《银行管理(第六版)教师手册Chapter_19_IM_updates.pdf》由会员分享，可在线阅读，更多相关《银行管理(第六版)教师手册Chapter_19_IM_updates.pdf（9页珍藏版）》请在taowenge.com淘文阁网|工程机械CAD图纸|机械工程制图|CAD装配图下载|SolidWorks_CaTia_CAD_UG_PROE_设计图分享下载上搜索。
1、 257 CHAPTER 19 MERGERS AND ACQUISITIONS:MANAGING THE PROCESS Goal of This Chapter:The purpose of this chapter is to understand why the financial services industry undertakes so many mergers each year and to determine what legal,regulatory and economic factors should be considered when the managemen
2、t of a financial services provider wants to pursue a merger.Key Topics in This Chapter Merger Trends in the United States and Abroad Motives for Merger Selecting a Suitable Merger Partner U.S.and European Merger Rules Making a Merger Successful Research on Merger Motives and Outcomes Chapter Outline
3、 I.Introduction II.Mergers on the Rise III.The Motives behind the Rapid Growth of Banking and Financial Service Mergers A.Profit Potential B.Risk Reduction C.Rescue of Failing Institutions D.Tax and Market-Positioning Motives E.The Cost Savings or Efficiency Motive F.Mergers as a Device for Reducing
4、 Competition G.Other Merger Motives H.Merger Motives that Executives and Employees Identify IV.Selecting a Suitable Merger Partner A.Stock Price Effects B.Improving Operating Efficiency C.Diversification Effects and Opportunities D.Merger Premiums,P-E Ratios,and Exchange Ratios V.The Merger and Acqu
5、isition Route to Growth VI.Methods of Consummating Merger Transactions A.Purchase-of-Assets Method B.Purchase-of-Stock Method VII.Regulatory Rules for Bank Mergers in the United States A.Bank Merger Act of 1960 B.Competitive Effects of Mergers C.The Public Benefits Test D.Justice Department Guidelin
6、es and the Herfindahl-Hirschman Index 258 VIII.The Merger Decision-Making Process by U.S.Federal Regulators IX.Merger Rules in Europe X.Making a Success of a Merger XI.Research Findings A.The Financial Impact B.The Public Benefits XII.Summary of the Chapter Concept Checks 19-1.Exactly what is a merg
7、er?Mergers result in the combining of the assets and liabilities of two or more firms.To affect a merger the shareholders of all the parties involved must approve the merger transaction once it is negotiated among the management of the parties to the merger.Once the shareholders of each firm involve
8、d give approval to the merger,approval must then be sought from the Department of Justice and the principal federal regulatory agency of each firm in the merger.19-2.Why are there so many mergers each year in the banking industry?In other financial services industries?Many(if not most)mergers occur
9、because the shareholders of the institutions involved expect increased profit potential once the merger is consummated.Alternatively,many partners to mergers anticipate reduced cash-flow risk and possibly reduced earnings risk as well.19-3.What factors seem to motivate most mergers?Among the most po
10、werful merger motivations are the belief in greater profit potential if a merger is consummated,the expectation of a possible reduction of cash flow risk or earnings risk,the possible rescue of failing institutions,the gaining of a tax advantage where profits of one merger partner may be offset by t
11、he losses of another merger partner,the search for market-positioning benefits in new markets or in superior locations in existing markets,and the pursuit of lower cost and greater efficiency so that the merged institution achieves a greater margin of revenues over operating expense.19-4.What factor
12、s should a bank or other financial firm consider when choosing a good merger partner?The following items are the principal factors usually reviewed by the acquiring organization:Age and history of the institution.Background of management.Comparative management styles of the merging organizations.Typ
13、es of services offered.Recent history of changes in deposits,loans,and market shares.Principal customers served.Geographic fit.259 Internal control procedures.Personnel situation.Compatibility of accounting and management information systems.Condition/depreciation schedule for offices and other phys
14、ical assets.Adequacy of capital,earnings per share,and ownership dilution before and following the proposed merger.Growth of expenses.Before-tax and after-tax income and rate of return.19-5.What factors must the regulatory authorities consider when deciding whether to approve or deny a merger?Merger
15、s that would significantly damage competition cannot be approved unless there are mitigating instigating circumstances(e.g.,one of the firms involved is failing).Public convenience must also be weighed by the regulatory agencies to determine if the merger would improve the supply of needed services
16、that are perhaps currently not being conveniently and efficiently provided to the public.19-6.When is a market too concentrated to allow a merger to proceed?What could happen if a merger were approved in an excessively concentrated market area?The Department of Justice guidelines state that the mark
17、et area is too concentrated if the postmerger Herfindahl index is greater than 1800 or if the Herfindahl index changes by more than 200 points.If the Justice Department decides that the resultant merger will make the banking market too concentrated they are likely to challenge the merger in federal
18、court.19-7.What steps that management can take appear to contribute to the chances for success in a merger?Why do you think many mergers produce disappointing results?There are several steps management can take to improve their chances of success after a merger.First they can know themselves,their s
19、trengths and weaknesses and the goals they want to pursue.They can also get a team together before any merger to do a detailed analysis of the potential merger and new market area.They can be careful to establish a realistic price for the target firm.Once the merger has taken place they should form
20、a combined management team from both firms to direct the consolidation of the two firms.They should also establish lines of communication between senior management and branch and line management as well as communication channels for other employees and customers.Finally they should set up customer a
21、dvisory panels to comment on the new banks community image,availability of services and helpfulness.Mergers sometimes produce disappointing results because of ill-prepared management,a mismatch of corporate cultures,excess prices paid by the acquirer,inattention to customers feelings and concerns an
22、d a general lack of fit between the two firms.19-8.What does recent research tell us about the impact of most mergers in the financial sector?A recent study,which looked at the earnings impact of approximately 600 national bank mergers,found no significant differences in profitability between mergin
23、g and comparably sized 260 nonmerging banks serving the same local markets.However,CEOs at a substantial majority of the nearly 600 U.S.bank mergers occurring from 1970-1985 believed their capital base improved and they were now a more efficient banking organization.However,as a study by Rose found
24、there is no guarantee of success in a merger.This study of 572 banks which purchased nearly 650 other banks found a symmetric distribution of earnings outcomes for these mergers nearly half displaying negative earnings results.Finally,a recent study by the Federal Reserve Board finds that mergers an
25、d acquisition in the financial sector often produce operating cost savings.However,these are generally very small and there is no evidence for cost reductions among large financial firms.19-9.Does it appear that most mergers among banking firms serve the public interest?Most studies that have looked
26、 at this issue find few real public benefits.However,there is also no convincing evidence that the public has suffered a decline in service quality or availability following most bank mergers.On the positive side,mergers may significantly lower the bank failure rate.Problems 19-1.Evaluate the impact
27、 of the following proposed mergers upon post-merger earnings per share(EPS)of the combined organizations:a.The acquiring bank reports that the current stock price is$18 per share and the bank earns$6 per share for its stockholders;the acquired banks stock is selling for$15 per share and that bank is
28、 earning$5 per share.The acquiring institution has issued 200,000 shares of common stock,whereas the acquired institution has 100,000 shares of stock outstanding.Stock will be exchanged in this merger transaction exactly at its current market price.Most recently,the acquiring bank turned in net earn
29、ings of$1,200,000 and the acquired banking firm reported net earnings of$300,000.Following this merger,combined earnings of$1,600,000 are expected.If earnings total$1,600,000 after the merger occurs,the acquired banks shareholders will receive$15/$18 or 0.833 of a share of stock in the acquiring ban
30、k for each share they held in the acquired institution.This means 0.833 x 100,000 or 83,300 additional shares of the acquiring bank will be issued for a post-merger total of 283,300 shares outstanding.Therefore,the post-merger EPS will be$1,600,000/283,300 shares or$5.65 per share.b.The bank to be a
31、cquired is currently earning$14 per share,and its acquirer is reporting earnings of$12 per share.The acquired firms stock is trading in todays market at$24 per share,while the acquiring firms stock exchanges toda y for$20 per share.The acquired institution has 75,000 shares outstanding;the acquiring
32、 institution,on the other hand,has issued 80,000 shares of common stock.The combined organization is expected to earn$900,000;before the merger,the acquired bank posted net earnings of$400,000 and the acquiring bank tallied net earnings of$600,000.If the stock will be traded at the going market pric
33、e to effect this merger,what will postmerger earnings per share be?261 If the two banks agree to exchange stock at current market values,the acquired banks stockholders will receive$24/$20 or 1.2 shares in the acquiring bank for each share they hold or 90,000(1.2 x 75,000)additional shares.After the
34、 merger there will be 170,000 shares outstanding.With$900,000 in post-merger earnings,the combined banking organizations EPS will be$900,000/170,000 shares or$5.29 per share.19-2.Under the following scenarios,calculate the merger premium and the exchange ratio:a.The acquired corporate savings and lo
35、an associations stock is selling in the market today at$8 per share,while the acquiring institutions stock is trading at$12.The acquiring firms stockholders have agreed to extend to shareholders of the target firm a bonus of$4.The acquired thrift has 30,000 shares of common stock outstanding,and the
36、 acquiring institution has 50,000 common equity shares.Combined earnings after the merger are expected to remain at their premerger level of$1,250,000(where the acquiring firm earned$1,000,000 and the acquired institution$250,000)A merger premium will be paid amounting to:Merger Premium(in Percent)=
37、($8+$4)/$8 x 100=150 percent.With an additional$4 per-share bonus the acquired thrifts stock will be valued at$12,exactly the same as the acquiring institutions stock for a$12/$12 or 1:1 exchange ratio.Earnings per share from the merger will be:EPS=$1,250,000/80,000 shares=$15.63.Before the merger,t
38、he acquiring institution had an EPS of$20,while the acquired thrift reported an EPS of$8.33.This suggests there will be some earnings dilution for the shareholders of the acquiring institution(from$20 to$15.63 per share)as well as some ownership dilution.b.The acquiring firm reports that its common
39、stock is selling in todays market at$30 per share.In contrast,the acquired institutions equity shares are trading at$24 per share.To make the merger succeed,the acquired firms shareholders will be given a bonus of$2 per share.The acquiring institution has 120,000 shares of common stock issued and ou
40、tstanding,while the acquired firm has issued 40,000 equity shares.The acquiring firm reported premerger annual earnings of$850,000,and the acquired institution earned$150,000.After the merger,earnings are expected to decline to$900,000.Is there any evidence of dilution of ownership or earnings in ei
41、ther merger transaction?If the acquiring banks stock is currently selling for$30 per share and the acquired institutions shares are trading at$24 per share and the acquired firms shareholders are offered a$2 per-share bonus to merge,the merger premium will be:262 Merger Premium(in Percent)=($24+$2)/
42、$24 x 100=108.33 percent.Thus,the acquired banks stock will exchange in a ratio of$26 to$30 for the acquiring banks stock or 0.867 to 1.Thus,the acquired banks shareholders will receive 0.867 x 40,000 or 34,667 shares in the merged institution which will then have a total of 154,667 shares outstandi
43、ng.Post-merger EPS should be:$900,000/154,667 shares=$5.82.Before the merger,the acquiring institution reported an EPS of$7.08 and the acquired institution had an EPS of$3.75.Again,the acquiring institutions shareholders will experience some earnings dilution as well as some decline in their ownersh
44、ip share.19-3.The Silverton metropolitan area is presently served by five large branch banks with total deposits as follows(see table below).Calculate the Herfindahl-Hirschman Index(HHI)for the Silverton metropolitan area.Suppose that Rocky Mountain Trust Company and Security National Bank propose t
45、o merge.What would happen to the HHI in the metropolitan area?Would the U.S.Department of Justice be likely to approve this proposed merger?Would your conclusion change if the Silverton County Merchants Bank and the Rocky Mountain Trust Company planned to merge?The Herfindahl-Hirschman Index for the
46、 Silverton Metropolitan Area is calculated as follows:Bank Current Deposits Current Deposit Market Share Current Deposit Market Share Squared Silverton National Bank$854 million 39.54%1563.18 Silverton County Merchants Bank 605 million 28.01%784.52 Commerce National Bank 383 million 17.73 314.41 Roc
47、ky Mountain Trust Company 211 million 9.77 95.42 Security National Bank 107 million 4.95 24.54 Total$2160 million 100.0%2782.06 The Silverton market has an HHI above 1800 and is,therefore,highly concentrated.If Rocky Mountain Trust Co.and Security National Bank merge,their combined market share is 1
48、4.72 percent and the HHI climbs to 2878.85,a change of only 96.79 points which may be acceptable to the regulatory authorities.However,if Silverton County Merchants Bank and Rocky Mountain Trust Company plan to merge,the combined market share of these two banks is 37.78 percent and the HHI rises to
49、3329.28,a change of 547.22 points which will,in all probability,be challenged by the regulatory authorities.19-4.Langley Savings Association has just received an offer to merge from Courthouse County Bank.Langleys stock is currently selling for$40 per share.The shareholders of Courthouse 263 County
50、Bank agree to pay Langleys stockholders a bonus of$10 per share.What is the merger premium in this case?If Courthouse Countys shares are currently trading for$65 per share,what is the exchange ratio between the equity shares of the two institutions?Suppose that Langley has 10,000 shares and Courthou