Merrill Lynch & Franklin Resources Inc. Acquisition
Overview of Merrill Lynch
Merrill Lynch & Co., Inc. is a holding company that provides securities brokerage, financing, investment, insurance, banking and advisory services, and related products in thirty seven countries throughout the world. It has 53,400 employees and 14,600 financial advisors that serve clients with assets of over $1.3 trillion (Gray, Cusatis and Woolridge, 2004). Merrill Lynch is comprised of three business segments: the Global Markets and Investment Banking (GMI), Private Banking and Merrill Lynch Investment Managers (MLIM). GMI provides investment banking and financing services to corporate and institutional clients and governments in t he United States and throughout the world. GMI activities include: underwriting, merger and acquisition advisory services, investment banking, trading and corporate lending services.
The Private Client Group provides services and products related to the management of wealth, including broker/dealer activities, banking, retirement planning, insurance and trust services, and mortgage lending. Brokerage activities are provided by two subsidiaries: Merrill Lynch, Pierce, Fenner and Smith; and Merrill Lynch International. Insurance activities consist of underwriting and marketing life insurance and annuity products written by Merrill Lynch Life Insurance Company and ML Life Insurance Company of NY. MLIM manufactures and offers tax-exempt and taxable fixed-income mutual funds, and equity and balanced funds. The organization has become a significant financial services company with its many mergers and acquisitions. Throughout the seventies and early eighties, Merrill Lynch began to expand and diversify its financial interests through acquisitions and joint ventures, as well as by offering new services via its existing organization. Further, the company made over 18 acquisitions between 1996 and 2001 under the leadership of David Komansky (Cameron and Green, 2004).
Overview of Franklin Resources, Inc.
Franklin Resources, Inc. is a diversified financial services company that operates providing investment management, marketing, distribution, transfer agency and other administrative services to the open-end investment companies of the Franklin Templeton Group and to the United States and international managed and institutional accounts. Also known as Franklin Templeton and Mutual Series; Bissett Fiduciary Trust; and Darby Overseas, Franklin Resources has a strong international presence, with offices in more than twenty nine countries around the world, in addition to offering services in over one hundred countries. In total, the company offers more than 200 different investment products include a broad range of domestic and global/international equity, hybrid, fixed income and money market mutual funds, as well as other investment products sold to the public under the Franklin, Templeton, Mutual Series, Bissett and Fiduciary Trust brands.
Franklin Resources has traditionally sold its services through financial advisors, but recently, the company has been pushing its web site and online access. During 2003, the company sought to reaffirm its position as a solid, prudent investor through launching its Franklin Structured Large Cap Core Equity Fund and Franklin Structured Large Cap Growth Equity Fund to offer institutional investors a new approach to enhanced index-based investing that seeks to limit risk. With more than fifty years of experience, Franklin Resources has grown to become the largest publicly-traded mutual fund concern in the world, with more than $237 billion in mutual fund assets under management (Loosvelt, 2006). Franklin Resources is also one of the top five largest mutual fund companies in the United States, a leader in bond funds and a pioneer of tax-free state bond funds. Like Merrill Lynch, it has a lengthy history of growth through acquisitions, including a key acquisition in 1992 of Templeton, Galbraith & Hansberger Ltd., the manager and operator of the highly regarded Templeton Family of Funds.
Benefits of acquisition
The experiences of both companies in all their acquisition ventures over the years and the work of those studying acquisition successes indicate that the melding of complementary rather than highly similar resources between firms involved in an acquisition increases the probability that economic value will be created. Hitt, Harrison and Ireland (2001) maintain that a key reason for this is that firms with highly similar resources also have highly similar strategic capabilities and vulnerabilities in the marketplace. Thus, a merger or acquisition that combines highly similar resources can result in a newly created firm that will encounter larger quantities of virtually the same environmental opportunities and threats that they faced as independent entities. Given this evidence, it will then be an economically rational decision (within the constraints of limited information, cognitive biases, and causal ambiguity) for both firms in the pursuit of competitive advantages and marketplace success to seek combinations of complementary instead of highly similar or even identical resources, which they will find in each other.
The acquisition, like typical contemporary acquisitions, will be quite strategic and operational in nature. The executives of both companies will be buying an installed customer base as well as new and better distribution channels and geographic markets. They will be acquiring each other’s competencies and an infusion of talent that leverage and extend strategic opportunities. They will also be consolidating business units or industries in a down cycle, to increase revenue and share price. At its best, the acquisition process itself will become an opportunity to develop the skills the two organizations will need to achieve advantage. Integration is the ultimate ‘work-out’ — a chance to eliminate work or transactions from the company’s business processes. It can be the catalyst for refining those processes so that they work better than ever. Merrill Lynch and Franklin resources, Inc., hopefully, can execute integration successfully, in all its complexity, and in turn they will be able to do a lot of other things successfully, too.
Cameron, E. & Green, M. (2004). Making Sense of Change Management: A Complete Guide to the Models, Tools and Techniques of Organizational Change. Sterling, Virginia: Kogan Page Limited.
Gray, G., Cusatis, P. & Woolridge, J. (2004). Streetsmart Guide to Valuing a Stock. New York: McGraw-Hill.
Hitt, M., Harrison, J. & Ireland, R. (2001). Mergers and Acquisitions: A Guide to Creating Value for Stakeholder. New York: Oxford University Press.
Loosvelt, D. (2006). Vault Guide to the Top Financial Services Employers. New York: Vault, Inc.