CASE STUDY 2:

MERGER AND ACQUISITION - MERGER BETWEEN CIMB AND

SOUTHERN BANK BERHAD
Questions 1
Does merger between CIMB and SBB successful? Comment
The merger between CIMB and SBB was successful as they have strong support from
the royal family of Selangor and the SBB chairman Datok Syed Yusof Syed Nasir who
chooses to quit his post to vote for CIMB proposal. The group believes it would realize a
much higher value on its investment by selling its stake to CIMB.
Besides that, the merger between these two groups has provided the bank with stronger
and enlarged balance sheet. Furthermore, it can improve the efficiency through gaining
access to cost-saving technologies or spread their fixed cost over a large base. They
also are capable of improve g operating cost by rationalization the branch network,
reducing back- office operations and common service and also achieve economies of
scale in information technology brand recognition and other fixed assets.
Furthermore, the merger between CIMB and SBB has improved their competitive
position. Its ability to leverage on its size and scale, together with its product innovation
to achieve strong organic growth and going forward.
The merger with SBB is designed to strengthen the consumer banking capabilities and
help the company to gain further scale and presence. Besides, SBB offer great fit for
CIMB bank given its strong retail franchise in namely credit cards, auto finance and subprime lending as well as business lending which complement the latters strengths in
wholesale banking.

Questions 2
What are the main success factor for merger and acquisition?
Merger is the combination of two more entities into one, through a purchase or a pooling
of interest. There are some types of merger that have its own meaning, which is
horizontal merger, vertical merger, market-extension merger, product-extension merger
and conglomeration.
An acquisition or takeover is the purchase of one business or company by another
company or other business entity. Acquisitions are divided into private and public
acquisitions, depending on whether the acquire or merging company is or is not listed
on a public stock market.
The main success factor for merger and acquisition are, first, the strategic planning. .
There must be a purpose behind the business strategy with clear and achievable
deliverables. Merger and acquisition exercises that are undertaken merely to fulfill
managements self-serving desire to build an empire or on herd instincts are doomed to
fail. even the M&A strategy exist, the underlying business objectives and the interest of
the shareholders must prevail. It is also imperative that having laid down the business
strategy the key criteria for the selection of the target be determined.
Second is due diligence, by having identified a target, intending acquirers should
conduct a thorough due diligence exercise of the target covering its financial
statements, strategies, business plans, resources and operations of the entity to ensure
that the compatibility of the target company and an assessment of any risks associated
with the deal. Besides, it is suggested that intended acquirers should also assess the
business connections of the principals and any political risks in making the acquisition
especially in cross-border acquisitions in less developed economies. Furthermore, it is
important that the due diligence exercise should also cover target company culture,
leadership

models,

organization

structure,

compensation

plans,

performance

management system and career development approaches for the proper strategic
planning to be made to deal with these issues and to assess the real integration costs.
Third is integration planning, preceding planning should be made even before the
completion of the merger with clear timelines and milestones to ensure the successful
implementation of the deal. Thus, this should take place at the senior management level
with the representatives from both entities sitting together to beat out the strategic
issues. Some of the strategic issue may be finalizing a common strategy for the new
organization, consolidating duplicative services, compensation plan or other operating
procedure and preventing the flight of key personnel.
Fourth is implementing the merger. By having this, the decision need to be made quickly
in order to speed the integration process and for the momentum to be maintained in
prevent any distraction within the workforce. Without doubt one of the areas which
deserve special mention in M&A exercises is dealing with the people issues and
aligning the employees and the leadership with the new culture. A communication
strategy needs to be developed to address the rumors and questions that arise within
the post-merger integration. The proper message needs to be communicated to those
who will be most affected by the exercise which includes the shareholders, the staff,
customers and competitors. Resistance needs to be lowered and detractors persuaded
to buy-in to the merger and this may only be achieved with open, consistent and
constant communication. The best mode of communication is to adopt a face-to-face
strategy with feedback encouraged.
Last is, the evaluation of the merger. It is important that by reviewing the performance of
the new entity can ensure that a successful integration has been completed and that the
objectives of the merger or acquisition have been achieved by both company.
From the above it can be conclude that the key to a successful M&A exercise is to have
a clear business objective and measurable targets when making a strategic plan to
merge or acquire another entity. Besides, It is also important that the plan be
accompanied by a clear and open communication strategy to address the fears of the

stakeholders who would be most directly affected by the exercise namely the
shareholders, workforce and customers. The plan must be executed with speed to
ensure that the momentum is maintained and that the business and operations of the
new entity is not disrupted and attention not distracted by rumors and uncertainties.

Question 3
Should or shouldnt CIMB and SBB merge? Explain
CIMB and SBB should merge because a lot of benefits can be gain by both of company.
The merged of CIMB group is fully utilizing its resources and back end system, hence
making cost spent on supporting system and resources up to its optimized level.
Besides, by becoming a leading market player, its enables the merged of CIMB group to
gain advantage over other banks, for examples like not having to follow smaller banks
to offer cut throat pricing to gain more market shares. Moreover, if CIMB are to be
involved in lowering their pricing to compete with smaller banks, the huge volume of
business that CIMB have on their balance sheet could give them sufficient earnings
although margins are lowered.
Besides, CIMB group has strong in treasury, corporate and investment banking
meanwhile SBB have good mass affluent retail and this will allow both company not
only bolster its consumer banking arm, but also gain significant inroads in asset
management, banking business and credit cards. Currently, CIMB group has the ability
to offer a one stop financial solution to its customer from very simple savings deposit to
sophisticated structured product, or a simple personal financing to large corporate
syndicated customized loan.
The merger of SBB with CIMB has managed to have best resources shared among the
different entities and business units, hence reducing cost needed to venture into new
infrastructure and personnel hiring to support offerings of new products to new
customers with higher banking transactions needed. The fixed assets, properties and
back end system of each unit can now be shared to support each others operation to
its optimized level, without having to incur cost needed to buy new infrastructure to
support higher volume of transactions and services rendered.

Besides, the merger of CIMB and SBB could centralized the entire SBB Treasury front
office with CIMB Group Treasury under one roof in order to allow a period of
familiarization, training, planning and strategizing in preparing for full integration.
Moreover, the company can improve economies of scale due to the centralization of
support and operational activities. Company also can eliminate the redundancies in the
overlapping areas and synergizing resources such as the transfer of knowledge and
skills.
Furthermore, CIMB offer its product and services through a unique business model
where its own certain core functions while leveraging fully on the infrastructure and
resources of the CIMB group on product roll-out, sales and origination as well as endto- end credit function. From this, the merging could harmonize and aligned fees and
charges for selected products from both organizations, in line with the roadmap of
becoming one bank. Besides, with emerging, both company can complete alignment of
recovery unit workflow and portfolio and can completed alignment of delegated
authorities.