
an appreciation in the value of their stock, while stockholders in the
initiating firm see a downtick. The reason why is simple: corporations
typically overpay. The value-added of the anticipated synergy must be greater
than not only any overpayment, but also the intangible costs in aligning the
corporate cultures. Yet another factor—an opportunity cost, really—is frequently
overlooked: that of whether the extra cash on hand should be returned to the
stockholders as dividends.
The complete essay is at “Mergers
and Acquisitions”
