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Strategies & Market Trends : Value Investing
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To: Bob Rudd who wrote (7146)5/14/1999 11:30:00 AM
From: jeffbas  Read Replies (2) of 78476
 
Re: Acquisition premium and "The Synergy Trap" (which I have not seen). I absolutely agree where you have a couple of large companies where both are fairly valued, and one goes and offers a premium for the other. Not only have you created a large financial hurdle to overcome with synergy benefits, but their might not even be such benefits when all is said and done.

There are some exceptions, however, in my opinion. Acquisitions of any real business make sense when your stock is vastly overpriced relative to the target, as with the conglomerates 30 years ago and the Internet stocks today. AMZN should run not walk to buy Barnes and Noble. Second, there is the concept of critical mass to be an effective competitor in an industry or get recognition on Wall Street
(which has implications relative to the cost of capital). Merger of smaller companies for these kinds of reasons can make sense; but these often are non-premium or small-premium mergers.
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