- Assuming that the merger faces some threats and that the industry decides on self-expansion as an alternative strategy, describe the additional complexities that would arise under this new scenario of expansion via capital projects.
Expansion via capital projects is a relatively more challenging exercise than finding opportunities for mergers. Yet, this could be achieved via starting operations in new and unexplored verticals within the financial services sector. In the context of Armor Bank, if the company could consolidate itself into a financial holding company, new opportunities for growth beckon, including “banking and insurance, investment and commercial banking, mortgage banking, trusts, and annuities…even the lines between banking and commerce blur.” (Jordan, 2001) But managing a broad portfolio will bring its own share of legal, financial and managerial complexities which requires adroit handling.
- Analyze how the different forces will come together to create a convergence between the interests of stockholders and managers.
Often, the interests of shareholders and managers are the same. Both parties want a stable financial situation, a bright forecast for performance and opportunities for expansion. The conflict might occur in the area of executive remuneration, where the United States ranks quite poorly. Among all industrialized societies the disparity between top executive compensation and employees from lower ranks is most pronounced in Corporate America. But this potential conflict area could be converted into an opportunity for growth and consolidation if the top management adopts strong ethical practices and team ethics. Just to illustrate the opportunities within the banking sector, recent years has seen “growing size, concentration, and complexity. Banks now spread across vast regions of the country (or around the world), engaging in wholesale, retail, and subprime lending, Internet banking, and trust services, funded by a broad array of deposit and non-deposit liabilities. And this is just “traditional” banking.” (Walter, 2004) Hence, there is plenty to go round for everyone. Therein lay opportunities for convergence between the interests of stockholders and managers. By simply adhering to standards of team ethic, all related parties can benefit.
- Speculate about the implications for the goals of the firm as to whether to maximize the industry’s profits or to create more value for the shareholders.
One of the challenges to the management is in balancing the imperatives of incorporation, namely increasing value for stockholders, against the requirements and conditions of the broader economy. Sometimes, these twin-goals could converge, making decision making straightforward. But there are also moments when the two goals are in conflict and a balance will have to be found. Moreover, a sound balance sheet with reasonable profits is one of the criteria for enhancing share value. In other words, the goal of the Armor Bank to maximize its profits will generally help create value for shareholders.
Jordan, J. L. (2001). Effective Supervision and the Evolving Financial Services Industry.Economic Commentary (Cleveland), 1+.
Rosenzweig, B. E. (2007). Private versus Public Regulation: A Comparative Analysis of British and American Takeover Controls. Duke Journal of Comparative & International Law, 18(1), 213+.
Walter, I. (2004). Mergers and Acquisitions in Banking and Finance: What Works, What Fails, and Why. New York: Oxford University Press.