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An author who has written a book on the dark side of mergers tells you why Citigroup’s sick present is not a result of the massive merger... So why’s it sick?
Robert F. Bruner,
Dean and Charles C. Abbott Professor of Business Administration
Darden Graduate School of Business and author of the best-seller Deals From Hell
The perception of most critics is that Citigroup is too large to be managed, that all of its stumbles in recent years reflect a firm that is out of control. Therefore, if I may, I would direct your attention to perhaps the most significant deal – the merger of Travelers Insurance and Citicorp in 1998 that formed Citigroup and which accounted for its large size. Thus, the chief question is whether this original deal is the source of the firm’s troubles today. Does this argument make sense? I doubt it. I have written a book on major failures in M&A, called Deals from Hell. Many factors add up to consign a deal to hell, but one must be able to associate the adverse outcome with the deal as opposed to other things that intruded in the life of the firm.
1. Destruction of value: The stock price of Citigroup rose handsomely in the three years following the deal. Then the price was hammered in the recession of 2001-2002, after which it rose again. The sharpest value destruction occurred in the past 12 months – but is this associated with the merger? I don’t think so.
2. Loss of talent: I have less data here, but the loss of senior execs (John Reed, Jamie Dimon) usually occurs after mergers. I heard they left after disagreements with Sanford Weill, not because of disillusionment with the trajectory of the firm. The bigger issue is, what happened to the cadre of innovators and talented emerging managers 2-4 layers below?
3. Loss of strategic position; destruction of brand value; legal and ethical lapses. You can make the case for all of these... but again, it is a stretch to tie such developments to the merger in 1998. The big question is whether the merger rendered Citigroup too big to manage. There is a populist critique of M&A that labels big deals as necessarily bad. But size isn’t the issue: the investing public should focus on efficiency rather than size.
Other enterprises are equally complex but seem to do well, or at least, avoid the type of crash Citigroup experienced in recent months – I refer to General Electric, United Technologies, Berkshire Hathaway, ExxonMobil, BHP Billiton and others. I am persuaded that some very serious industry dynamics are influencing the price of Citigroup common, but it is hard to say that executives of Citi and Travelers should have foreseen these 10 years ago.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).
Read these article :-
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An author who has written a book on the dark side of mergers tells you why Citigroup’s sick present is not a result of the massive merger... So why’s it sick?
Robert F. Bruner,Dean and Charles C. Abbott Professor of Business Administration
Darden Graduate School of Business and author of the best-seller Deals From Hell
The perception of most critics is that Citigroup is too large to be managed, that all of its stumbles in recent years reflect a firm that is out of control. Therefore, if I may, I would direct your attention to perhaps the most significant deal – the merger of Travelers Insurance and Citicorp in 1998 that formed Citigroup and which accounted for its large size. Thus, the chief question is whether this original deal is the source of the firm’s troubles today. Does this argument make sense? I doubt it. I have written a book on major failures in M&A, called Deals from Hell. Many factors add up to consign a deal to hell, but one must be able to associate the adverse outcome with the deal as opposed to other things that intruded in the life of the firm.
1. Destruction of value: The stock price of Citigroup rose handsomely in the three years following the deal. Then the price was hammered in the recession of 2001-2002, after which it rose again. The sharpest value destruction occurred in the past 12 months – but is this associated with the merger? I don’t think so.
2. Loss of talent: I have less data here, but the loss of senior execs (John Reed, Jamie Dimon) usually occurs after mergers. I heard they left after disagreements with Sanford Weill, not because of disillusionment with the trajectory of the firm. The bigger issue is, what happened to the cadre of innovators and talented emerging managers 2-4 layers below?
3. Loss of strategic position; destruction of brand value; legal and ethical lapses. You can make the case for all of these... but again, it is a stretch to tie such developments to the merger in 1998. The big question is whether the merger rendered Citigroup too big to manage. There is a populist critique of M&A that labels big deals as necessarily bad. But size isn’t the issue: the investing public should focus on efficiency rather than size.
Other enterprises are equally complex but seem to do well, or at least, avoid the type of crash Citigroup experienced in recent months – I refer to General Electric, United Technologies, Berkshire Hathaway, ExxonMobil, BHP Billiton and others. I am persuaded that some very serious industry dynamics are influencing the price of Citigroup common, but it is hard to say that executives of Citi and Travelers should have foreseen these 10 years ago.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).
Read these article :-
B-schooled in India, Placed Abroad (Print Version)
IIPM in Financial times (Print Version)
IIPM makes business education truly global (Print Version)
The Indian Institute of Planning and Management (IIPM)
IIPM Campus
ZEE BUSINESS BEST B SCHOOL SURVEY
For More IIPM Info, Visit below mentioned IIPM articles.
1500-plus IIPM students placed across the country with 44 bagging international offers
IIPM set to beat economic slowdown
IIPM, GURGAON
IIPM - Admission Procedure
IIPM awards four Bengali novelists
The Hindu : Education Plus : Honour for IIPM
IIPM ranked No.1 B-School in India, Management News - By ...
IIPM Ranked No1 B-School in India
Moneycontrol >> News >> Press- News >> IIPM ranked No1 B-School in ...
» IIPM ranked No1 B-School in India :: Education, Careers ...
The Hindu Business Line : IIPM placements hit a high of over 2000 jobs
Deccan Herald - IIPM ranked as top B-School in India
India eNews - IIPM Ranked No1 B-School in India
IIPM Delhi - Indian Institute of Planning and Management New Delhi ...
domain-b.com : IIPM ranked ahead of IIMs
IIPM makes business education truly global-Education-The Times of ...
