WHY ONE FIRM IS THE TARGET AND THE OTHER THE BIDDER IN SINGLE-BIDDER, SYNERGISTIC TAKEOVERS

Since target firms obtain more of the synergy gains than bidder firms, the question arises of why, in single-bidder, synergistic takeovers, either firm is willing to be the bidder. I argue that the takeover-related costs and benefits to the managers of the two firms determine which firm will be the target and which the bidder. A manager's fear that the firm with which his firm can create synergy gains will take over his firm and force him out of his job, if his firm does not take it over, makes him want his firm to be the bidder.