Chase Manhattan Corporation Harvard Case Solution & Analysis


In this report, the synergy impact has been calculated for the Chemical banking corporation, which is considering acquiring and merging with the Chase Manhattan Corporation. This will be the biggest acquisition and merger if this will proceed. The benefits and drawbacks related to the acquisition and merger have been discussed in detailed. The level of downsizing is also discussed such that the closure of branches and the layoffs of employees. Moreover, there will beresistance shown from shareholders. The share exchange ratio has also been suggested with regard to the acquisition and merger.


Interests of the Banks’ Shareholders and Alternative Form of Restructuring

The interest of shareholders of both the banks can be better served by maximizing the wealth of the shareholders. The merger of Chemical bank and Chase bank will allow them to increase the overall wealth of the shareholders. The current approach of bigger is better is no doubt a better approach; however other approaches can be considered to the interest of shareholders with the interest of the banks. Banks can divestitures and spin-off of non-benefited business activities, there fore in this way the market can judge the banks properly and the wealth can be improved and the interest of shareholders would better be served.

Strategic Benefits of Combining Chase and Chemical

The merger of Chemical and Chase can create strategic benefits. First of all, the banks will come up with the cost savings such that the cost of extensive retail branches and more number of employees. Both the banks are the largest banks. They have a huge number of branches currently operating within the United States of America and outside the United States of America. After combining the business operations both of the banks can close some of the branches to save cost as the duplication will just create the cost not an advantage. The banks can layoff some of the employees as again the duplication of employees will just create a cost, so firing the employees will save the cost substantially.

As both of the banks are the largest banks and both have the significant product and market leadership positions, so the second strategic benefit to the Chemical-Chase would be that it will enjoy a significantly higher revenue growth.With the significant product and market leadership, they can better serve the corporate clients easily and at the same time they can invest in the technology as this is mandatory to stay in the market.

The most significant benefit that can be enjoyed is that Chemical-Chase can expend into the international market as a lot of funds will be available. Chase is in the international market now therefore,this would help it to expand further.

Should Chemical Reconsider any of its Other Prospective Merger Partners?

In the acquisition and merger process, there should always be more than one suitable strategic acquisition partner to be considered. In this acquisition and merger, there might be problems related to the reputation because of the employees’ layoffs and this is the major factor to be considered. Chemical is not under any pressure to acquire Chase immediately, as it can wait and can consider other banks as the targeted acquisition and can evaluate the benefits from others. However, recently in the banking industry the good banks have been acquired therefore,it might not give further advantage to wait and evaluate the other strategic partner.

Impact of the Merger on the Combined Wealth of Chase and Chemical

Common Stockholders

In the acquisition and merger process, companies do this for the synergistic benefits which can be quantified through the calculations and after taking many assumptions. In the case of Chemical and Chase, the working or calculation has been performed in the exhibit to see the synergy benefits in this merger. First of all, to calculate the synergy benefit the cost of equity has been calculated in the exhibit. The risk free rate has been taken from the given exhibit 5 as deposit rate of banks. The rate premium is also provided in the question and the equity beta is also given in the question. The capital asset pricing model has been then used to calculate the cost of equity.

Secondly, the synergy impact has been calculated in the exhibit. In the calculation of synergy impact, the free cash flow to equity method has been used. The net income has been taken first and then all the revenue benefits and cost savings have been added and the negatively impact on revenue has been deducted from the net impact to get the free cash flows...........

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