Mergers, acquisitions and evaluation of investment banks

Abstract

Bank mergers can be defined as an activity of proprietary integration of two or more banks (of approximately the same size) in order to create a new bank. Acquisition can be defined as an activity where one bank acquires another bank (or several banks), and continues its operations under its own name. Every merger and acquisition is accompanied by synergistic effect, and can be friendly and hostile. Measures for preventing mergers and acquisitions of banks include: (1) “poison pills”, (2) change in capitalization, (3) “golden parachute”, (4) changes in bank statutes, (5) “greenmail”, (6) “white knight”, (7) capital structure changes, etc. The processes of merger and acquisition comprise three stages: (1) strategic preparation stage, (2) negotiations and research stage, and (3) finalization and integration stage. Bank evaluation refers to the assessment of a banking franchise, which includes a larger number of individual features of a bank. Bank evaluation implies familiarization with the model of “free cash flow” (i.e. flow of monetary assets of the bank’s shareholders.

Keywords

• merger
• acquisition
• bank evaluation
• “golden parachute”
• “greenmail”
• merger
• “poison pill”
• strategic preparation
• “white knight”