Merger, Acquisition, and International Strategies

Due to the radical evolution of the structure and function of the financial industry and the legislative reforms, the services provided by the major commercial organizations have become relatively different. In the past, approximately two decades ago, the financial section experienced a conspicuous convergence of insurance companies and banks. Today, most banks provide insurance services, and at the same time, insurance companies offer saving facilities, which in the past, were a service provided only by banks. Consequently, the product range widens, leading to a more complex financial industry. The complex financial sector is characterized by the liberalized regulation, complex financial suppliers with the more diversified economic structure, and the merger wave of corporations. The paper focuses on the banking and insurance industries in the analysis of the driving force of the convergence. The report cuts across the strategic cross-border and cross-sector mergers and acquisitions. The banking sector evolves continually, with many institutions collaborating to sustain the market relevance or diversify the area of operation and services. Citigroup Inc. that operates in at least 160 countries and the Hartford Financial Services Group, Inc. based in the United States will be the public companies under consideration. The essay will analyze how beneficial the merger and acquisition strategic process is in the financial institutions.

Citigroup Merger

Citigroup emerged from the merger of Travelers Group and Citicorp. The merger remains among the biggest corporate convergence as it has brought together two banking giants to occupy a significant space in the financial industry. According to John Reed, the chairperson of Citicorp, the idea of the merger proved appealing instantly because it allowed the two giants to consolidate their distribution channels to build a one-stop shopping for the clients (Martin, 1998). Through the merger, Travelers would have the ability to market insurance and mutual funds to Citicorp’s retail customers. On the other hand, the bank would obtain access to an expanded client base of both insurance buyers and investors. John Reed indicated that the key goal of the combination was to ensure that the middle-class customers around the world had access to the investment products such as stocks and bonds (Martin, 1998). Citicorp had established a global retail franchises in addition to its universal corporate banking business, while Travelers was an insurance and investment conglomerate with a good Barney’s brokerage operation after acquiring Salomon Brothers Inc. The merger has come out as a combination of a primarily wholesale with a mainly retail entities creating numerous cross-selling opportunities. The world emerging middle class would prefer shopping for financial products from one place instead of finding them in various places. Similarly, savers are not interested in mutual funds but they need the ability to prepare for retirement as one overall plan. Citigroup was anticipated to provide a solution to all those challenges as well as open up capacity to combine banking and insurance services.

Although much success was expected after the merger of the two financial firms, little was realized a decade later. The merger forced a repeal of the Glass-Steagall Act to remove the barrier between banking and insurance (Martin, 1998). The outcome resulted in a positive wealth effect in other institutions that had gained from the deregulation. The elimination of obstacles enabled the American financial system to compete better with foreign competitors after consolidation. To that end, the merger was a success. On the other hand, the alliance has proven to be one of the worst deals of all times. Citigroup seems to lumber from one critical crisis to another. The decision to undergo the merger may have been made in haste without considering all the perspectives. The Citicorp integration was a huge mistake to combine the two entities. Outmoded technology, bloated costs, and political infighting characterized the financial giant. People within the company disagreed with the enterprise vision of a global financial supermarket. Citigroup stocks value depreciated with over ten dollars a decade after the major and the entire business ranking fell from first position to third behind JPMorgan Chase and Bank of America. Although the idea that one company could do it all was sound, its implementation was not strategic leading to costly conflict of interest.

The Hartford Potent Merger

The Hartford became an independent entity because of the ITT Corporation’s decision to streamline its operations by releasing its subsidiaries. The new entity disposed its insurance business and sold the Japan annuities business to focus on property and casualty insurance. The company has kept off mergers and acquisition conversation, with Mr. Christopher, the organization’s CEO, clearly indicating that any acquisition that the Hartford would entertain must add to the company products lines (Gosselin, 2015). Furthermore, the potential merger company should help the Hartford capture more market shares within the United States rather than in the global front.

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A Modest acquisition is in the Hartford’s strategic plan to expanding the market share after getting stronger after the extended turnaround period. Maxum Specialty Insurance Group fits the mentioned strategic goals best, making it a profitable candidate for the company to acquire. Maxum is a non-admitted surplus and excess line insurance company that provides casualty and specialty property products. The company fundamentally focuses on mercantile business small to medium sized risks, service providers, premises exposures, commercial artisan tractors, bars and restaurants, and taverns. The insurer also offers casualty brokerage solutions, employment practices liability, directors and officers liability among several other liabilities. Such an area of operation makes the company the potent merger partner with the Hartford.

Moreover, the acquisition of the Maxum Specialty Insurance Group supports the Hartford’s strategic plan to profitability based on the investment in products, distribution capabilities, and underwriting, hence making the company a broader and greater risk player. The addition of a well-respected surplus and excess lines company will accelerate the Hartford’s efforts in building upon their market leadership position, especially in small commercials through the expansion of capabilities and products offering. Furthermore the deal will see Maxum energize its ability to increase and expand its market and products position. The acquisition of the company will take place by the end of the year 2016, and it has the potential to improve the Hartford’s underwriting appetite as well as provide the company with access to the non-admitted marketplace (Gosselin, 2015). The provision of the more general property capabilities and liability will improve the penetration of larger risk within smaller commercials. The industry sector outside the underwriting guidelines but within the small commercial’s risk appetite will expand. Similarly, the combination of the two companies will increase the customer base by offering a platform into the new E&S growing opportunities. The Hartford’s purchase of Northern Homelands Company, the holding company that has Maxum and its subsidiary, represents a strategic corporate move that will help the company improve its ability to compete with major competitors and influence its financial performance.

Citigroup Corporate and Business Level Strategies

Citigroup operates in three core segments: Citicorp, Citi Holdings, and Corporate, making it necessary to develop both corporate strategies and business level strategy. The global presence of the group means that it competes with other global and local financial service providers in the various countries. To accomplish its mission and become the most respected financial services provider, the company endeavors to deliver growth and profit to the shareholders. The company stands for pre-eminent financial standards such as engaging, intelligent, friendly, human, and, most of, all innovative (Bruner, 2004). The company business strategy focuses on both broad and narrow market segments. Citigroup follows the differentiation strategy in terms of cost and products uniqueness to establish a competitive advantage. Low-cost leadership and differentiation strategy enable the global customers with the different purchasing power to prefer the company to the competitors. Similarly, the firm employs diverse corporate strategies, including vertical and horizontal integration, concentration, and diversification. The diversification enables the firm to share capabilities, expertise, and technologies. The combination of similar operation of different businesses helps the organization capture synergy and exploits the economics of scope (Bruner, 2004). The related diversification also increases market power and develops strengths, hence increasing the competitive capabilities, and helps in maximizing brand name benefits.

Considering that Citigroup fundamental strategy revolves around customer focus, global strength, and competitive innovation, the following strategies can improve its customer base and competitiveness. The organization can strengthen the client relationship through the extensive involvement of communities. As the company enhances its online presence, the target customers should be made aware of the benefits associated with the technologies. Moreover, the market share can be increased through mergers or alliances with other companies that are compelling both financially and strategically. The transfer of major global operation to India would reduce expenses and provide better focus on the Indian customers. If these strategies are coupled with an extensive investment in innovation products in the emerging businesses such as equity, mortgage and customer finance, Citigroup will increase its ability to sustain its current core competencies. The customer base will gradually increase to exceed the current registered accounts.

Suggested Business and Corporate Level Strategy for the Hartford

Technology continues to shape and set the pace in the industries competitiveness. The majority of the world’s best companies are either technology companies or the companies that have integrated the extensive use of technology in their business. The Hartford should consider investing extensively in research and development as a business strategy. Most customers that require insurance services are rather busy and they would like to have institutions that provide all their services virtually through the internet or mobile application. The extensive investment in innovation will enable the company to develop new services that lack in the competitors’ companies; hence, they will increase the current core competencies or promote technology integration to become one of its competitive advantages. The technologies developed should focus on the customers in the specific business segments and services. The extensive investment in R&D will also help put the company go-forward strategy to the next level in the fast moving business environment. The success of the strategy will differentiate the insurer from the competitors in terms of technology implementation. In most cases, the implementation of technology lowers operation cost, increasing the chances of gaining cost leadership advantage.   

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At the corporate level, the company must embrace the benefits associated with concentration and diversification as the result of the local and international merger and acquisition. The acquisition of companies in the same industry can accelerate the much-anticipated expansion in underwriting and products capabilities. Considering that the majority of its competitors have gained an edge through merger, the firm will be better placed to keep up with the glowing competition. The acquisition also helps in the integration of new technologies and new human resource talents. The best place to start would be the completion of the purchase of the Northern Homelands Company.

Conclusion

Banking and insurance industries continue to dominate the world financial services industries as was observed in the case of Citicorp and Travelers merger. The paper focused on this industry with the analysis of Citigroup as one industry player that had gone through a major acquisition, resulting in a disruptive conflict of interest. The Hartford represented a company that had not acquired or merged with other entities but with a potential of increasing its customer number and experience through a merger. Differentiation, concentration, and diversification, especially with innovation integration, come out as key contributors to competitiveness in the field.

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