Suppose that company A's project has an NPV of 200 on its own, while company B can realize 100. The synergy gain is 200. There are no taxes, and the financial markets are integrated. Assume, however, that B has a better bargaining position, and is able to obtain 45 percent of the equity in the first-pass negotiations (the pure-equity joint venture).
(a) What part of the synergy gains goes to A, what part to B?
(b) Suppose that, in the second-stage negotiations, A asks for a license contract worth 80 (in present-value terms). How should the equity shares be adjusted to preserve the division of the synergy gains (that is, to make both parties equally well-off as in the pure-equity solution)?
(c) Which licensing contract is compatible with a 50/50 joint venture and the bargaining strengths used in part (a) of this question?