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COMM 300: Chase Manhattan Corporation

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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:

  • Chemical banking corporation
    • CEO: walter shipley
    • Value:
  • Chase manhattan
    • CEO: Thomas Labrecque
    • Size/value

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

Priorities

  • 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?

Alternatives

  • Do nothing
  • Merge with chase manhattan
  • Merge with another bank

Decision Criteria

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

  • Which alternative leads to the highest increase in Vf to shareholders
  • Is the alternative feasible?

Analysis

Decision

Implementation

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This page was last modified on 8 February 2006, at 16:53.
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