Executive Summary
As a graduate in the field of finance, there is an opportunity to work with Wells Fargo as a finance manager. The company needs to expand its business to international markets. The objective is to design Wells Fargo’s financial position and its South Indian Bank’s acquisition. Wells Fargo had bought Placer Sierra Bank, Greater Bay Bancorp, and Wachovia. The firm’s sources of idea will include professional meetings, systematic observations, and experiences. The acquirer’s opportunities are reduced entry barriers, new resources, and fresh perspectives. Resources available encompass human capital, finances, raw materials, and intellectual assets.
Industry Background
Wells Fargo’s innovative solutions are express lines, automated teller machines, credit cards, and online banking. The company became the northern California bank in the 1960s, concentrating its branch offices in the region (Reddy et al., 2019). It purchased Placer Sierra Bank and Greater Bay Bancorp, which had $ 7. 4 billion worth of assets and $ 1.5 billion cash flow (Wójcik et al., 2019). The financial corporation also bought Wachovia for about $ 15.1 billion. The merger transformed Wells Fargo into a super bank with 48 million customers (Wójcik et al., 2019). The interest of the company is to expand to international territories.
Wells Fargo is determined to create a customer base in India and unlock Asian markets. Currently, the company has $ 1.9 trillion worth of assets and approximately 13 000 ATMs and offices in 32 nations (Reddy et al., 2019). The firm provides banking, mortgage products, and both commercial and consumer finances. Wells Fargo aims at acquiring 20% of South Indian Bank located in Thrissur, Kerala (Jegadeeshwaran & Basuvaraj, 2019). The strategy will enable it to enter the Asian financial market and establish its presence in 27 states in India (Jegadeeshwaran & Basuvaraj, 2019). The source of information Wells Fargo will use to decide on the acquisition process are systematic observations, professional meetings, and past experiences. Opportunities associated with the venture are new products, lowered costs on market research, an established consumer base, and innovative experts.
Sources of Idea
Systematic Observations
Wells Fargo can focus on the target company’s visible behavior and values as sources of the information before acquiring the firm. The building block of the observation system must be based on selection rules that human observers can use. Agents can develop questions, take notes, and analyze clients’ behaviors in the enterprise Wells Fargo wants to buy (Wójcik et al., 2019). The systematic views separate observations and interpretation into cross-reference index. The data is useful in analyzing opportunities and resources for the acquisition and expected changes.
Conventional and Professional Meetings
Strategic meetings for formulating acquisition possibilities ensure the stakeholders receive full values of joint operations. Solidified notes during conferences and advanced planning are critical information sources about the acquisition (Reddy et al., 2019). Top executives usually gather departmental managers from both companies to showcase new organizational charts (Wójcik et al., 2019). The information from the conventional and professional meetings is fundamental in addressing job security linked to the acquisition.
Experiences
Wells Fargo and Co. mergers and acquisition involvements are excellent sources of the idea in the past years. The company acquired Placer Sierra Bank and Greater Bay Bancorp, which had assets worth $ 7. 4 billion in 2007 (Wójcik et al., 2019). Furthermore, Wells Fargo and Co. agreed to buy Wachovia for approximately US $ 14.8 billion (Wójcik et al., 2019). Shareholders approved the deal, and Wachovia gave Wells Fargo’s preferred stock holding 39.9% of the company’s voting power (Wójcik et al., 2019). Citigroup failed to block the merger through legal actions but seek US $ 60 billion damages (Wójcik et al., 2019). The firm claimed that Wachovia’s transaction with Wells Fargo broke their exclusivity agreement. The Placer Sierra Bank experiences, Greater Bay Bancorp, and Wachovia are vital sources of the idea for the upcoming acquisition.
Nature of Opportunity
Reduced Entry Barrier
Wells Fargo and Co. will enter new product lines and markets with a recognized brand, good reputation, and available customer base. The acquisition of South Indian Bank’s shares by 20% will enable Wells Fargo to overcome highly challenging market entry barriers (Jegadeeshwaran & Basuvaraj, 2019). It will receive the financial company from costly strategies, such as market research and new product development. South Indian Bank has 871 branches and enjoys a market presence in 27 states in India (Jegadeeshwaran et al., 2019). Therefore, Wells Fargo will take a short time building and maintaining a substantial consumer base after acquiring part of the financial institution.
New Resources and Competencies
Wells Fargo and Co. will gain novel competencies and resources from the acquired company. The benefits are revenue for rapid growth and enhanced long-term financial position. It will receive a hand on cash, checks, stocks, bonds, and foreign currency after purchasing a percentage of South Indian bank (Reddy et al., 2019). The proficiencies gained from the acquired firm will boost Wells Fargo and Co.’s strategies for capital growth. Furthermore, diversity and expansion enable the company to withstand economic decline.
Fresh Perspectives and Ideas
Acquisitions are fundamental in putting together teams of experts with renewed perspectives and determination to ensure Wells Fargo and Co. achieve its goals. The company will learn about investments that accomplish financial goals effectively in India and other Asian nations (Reddy et al., 2019). The acquired company’s experts will come with innovative ideas about the college saving plans Wells Fargo can offer. The acquirer can also receive new perspectives concerning insurance, account services, credit, and lending in Asia’s financial services sector.
Resources Available
Financial Resources
Wells Fargo and Co. has assets it can use to acquire a new company, pay salaries, and purchase raw materials. The firm had $ 1.3 trillion deposits in 2019, which increased from $ 36. 5 billion in 2018 (Wójcik et al., 2019). The amounts were from small business banking, commercial activities, mortgage escrow, and high payoffs. Wells Fargo’s equity $ 188. 0 billion in 2019, the amount reduced from $ 197.1 billion in 2018 (Wójcik et al., 2019). The decline resulted from treasury stock increase, rise in retained earnings, and dividend pays.
Human Resources
Wells Fargo and Co. has departments for recruiting workers, training employees, and promoting career development. The human resource department is well-equipped to identify and capitalize on the skills, culture, knowledge, and expertise for the acquisition success (Reddy et al., 2019). Wells Fargo has higher employees than any bank in the US, and the number of workers has been stable since 2009 (Wójcik et al., 2019). The bank is the 36th largest firm regarding workers’ numerical statistics. In 2018, the financial institution was one concerning market capitalization (Wójcik et al., 2019). Wells Fargo can use its human resource to enter the Asia market after purchasing parts of the South Indian Bank.
Material Resource
Wells Fargo and Co. have tangible assets to ensure that the acquisition process achieves its objectives and targets. The firm has the machinery, technological tools, and manufactured products to perform better after the acquisition. Wells Fargo owns assets worth $ 1.92 trillion, which are vital in making part of the South Indian Bank acquisition successful (Wójcik et al., 2019). The firm has investments and mortgages in more than 7 200 locations and offices in 31 nations (Wójcik et al., 2019). Wells Fargo equipment finance is vital for middle-market businesses and vendors in Asia (Reddy et al., 2019). Clients can use Wells Fargo equipment finance to buy heavy machinery, specialty vehicles, manufacturing vehicles, and shipping containers.
Intelligence Resource
Wells Fargo and Co. can use intangible assets to meet its acquisition objectives. Its primary intellectual resources, including patents, partnerships, customer databases, copyrights, and software (Wójcik et al., 2019). Wells Fargo’s entity resources help it realize and maintain competitive advantages in the financial service sector. In the current economy, knowledge of intangible assets drives wealth and growth (Reddy et al., 2019). Wells Fargo has technical innovations skilled employees, which can penetrate the Asian market after acquiring part of the South Indian Bank.
Wells Fargo has a dynamic dashboard for receiving data electronically in the server computing device. The data shows current or potential issues impacting the server computing device (Jegadeeshwaran & Basuvaraj, 2019). It uses the application to obtain information about businesses and customers running on the server (Wójcik et al., 2019). The company tailors the server to identify individuals accessing the dynamic dashboard. Furthermore, Wells Fargo has systems and strategies for authenticating clients based on location and connections.
Expected Changes
Capital Structure
Wells Fargo and Co. will change its capital structure regarding how it handles the acquisition. The cash-deals will reduce the company’s financial holdings. The firm will have a high debt load when it takes loans to pay the target organization (Wójcik et al., 2019). Wells Fargo and Co. will also use its stock as currency and premium-price its shares. If the acquisition is successful, the changes will build the business and achieve its top priorities (Reddy et al., 2019). Wells Fargo will have to restructure its operation approaches in consumer and commercial banking. It will reshape its investment finance, well management tactics, and customer lending to align with the acquired company’s financial businesses.
Market Reactions
The target company’s trade may be lower than Wells Fargo and Co.’s offer price. The acquirer’s shares may also reduce when it announces the purchase deal (Wójcik et al., 2019). It will occur when Wells Fargo and Co. decide to make an acquisition based on its shares and stock falls. Furthermore, the market participants may perceive that acquiring the target company is not accretive to earnings per share (Reddy et al., 2019). Investors may also feel Wells Fargo and Co. are taking a lot of loans to fund the acquisition.
Personal Changes
The acquisition will affect top leaders because Wells Fargo and Co. may decide to eliminate duplicate positions. The remaining employees will have the challenging task of handling the departed workers’ responsibilities after layoffs (Wójcik et al., 2019). The management will face moral issues, uncertainty, and obstacles linked to changes implementation. New technologies and processes may push back employees to traditional working strategies (Reddy et al., 2019). Wells Fargo and Co. may be overwhelmed with new software introduced to accommodate the acquired company.
Findings
New Clients and Revenue
The strategic acquisition will offer Wells Fargo immediate access to extra revenues and novel referral account sources. The venture also enables the purchaser to enter new geographies and markets in Asia (Reddy et al., 2019). Wells Fargo can use the acquisition in a new region, such as India, to maintain its business brand presence and reputation (Wójcik et al., 2019). Acquiring a percentage of an established business will enable Wells Fargo to gain positive cash flow.
Improving Scale Margins
The scale is the firm’s ability to increase its profitability by lowering input costs for services and products. Wells Fargo has overhead expenses, which do not vary with business growth or revenue increase (Wójcik et al., 2019). The acquisition will reduce costs linked to regional management in India and target Asian countries. Computing expenses, corporate governance, marketing, and legal function will exhibit reduced costs (Reddy et al., 2019). The scale enables Wells Fargo to leverage companywide productivities and penetrate international markets.
Recommendations
Teamwork
The purchase price determination in the acquisition process follows business development extrapolations. Wells Fargo and Co. should evaluate periods and fix the time for implementing acquisition strategies (Reddy et al., 2019). The company should determine the cost of developing staff and liabilities associated with the personnel (Wójcik et al., 2019). Wells Fargo and Co. must set a specific timeframe for recruiting managers, restructuring personnel, smoothening communication, and overcoming cultural dissimilarities.
Ordinary Business Disruption Avoidance
Wells Fargo and Co. acquisition can only remain successful when ordinary businesses run efficiently. The quality relationship between the acquirer and the purchased company’s customers should be intact (Jegadeeshwaran & Basuvaraj, 2019). Personnel and customers department must minimize disruptions and ensure workers and clients adapt to new situations and communication approaches. Proactive change management initiatives are necessary for all groups of workers that the acquisition process will affect.
References
Jegadeeshwaran, M., & Basuvaraj, M. (2019). A study in growth of capital adequacy, profitability and liquidity analysis of Indian public and private sector banks in the post financial crises period. Journal of Governance & Public Policy, 9(2), 30-104. Web.
Reddy, K., Qamar, M., & Yahanpath, N. (2019). Do mergers and acquisitions create value? Studies in Economics and Finance, 36(2), 240-264. Web.
Statista. (n.d). Net income of Wells Fargo 2009 to 2019. Web.
Shi, K. (2019). Data transformation of Wells Fargo. Web.
Wójcik, D., Pažitka, V., Knight, E., & O’Neill, P. (2019). Investment banking centres since the global financial crisis: New typology, ranking and trends. Environment and Planning A: Economy and Space, 51(3), 687-704. Web.