In class

Issues

Industry:

Has become more concentrated, top 50 banks now holding 65% of total bank assets
Fewer than 10,000 banks (down from 15,300 in 1980)
total value of bank equity in acquisitions:
- 4.5 b / yr on average
- 15 b / yr since 1991 on average
- 25.5 b / yr in 1995
Quadrupling of their pretax earnings from 20b to 80b between 91 and 95

Chase-Chemical:

Merger issues

Will create the largest US bank, 4th largest globally
- combined total assets of 297.3b
"Larger banks have a distinct competitive advantage in attracting new business" - shipley
- esp. to underwrite loan provide funds for financing new investments / acquisitions for corporate clients
Potential for revenue growth
Credit rating (currently A, possibly increased to AA-)
Merger effects
- Revenue enhancement (20m in second year, 120m every year thereafter)
- Cost savings (600m in first year, 1.05 in second year)
Will let 12,000 employees go, 2/3 of this from attrition through retirees
- Is this going to cause morale problems?
Will customer service suffer if efficiency falls below 55%?
Stock option plans must be integrated

What should the exchange ratio premium be?
- What are the values of the two firms (to determine common stock exchange ratio)
Is it possible to achieve proposed cost savings w/o damaging banks long-term competitiveness or the ability to keep up with the rapid pace of change in the financial services industry?
Will the stock market give the bank full credit for the value created by the merger?

NOTE: All decision criteria should affect your alternative choice. Mr. White: Criteria are so important