Professional Documents
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Key Topics
McGraw-Hill/Irwin
Bank Management and Financial
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Introduction
A globe wave of mergers involving banks, securities
firms, insurance companies, and other financialservice providers has been under way
Reflects the great forces of consolidation and
convergence that are dramatically reshaping the
financial-services industry
This trend is driven by
Intense competition
Deregulation
The search for the optimal size financial-services
organization
McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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Geographic Diversification
Product Line Diversification
Find an acquisition target whose earnings or cash flow are negatively
correlated (or have a low positive correlation) with the acquiring
organizations cash flows
McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
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Dilution of Ownership
Dilution of Earnings
McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
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Purchase-of-assets method
The acquiring institution buys all or a portion of the assets of
the acquired institution, using either cash or its own stock
The acquired institution usually distributes the cash or stock
to its shareholders in the form of a liquidating dividend and
the acquired organization is then dissolved
McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
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Poor management
Mismatch of corporate cultures and styles
Excessive prices paid by the acquirer for the acquired firm
Failure to take into account the customers feelings and
concerns
Lack of strategic fit between the combining companies
McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
Bank Management and Financial
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McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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Quick Quiz
What factors should a financial firm consider when
choosing a good merger partner?
What factors must the regulatory authorities consider
when deciding whether to approve or deny a merger?
When is a market too concentrated to allow a merger to
proceed?
Does it appear that most mergers serve the public
interest?
McGraw-Hill/Irwin
Bank Management and Financial
Copyright 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.