Bank Acquisition

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Southern Bank Acquisition
PROJECT BRIEF
Private & Confidential
This document is an entirely fictional work, intended solely for use in an educational context. While some of its content is
based on real-life data, such as names of countries and currencies, the authors do not guarantee the accuracy of any of
this content and do not intend to convey any opinion whatsoever about the information that may or may not appear to
be based on fact. Any similarity between the names of individuals and organisations featuring in the work and those of
real-life individuals and organisations is entirely coincidental.
Academic Advisor: Maurizio Zollo, Ph.D., Chaired Professor in Strategy and Corporate Responsibility, Bocconi University.
Winner of “The Free Press Outstanding Dissertation Award” in Business Policy and Strategy (a division of the Academy of
Management). This work, entitled: “Knowledge codification, process routinization and the creation of organizational
capabilities: post-acquisition management in the US banking industry” forms the basis for the content of this simulation.
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Northern Bank • 1
INTERNAL MEMO
TO:
FROM:
DATE:
SUBJECT:
Chris Wycliff, Integration Manager
Jon Pettinger, CEO
6th November
Southern Bank Acquisition
Following Southern Bank’s acceptance of our offer, I wanted to confirm the Board’s decision
to give you responsibility for the integration of Southern’s operations with our own over the
next few months.
As you know, we have been in talks with Southern Bank since early this year, and rumors
about some further regulatory changes merely accelerated the process. The main objective
is a consolidation of our operations, to leverage synergy opportunities from complementary
branch networks and customer bases, and strengthen our defences to the threat from
Eastern Bank, which has recently announced its merger with Western.
As we wait for regulatory and formal shareholder approval on this deal, it is essential that
we establish a clear integration plan, and build consensus on it with our colleagues at
Northern Bank, our shareholders, key Southern personnel, as well as relevant external
stakeholders. The deal is expected to be cleared in January. At that time, I have promised to
give the Board a finalized plan, as well as confirmation that the people I have identified as
stakeholders in this acquisition are in support of it.
I have great pleasure in giving you full responsibility for this mission, to be completed by
22nd December. I am sure you will be able to judge how to obtain everyone’s support; in
my view, a mixture of consultation, communication and appropriate modifications to the plan
will be key. The remainder of this document contains information on the deal, and what I
believe to be the key post-acquisition decisions that need to be taken. I have also added
some background information on the key people you will be dealing with.
A last point: Northern’s experience with recent acquisitions has taught us that building
consensus on the integration process is a pre-requisite for protecting value and growing our
revenue base.
Best of luck, and don’t hesitate to call me if you need any advice,
Jon
Northern Bank • 2
ACQUISITION OUTLINE
The following outline provides some basic information on the Southern Bank transaction.
Background:
Informal discussion of a potential merger started early this year, following an initial
approach by Northern. The first reaction of Southern management was quite cool, but it
evolved to be much more positive as nationwide M&A activity increased and rumors of a
possible combination of Western Bank and Eastern Bank emerged back in April.
The strategic logic of a possible transaction was fairly clear to both sides: it would be difficult
to compete against the scale advantages and the geographic coverage of a combined
Western and Eastern Bank (about twice as large as either Northern or Southern), should
their merger be finalized.
In addition, both Northern and Southern could clearly see opportunities for significant cost
savings and cross-selling activities from a combination of the two franchises. The main
arguments of contention were the usual ones: the governance structure of the combined
entity, the value of both franchises, the strategic approach to take in the eventual postcombination period, etc.
Negotiation Process:
Formal negotiations started at the beginning of July, and a brief due diligence exercise was
conducted in the first week of August (for Northern) and the third week of August (for
Southern). The due diligence process was based on a letter of intent signed by Northern on
29th July which included a preliminary, non-binding offer in stock. Overall attitude was
relatively friendly. The bid was uncontested, no other bank was approached or involved in
the negotiation.
Date of signature of the agreement to merge:
12th October
Price paid:
$1.18 billion in stock, based on Northern Bank’s share price at close of trading on
11th October, implying a premium paid of $80m over the Southern stock value that day.
Northern Bank • 3
INTEGRATION PLAN DECISIONS
The 9 key decisions (and options) that make up the integration plan are:
Percentage of Managers laid off
0, 5, 10… , 35%
The banks have agreed that the % of Manager layoffs will be the same at both banks.
Percentage of Employees laid off
0, 5, 10… , 35%
The banks have agreed that the % of Employee layoffs will be the same at both banks.
Human Resource Practices
RETAIN:
RATIONALIZE:
REPLACE:
Both sets of practices retained
Selected practices of both banks applied to all staff
Southern’s practices and policies replaced with Northern’s
Branch Networks
RETAIN:
All branches retained
RATIONALIZE:
Best branches retained in
each town, whether
Northern or Southern; if
equal, Northern branch is
retained
CLOSE:
All Southern branches, in
towns where there is a
Northern branch, to close
An imaginary branch network is shown here; the numbers next
to the branches indicate example performance indices.
Northern Bank • 4
Product Portfolios
RETAIN:
RATIONALIZE:
All products retained in new merged bank’s offering
For each product category, ‘best of breed’ products identified and
then offered across the combined bank’s business units
Merged bank to offer only Northern’s products
REPLACE:
Loan Approval Processes
RETAIN:
Both sets of processes retained. Southern procedures and decision
making autonomy preserved
New processes for both banks to be designed to facilitate the full
harmonization of the processes in the medium/long term
Southern’s processes replaced with Northern’s
RATIONALIZE:
REPLACE:
IT Systems
RETAIN:
RATIONALIZE:
Both systems retained and to be run as autonomous units
Southern’s system to be integrated with Northern’s, requiring new
protocols to consolidate the two infrastructures and, for example, to
translate both sets of data outputs into a format understandable by
a unified system
REPLACE:
Southern’s
system
replaced
with
Northern’s,
with
Southern’s
database reformatted to be compatible with Northern’s system
Bank Name
RETAIN:
NS BANK:
NORTHERN:
Northern and Southern keep their names, signage and branding
Both banks re-named; new signage and branding for all branches
Southern Bank and all its branches rebranded as Northern Bank
Period for Implementation of Integration Decisions
2, 3, 4 … , 9 months
Northern Bank • 5
MEMORANDA SENT TO STAKEHOLDERS
Internal Memorandum (sent by Jon Pettinger, CEO, Northern Bank, 6 November)
TO: Carla Feinberg, Luke Stanio, Hector Rice, Ivan Taylor, Sue Beckerman, Nick Liang, Tina
Yoshiro, Elaine Murphy
Southern’s Board recently accepted our friendly offer to acquire a controlling interest, with
Northern stock. We are now waiting for agreement from the regulator, as well as formal
shareholder approval, both of which we expect by the end of the year. All Northern and
Southern employees were informed last week of this provisional acceptance.
An acquisition raises some obvious and immediate concerns for everyone involved, and you
will all have received individually addressed letters confirming that you will be part of the
team of senior managers taking the organization forward.
Northern’s acquisition experience has convinced us of the need for a consultative approach
to integration planning, so I would like to take this opportunity to introduce Chris Wycliff,
our specialist Integration Manager, who will be leading the integration project over the next
few months, and also contacting you over the next few weeks in order to develop a plan that
reflects your concerns. The integration plan should be ‘set in stone’ before the end of
December; until that time, please use the opportunity of your discussions with Chris to share
your views on the various key decisions that need to be taken. I look forward to continuing
to work with you all over the coming years as part of our new, stronger bank, and thank you
in advance for your participation in this process.
External Memorandum (sent by Jon Pettinger, 6 November)
TO: Marie Calperra, American Banking Authority; Patrick Green, PeoplePower; Bill Johnson,
Sunrise Pension Fund
Southern’s Board recently accepted our friendly offer to acquire a controlling interest, with
Northern stock. We are now waiting for regulatory approval, as well as formal shareholder
approval, both of which we expect by the end of the year. All Northern and Southern
employees were informed last week of this provisional acceptance.
Northern’s acquisition experience has convinced us of the need for a consultative approach
to integration planning, so I would like to introduce Chris Wycliff, our specialist Integration
Manager, who will be leading the integration project over the next few months, and also
contacting you over the next few weeks in order to develop a plan that reflects your
concerns. Thank you in advance for your participation in this process.
Northern Bank • 6
STAKEHOLDER PROFILES: NORTHERN BANK
Jon Pettinger, Chief Executive Officer
Jon has a BA in Finance from the University of California. Jon has been with
Northern Bank for over 15 years and his past experience includes positions as CFO
and Head of Corporate Banking.
Carla Feinberg, Chief Financial Officer
Carla manages investor relationships, and was instrumental in obtaining support
for the acquisition from Southern’s shareholders. Carla tends to interpret
everything in terms of numbers; for instance, she will always look at the cost
implications of any proposal.
Luke Stanio, Head of Retail Banking
Luke’s main responsibility is the profitability of the division. He spends most of his
time at HQ in Mesa. He launched a project recently to review the effectiveness of
the loan approval process.
Hector Rice, HR Director
Hector is a skilled ‘people’ person, and has played a pro-active role in moulding
Northern’s HR practices to be, at least in his view, in line with both the bank’s and
its employees’ interests.
Ivan Taylor, IT Director
Ivan is exploring the many opportunities presented by digital technologies, but not
many projects are beyond the prototype stage, in part because the recent
operating system upgrade took much longer than expected. Ivan tends to focus on
a narrow range of issues.
STAKEHOLDER PROFILES: SOUTHERN BANK
Sue Beckerman, Chief Executive Officer
Sue and Jon studied at college together. Sue was the main contact during the
acquisition negotiations, and in fact it was Sue who suggested the idea of a merger
last year. Sue always sees the wood and the trees, and will consider both the
details of the plan and what her colleagues think of it.
Nick Liang, Head of Corporate Banking
Nick has been Head of Corporate Banking at Southern for 3 years and during this
period the division has grown by nearly 30% to become an increasingly important
unit and profit generator for Southern.
Northern Bank • 7
Tina Yoshiro, Head of Retail Banking
Tina has recently been promoted to this role, having spent most of her career in
the division; given the weight of the retail loan portfolio, Tina has considerable
power at Southern. Tina is a hands-on manager, spending most of her time in the
branches.
Elaine Murphy, HR Director
Elaine has not been in her position long, and has not had time to change much
amongst the HR practices inherited from her predecessor. Elaine was not involved
in the takeover discussions, but has already expressed a number of concerns about
the risk of layoffs amongst Southern’s personnel.
STAKEHOLDER PROFILES: EXTERNAL
Bill Johnson, Fund Director: Sunrise Pension Fund
Sunrise holds 14% of Northern shares, pre-acquisition, and is the biggest
shareholder in Northern. It has a team of internal analysts with a reputation for
interpreting accurately the impact on the share price of different strategic moves.
Bill is a hands-on investor, who won’t hesitate to push his weight around if he
feels it is necessary.
Patrick Green, CEO: PeoplePower
PeoplePower is the state’s largest online recruitment agency, and is technically
sophisticated. PeoplePower is Southern’s most important customer in terms of
revenue, and Southern has developed some customized products for them.
Patrick is likely to want to avoid any disruption to the bank’s product lines, and
has given the Northern acquisition only cautious support so far.
Marie Calperra, State Representative: American Banking Authority
Marie’s main responsibility is to enforce National Banking Laws, which define the
legal framework under which Northern and other commercial banks operate. She
has hinted at forthcoming regulatory changes that could reduce hurdles to
consolidation. Marie will probably want regular contact.

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