3. First Caribbean the Proposed Merger

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906N04

FIRSTCARIBBEAN: THE PROPOSED MERGER1

Professor Stephen Sapp prepared this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality.

Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. This material is not covered under authorization from CanCopy or any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.

Copyright 2005, Ivey Management ServicesVersion: (A) 2006-10-03

It was August 27, 2002, and John Midas, a new associate at Confederation Bank’s Barbados office, was sitting in his office enjoying his morning coffee. As he was getting ready to check the state of international equity markets, his manager walked into his office to give him the offering circular for CIBC West Indies Holdings Limited (CIBC WI). It had arrived the previous day, and Midas was asked to read through the entire circular and prepare a report on the proposed deal for Confederation Bank’s clients. Specifically, his manager wanted to know whether the Confederation Bank should advise its clients to accept shares in the new company, FirstCaribbean, in exchange for their shares in CIBC WI or whether they should sell their shares.

THE MERGER

Although it had been relatively well-known by investors that CIBC was negotiating with Barclays Bank PLC to merge their respective retail banking businesses in the Caribbean, investors were unclear of the status of the negotiations until the announcement was made on August 26. Investors appeared to believe that the merger was a smart strategic move for both firms. The Caribbean banking industry was undergoing structural change characterized by an increasing number of mergers and strategic alliances, which had been driven by the need for

1This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of CIBC and Barclays Bank PLC or any of its employees.

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economies of scale and scope to take advantage of the growing local market and the increased globalization in the overall financial services industry.

As a result, it was believed that it would make sense for CIBC to combine its Caribbean operations with those of Barclays Bank PLC. Both organizations had a strong presence in the region but neither was large enough to take advantage of the growing market. For CIBC, it was consistent with the bank’s overall goal to increase its involvement in the retail banking sector. For Barclays, it would help increase the efficiency of its operations in the region, a key factor it believed was necessary for any player to succeed in this market. A combination of these firms also made sense as they were both mid-size players in this market, and each felt they needed to be larger to effectively compete in the growing Caribbean market. Between the two of them, they covered most of the English-speaking countries in the Caribbean.

Other banks located in the region, as well as banks from the United States, had been increasing their marketing efforts and therefore their presence, so CIBC and Barclays felt pressure to grow. The proposed merger was one of the most effective means of increasing their customer base, regional coverage and therefore increasing their ability to sell financial products to a larger market. This merger would allow both banks to more directly compete with many of the new entrants into the...
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