Where Do Merger Profits Go?

Stockholders make money from takeovers—stockholders of the acquired firm, that is. When Kohlberg Kravis Roberts & Co. (KKR) took RJR Nabisco private for over $24 billion, for example, the RJR stockholders received more than twice what their shares had sold for prior to the bidding battle. That profit margin is typical of contested takeovers, although higher than the premium paid for all acquisitions in the past decade, which have averaged around 40 percent.