Synergies and challenges in the proposed CIBC-Barclays merger

CIBC-Barclays Case Study

The potential synergies obtainable through the merger of Canadian Imperial Bank of Commerce (CIBC) and Barclays include the customer service, Information Technologies (it), financial management, and locational coverage advantages each bring to both the western Caribbean and global markets. The potential merger is at a cross-road as the options of either of the two divesting regional operations, choosing to operate autonomously from one another and see if there are evolving economies of scale, or complete the merger quickly and merge together. The biggest challenge in the proposed merger is going to be bringing CIBC's innate ability to serve customers from a process standpoint into the much more advanced it-based processes and systems of CIBC. It can also be inferred from the case that the CIBC culture is moving more aggressively towards automating customer service functions, as they are viewed as a potential source of significant value in attracting new customers and keeping existing ones. From this wide variation in how each company's culture has adapted to it as a source or catalyst of competitive advantage Barclays must stop and consider the implications of this merger on their culture and CIBC needs to consider the challenges of integrating a company that has not yet evolved to the level of performance from both a process and it standpoint that is critical to excel in an increasingly competitive market.

SWOT Analysis

Strengths

CIBC is well capitalized and has successfully participated in an oligopoly through the years of the case study (1995-2001).

Barclays is considered a technological innovator with support for the BRAINS system Interlink connection for the ATM network, Gateways for MasterCard and VISA networks, BusinessMaster online access, and BarclayCall which provides access to information and customer service for retail customers located in the Bahamas and Barbados. Taken together these services significantly differentiate Barclays from its competitors.

Both businesses are well capitalized with CIBC having assets worth $4.6B and Barclays having $5.2B. The merger would create an organization with nearly $10B in total assets.

As the western Caribbean region has increasingly become concentrated into an oligopoly, the merger of both banks will create significant competitive advantage in the region and also globally.

Weaknesses

There is going to be significant fear on the part of CIBC employees about being fired as a result of the merger, as its clear that Barclays has a significantly greater level of efficiency and performance. There could be a major loss of talented personnel unless management works to create a change management program that attempts to keep key personnel in place.

There is no roadmap or overlaying of processes to show how CIBC can be made more effective through integration to the Barclay's systems. Major process and system integration will be required to make the two companies' systems, processes, and ultimately cultures compatible with one another.

CIBC has limited resources and expertise in sustaining their centralization initiatives, and as a result has struggled to close marginally performing branches.

Threats

The most major threat is that another group of dominant competitors chooses to merge, further throwing pressure into the oligopolistic market forces that are tending to incite price wars over time.

More globally entrenched competitor's band together to create a transaction hub for managing transactions, seeking to gain efficiencies and economies of scale in the process. This tends to make CIBC even more obsolete and forces Barclays to continually focus on automating service, not redefining processes to make them competitive.

Return on Equity (ROE) can significantly be increased through the merger, which at CIBC, is quite low today.

Recommendation

It is highly recommended that CIBC and Barclays' merge in the western Caribbean CUBC has the customer-centric culture yet lacks the formalized it infrastructure to be more competitive from an efficiency standpoint, and Barclays has proven business process management (BPM) and business process reengineering (BPR) expertise and a core competency in the use of it to accomplish both process-centric and line-of-business objectives. The merger should continue on as CIBC can bring a cultural strength to customer service and Barclays can bring the process management and it strength necessary to make the catalyst of the two companies successfully work together. As is evidenced by the net profit margin (%) drop shown in Appendix I, the need for clearly CIBC to gain much needed expertise in the area of process management appears in the financial analysis completed.

Appendix I

Canadian Imperial Bank of Commerce Financial Ratio Analysis

Profitability Ratios 10/31/2001 10/31/2000 10/31/1999 10/31/1998 10/31/1997 10/31/1996 10/31/1995 10/31/1994 10/31/1993 Return on Equity (%) 14.17-18.12 9.31 9.48-15.14-15.63-11.69-10.55 9.18 EBITDA of Revenue (%) 105.46-131.12-131.1 143.56-160.41-166.69-162.56-161.8 159.59 Pre-Tax Margin 8.58-11.95 6.89 7.76-14.91-15.4-12.6-13.08-31.47 Net Profit Margin (%) 7.89 8.91 5.11 5.33 9.19 9.18 7.7-7.94-26.41 Effective Tax Rate (%) 0.23 1.47 0.84 1.21 3-3.32 2.57 2.62 2.87 Liquidity Indicators Quick Ratio 0.06 0.06 0.08 0.07 0.06 0.06 0.12 0.08 0.07 Current Ratio 0.06 0.06 0.08 0.07 0.06 0.07 0.13 0.09 0.08 Working Capital/Total Assets -0.64 -0.63 -0.59 -0.53 -0.55 -0.6 -0.64 -0.71 -0.74 Debt Management Current Liabilities/Equity 16.33-15.8-14.47-14.36-13.55-14.81-15.16-13.88-14.16 Total Debt to Equity 0.34 0.39 0.41 0.42 0.48 0.45 0.42 0.41 0.38 Long-Term Debt to Assets 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Asset Management Revenues/Total Assets 0.07 0.09 0.08 0.07 0.07 0.07 0.07 0.07 0.06 Revenues/Working Capital -0.12 -0.14 -0.14 -0.13 -0.13 -0.12 -0.11 -0.11 -0.09