1. Bank Merger

2. Merger Objectives Acquiring banks' desire to increase its return –by expanding geographically. –by acquiring new technology. –by achieving scale economies. –by eliminating competition.

3. Stewart’s Motivating Forces Motivating forces behind mergers Increase financial performance (net operating profits) Financial benefits through borrowing (seller’s unused debt capacity or against an increase in seller’s and buyer’s consolidated debt capacity and lending capacity for banks) Tax benefits derived from use of acquired assets and use of forfeited tax deductions

4. Stewart’s Motivating Forces Merger motivator within the banking industry Increases in net operating profits Merger Motivation Customer Base Market Expansion Quality of Service

5. Cost Savings Downsizing Technological efficiencies

6. Goals of Bank Mergers –Creating economies of scales –Expanding geographically –Increasing the combined capital base (size) and product offering –Gaining market power

7. Economies of Scale Combined institution would create economies of scales. Utilising the synergies between the merging partners would create cost reducing operating efficienceis.

8. Geographic Diversification Increase the bank’s market share Decrease risk Increase long term profits

9. Consolidated Debt Capacity Bank’s merger enlarges capital base - Combined lending ability increases - Ability to offer larger loans without another bank (loan consortium partner) increases Net benefits - Increase in market share and revenue - Decrease in competition

10. Gaining Market Power Decrease total risk Increase product sales Increase overall gross revenue –Larger asset base –Better able to compete with institutions within their market

11. Larger Asset Base Make loans to companies that the individual bank could not have previously serviced due to regulatory capital base lending restrictions Offer of increased products enlarges sales and increasing gross revenue for the bank

12. Evaluating Mergers

13. Mergers – Price Earning Model  Bank 1 acquires Bank 2 ER = Exchange ratio (Number of shares of Bank 1 given per share of Bank 2) EPS = E / S PE = (S x P) / E or P / EPS EPS (Earnings per Share); PE (Price Earnings Multiple) P = Price per Share E = Earnings S = Number of Shares

14. Mergers – PE Model  Bank 1 acquires Bank 2

15. Mergers – PE Model S.NoESEPSPEP Bank 140020021020 Bank 240010022080

16. Mergers – PE Model  Bank 2 also has to benefit from the merger New value  Old value

17. Mergers – PE Model S.NoESEPSPEP Bank 140020021020 Bank 240010022080

18. Mergers – PE Model

22. Merger – Cash Model

24. Merger – Share Model