Mergers and acquisitions in financial services strategies to maximize shareholder value

Abstract

The objectives of this thesis are to analyze the strategic context that is driving merger activity in financial services, exploring the shareholder value implications of such transactions and predict the likely shape and pace of merger and acquisition activity in the future. Financial services M&A activity have surged, with the value of deals reaching US$400bn in 1999. Most of the activity has involved in-market, concentrating mergers, involving two institutions with similar business mix and geographical scope. This type of transaction offers the most obvious potential for value creation through cost synergies as well as a mechanism for building the scale necessary to respond to the key strategic challenges facing financial institutions. This thesis will highlight the value drivers and critical success factors in mergers by examining in detail. The merger illustrates the most important aspects of merger value creation and shows where value can be created and destroyed. Some information on the business lines and finances of the two companies is presented along with the details of the transaction. This thesis shows, in the case study of two firms, the share price of the two firms leading up to and immediately after merger announcement. Then, it shows the market valuation of the two firms immediately before and after the merger announcement (the graph depicts the value one working day before and one working day after the announcement). The case study section also shows the share price performance of the merged firm from the announcement date onwards. This thesis then analyses the underlying cash flows of the businesses and the synergies created by each of the mergers to assess the value created by the merger. The thesis also looks at how the combined firm has approached realizing the value from the merged company i.e. it's merger integration process and strategy.