Mellon Financial and the Bank of New York
1. What was the strategic rationale behind the merger of Mellon and Bank of New York?
The main rationale for the merger is that it fits well with the strategies of both banks. Bank of New York and Mellon are both well-managed firms with specific strategies for growth that complement each other well. Although slightly different in their core functions, both banks are focused primarily on Asset Management and Securities Servicing; Mellon having a stronger market position in the former and BNY the latter. Each firm wants to grow the sub-segment where the other firm is strongest. In addition to the basic want for what the other has, the two banks have compiled a long list of expected cost saving synergies. Overall, they expect to save $700 million annually. Since they’re both financial service providers, these cost savings come mainly through the reduction of overlapping staff. Furthermore, the combined company will have a stronger presence along the investment value chain, giving rise to potential cost drivers through instances of vertical integration and potentially favorable transfer pricing. On the customer value side, a strengthened product line and increased complementarity will help to differentiate them in an industry where differentiation is not easy. 2. What are the impediments to the deal?
The major impediment is the price, or the stock exchange ratio. Mellon shareholders are positioned to see an increase to EPS, but would not receive a premium on share price, which has historically been seen among acquired firms. Even with an increase to EPS, shareholders will likely not respond well to not receiving a premium.
Another impediment to the deal is Mellon’s longstanding relationship with the city of Pittsburg. In addition to the history of the two entities, Mellon has played a significant role in Pittsburg’s economy, culture, and employment. Pittsburg is a large stakeholder in this deal and Mellon is determined to protect their interests. This creates
The main rationale for the merger is that it fits well with the strategies of both banks. Bank of New York and Mellon are both well-managed firms with specific strategies for growth that complement each other well. Although slightly different in their core functions, both banks are focused primarily on Asset Management and Securities Servicing; Mellon having a stronger market position in the former and BNY the latter. Each firm wants to grow the sub-segment where the other firm is strongest. In addition to the basic want for what the other has, the two banks have compiled a long list of expected cost saving synergies. Overall, they expect to save $700 million annually. Since they’re both financial service providers, these cost savings come mainly through the reduction of overlapping staff. Furthermore, the combined company will have a stronger presence along the investment value chain, giving rise to potential cost drivers through instances of vertical integration and potentially favorable transfer pricing. On the customer value side, a strengthened product line and increased complementarity will help to differentiate them in an industry where differentiation is not easy. 2. What are the impediments to the deal?
The major impediment is the price, or the stock exchange ratio. Mellon shareholders are positioned to see an increase to EPS, but would not receive a premium on share price, which has historically been seen among acquired firms. Even with an increase to EPS, shareholders will likely not respond well to not receiving a premium.
Another impediment to the deal is Mellon’s longstanding relationship with the city of Pittsburg. In addition to the history of the two entities, Mellon has played a significant role in Pittsburg’s economy, culture, and employment. Pittsburg is a large stakeholder in this deal and Mellon is determined to protect their interests. This creates