I’m going to put on my professor hat for a moment and attempt to briefly explain the difference between stock prices (and market cap) and acquisition prices.
The stock price (and therefore the market cap) is the price determined in what economists call the OPMI market - the market for Outside Passive Minority Investors. For the most part, investors in the OPMI market (which is the “normal” stock market) are never going to be insiders, have control of corporate strategy, etc. The OPMI prices reflect these facts. In theory, prices are determined based on the firm’s expected cash flows, risks, and growth.
Acquisitions do not happen in the OPMI market. They occur in the “market for corporate control.” Acquisition prices are also determined by the firm’s current (expected) cash flows, risks, and growth - but they are also affected by potential shifts in strategy enacted by the new parent company and synergies that exist with the new parent company. In short, OPMI prices are largely driven by three factors (cash flow, risk, growth), while acquisition prices are driven by five (the previous three plus “control” and synergies).
Average “control premiums” in most industries are around 40%-50% or so. So, if the market cap of the firm is $6 billion, you would typically expect to pay $8.4 - $9.0 billion to acquire it.
However, the presence of synergies can change the math quite a bit, since it is typical for the target firm and the acquirer to “split” the potential benefit of synergies to some extent.
For example, assume we have a firm with a “stand alone value” of $9 billion (this is it’s acquisition value including the control premium if no synergies are present), but it has a “synergistic value” of $12 billion (meaning it is estimated there are $3 billion of potential synergies between the target firm and the acquiring firm). In this case, negotiations might lead to an acquisition value of $10 billion - meaning the target “claims” $1 billion of the synergy value and the acquiring firm claims $2 billion.
Of course, I am looking at this from a 20,000 foot view. In reality none of these values are easy to estimate and there may be major disagreements on all of them (both within the firms and between the firms). It is also true that most firms enter negotiations with a range of acceptable values. So the target firm may be willing to sell at any price above $9.5 billion and the acquiring firm may be willing to buy at any price up to $11.5 billion. As long as seller’s “floor” and the buyer’s “ceiling” are compatible then a deal can be made through effective negotiating.
Okay, I’m sure that’s long enough. Hopefully that wasn’t too boring. 