In this case, study Ken Lewis the CEO of Bank of America was faced with the challenge of convincing the board of management of the Bank of America about the acquisition of Merrill Lynch & Company. The back of America had greatly developed through such acquisitions in the past. The bank had started as a small financial bank called the North Carolina National Bank. Subsequent acquisitions such as the acquisition of the San Francisco Bank among others transformed this financial institution into the current Bank of America. Therefore, the planned acquisition of the Merrill Lynch & Company was not new to the strategic development plan of the Bank of America.
However, the main challenge in this specific acquisition was that there were speculations that this great economic institution was about to fall into bankruptcy in the midst of the global financial meltdown. Therefore, Lewis had two challenges in this case. The first challenge was to convince the board that the amount to be paid for this acquisition was viable in the face of the economic status of Merrill Lynch & Company. Secondly, he had to convince the board that the very Acquisition would economic value to the American Bank.
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Problem Statement
The main problem, in this case, was that Bank of America had already entered into an acquisition agreement with Merrill Lynch & Company that had been brokered by the US treasury. However, the revelation of the financial crisis of the company came after the two companies had signed an agreement of modalities and financial cost of the acquisition. Whereas Bank of America had the option of pulling out of the Agreement, such a decision would come with great financial consequences for the company. Secondly, proceeding with this acquisition had two consequences. First, the acquisition would mean that Bank of America acquires all the debts and liabilities of Merrill Lynch & Com. Secondly; such an acquisition was bound to introduce organizational culture conflicts in terms of salaries and remunerations (Elmuti, Kathawala, 2001). While settling Merrill Lynch & Company debts would be a short-term financial problem of this acquisition, the long-term problem would be reconciling the organizational cultures of the two financial institutions and create a harmonious organization. Moreover, bringing back the Merrill Lynch & Company segment of the merger business to profitability will prove to be a long-term challenge for this business.
The decision facing the manager is whether continue with the acquisition agreement and acquire Merrill Lynch & Company. This decision needed to be made in light of the possible challenges that this acquisition would pose to the Bank of America business as well as the financial benefits that this acquisition will add to the overall business of Bank of America.
Causes of the Problem
This problem arises from the latest development in the financial position of Merrill Lynch & Company. Prior to this development, the Bank of America had assumed that Merrill Lynch & Company was in a good financial position and was not facing the threats of bankrupts. Nonetheless, the cost-benefit analysis of this acquisition is a great starting position in evaluating the problem. Despite the negative effects that this acquisition poses to the business of Bank of America, several advantages are likely to accrue to this acquisition. First, this merger presented an opportunity for Bank of America to expand its capacity by incorporating great financial advisers to the business. Furthermore, this acquisition would enable the bank to spread its risks in the business and hence turn the bank into a most stable financial institution. It is this dilemma in the comparison of the benefits and the challenges that that is the cause of the problem in this case study.
Decision Criteria and Alternative Solutions
Lewis would be faced with two possible solutions. The first solution would be to disregard the acquisition completely. The second possible solution would be to go ahead and recommend acquisition of Merrill Lynch & Company. These two decisions would be evaluated based on the cost of each decision and the possible benefits of these possible decisions (Geringer, Hebert, 2010).
The decision to withdraw from the major agreement would lead the Bank to incur financial cost related to such withdrawal. Secondly, such a decision would deny the bank the opportunity to expand and acquire expertise and clients from Merrill Lynch & Company. However, the major advantage of this decision would be to avoid acquiring the liabilities that come with this decision (Burdon, Chelliah & Bhalla, 2009).
The decision to continue with the acquisition would have the disadvantage of acquiring all the liabilities of Merrill Lynch & Company. However, this acquisition would provide a great platform for the growth of the company in terms of asset base, customers, and technical ability.
Recommended Solution, Implementation, and Justification
Based on the criteria discussed above, continuing with the merger would be the most recommended decision to take. This is because the benefits of this acquisition far outweigh the disadvantages. While the Bank of America may have to take responsibility for all the liabilities of Merrill Lynch & Company, the long-term gains from this acquisition would be able to counteract the cost of the acquisition. In the end, Bank of America is likely to gain tremendously and be more profitable. The long-term profitability far outweighs the short-term costs.
References
Burdon S., Chelliah J., Bhalla A. (2009). Structuring enduring strategic alliances: the case of Shell Australia and Transfield Services, Journal of Business Strategy , 30(4), 42-51.
Geringer J.M., Hebert L. (2010). Control and Performance of International Joint Ventures, Journal of International Business Studies, 20(2), 235-254
Elmuti D., Kathawala Y. (2001). An overview of strategic alliances, Management Decision 39/3 205-217, MCB University Press
