Index Funds Matter for Mergers
Also bank ownership and consumer credit.
A good common simple reason for a merger to happen is that it will create value. Company A makes widgets, Company B makes sprockets, the widget salespeople could cross-sell the sprockets to their clients, the sprocket and widget factories could use some interchangeable parts, the human resources departments could be combined to save on costs, etc.; the standard term is “synergies.” Company A is worth $10 billion, Company B is worth $5 billion, if Company A acquires Company B the combined Company AB will be worth $17 billion. It doesn’t always work in practice—acquisitive corporate CEOs are notably optimistic, etc.—but it’s a good general idea.
In that scenario, how much would you say Company B is “worth” in the merger? Its unaffected standalone value is $5 billion, but if you add it to Company A, it will increase Company A’s value by $7 billion. The extra $2 billion—the synergies, the value added by the merger—isn’t exactly a property of Company B, but it isn’t exactly a property of Company A either. Neither can extract it on its own.