alternatively- which one is more valuable to seller ?
views on my rough math please
Assuming 50% pretax profit margins and 25% corporate tax rate
Cost synergy of -$1
-$1 x (1-tax rate)
-$1 x 75%
-.75 flows to bottom line
Revenue synergy of $1
$1 x profit margin x (1- tax rate)
1 x 50% x 75%
+.375 flows to the bottom line
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I believe cost synergies are generally “preferred” as they are generally easier to measure/achieve than revenue synergies.
right but how does a negative cost synergy work - it makes the cost higher correct? wouldn't a revenue energy be better than an increase in cost leading to a decrease in ni
I'm not sure there's such thing as a negative cost synergy. If it costs more to run the combined company you would just operate the two companies independently and not incur the additional cost. The -ve sign would have to imply costs are going down
That makes sense Lol- my sleep deprived self just failed to see how a -be in cost is just a decrease in costs therefore benefitting the merged company.Thanks so much :)
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