- June 27, 2020
Assignment 4 Merger, Acquisition, and International Strategies
Assignment4: Merger, Acquisition, and International Strategies
Assignment4: Merger, Acquisition, and International Strategies
Mergersand acquisitions (M&A) refer to the process of consolidatingcompanies or assets of companies(Mulherin, 2012).Mergers ideally refer to the overall activities that will end up intransferring the ownership of different companies or combining thedifferent companies (Mulherin,2012).Even though different types of transactions occur and are groupedunder the mergers and acquisitions, merger on its own imply combiningtwo companies to come up with a new company while acquisition refersto the buying of another company by the other (Mulherin,2012).M&A is an art of strategic management that makes the companies bevery competitive in the market. The companies get a notch above therest and can grow or even change the type of their operations. In asfar as the structuring is concerned, there is a small differencebetween the mergers and acquisitions. In a merger, two or moredifferent companies and firms combine their operating units to comeup with a whole thing. In regards to the acquisitions, a largercompany proceeds to purchase a smaller company. The larger companythat purchases, the smaller company buys the assets, stocks, and evenequity interests (Mulherin,2012).From both the two processes, the results achieved are assets andliabilities of the two companies being merged and put under oneentity. Industry is open to mergers and acquisitions. The M&A canalso happen within or without an industry and between the companiesthat are in different countries. This paper while discussing themergers, acquisitions, and international strategies will examine thecase of two companies, AIG and Kansas City Life. The two companiesboth operate in the insurance industry, and the paper will examinetheir differing outlook in regards to mergers and acquisitions.
Establishedin 1919, American International Group (AIG) is an insurance companywith operations in 130 countries and commands a customer base of 88million individuals(Greenberg & Cunningham, 2013).AIG has three distinct branches that mainly focus on life insurance,commercial and property insurance, and mortgage guaranty. Founded inShanghai, China, then known as the American Asiatic Underwriters(AAU), it would rapidly grow fast and expand into other countriesincluding Indonesia, Malaysia, and Philippines. The company firstopened its branch in the US in 1926 as American InternationalUnderwriters Corporation (AIU)(Greenberg & Cunningham, 2013).
Thefirst instance of acquisition for the company would happen in 1952.AUI acquired Globe & Rutgers Fire Insurance Company(Greenberg & Cunningham, 2013).The main reason and objective for the acquisition were to have AUIexpand and increase its presence in the American Insurance market. In1969, AUI went public with the intention of getting more capital toexpand their operations. In the 1990s, AIU would then acquire theInternational Lease Finance Corporation (ILFC) as a way of increasingthe revenue. ILFC mainly dealt in leasing aircraft to differentairlines. AIG also acquired the retirement savings company, SunAmerica Inc., in 1999 and the main reason was to increase itspresence in the market. Sun America is known for sale of annuitiesand AIG for life insurance(Greenberg & Cunningham, 2013).These two would be perfect complements. In early years of 21stcentury, AIG also acquired the American General Corporation, one ofthe best insurance companies in the provision of life insurance andannuities in the United States. This acquisition assisted the companyto have a boost in its product range and increase its presence amongthe consumers of its products and the eligible consumers as well.
Tohave the expansion in industry, AIG acquired the 21st CenturyInsurance. This acquisition ensured that the company largely focuseson the untapped internet insurance company. 21st Century had itsfocus mainly on the provision of the auto insurance over the internet(Greenberg & Cunningham, 2013).
Theacquisitions done by AIG helped to bolder its position in the marketas a leading provider of insurance in the United States and globally.Even though the company acquired other firms and expanded, severalfinancial difficulties arose for the company. One of the difficultiesis that there were accounting irregularities that came up. Theirregularities could easily be linked to accounting mistakes. Thescandal that emerged from the irregularities affirmed thatacquisitions had ended up reducing the finances of the companywithout having almost similar income streams(Greenberg & Cunningham, 2013).This would be evident when the company started experiencing liquidityproblems. Even though the acquisitions done by AIG had financialchallenges, it is worth noting that they were the best strategiesthat the company could make at the time. The acquisitions enabled AIGto expand and increase its presence in the market and at the sametime to withstand the strong competition that exists in the market.
KansasCity Life Insurance Company
Foundedin 1895, Kansas City Life Insurance Company is a public insurancecompany with approximately 1,400 agents(Kansas City Life Insurance, n.d).With its headquarters in Kansas City, the company operates in 48 USstates and the District of Columbia. Some of the products that thecompany offers include Variable life, variable annuities, mutualfunds and several other investment options provided through itssubsidiary Sunset Financial Services.
Lately,Kansas City Life Insurance has not been performing well in themarket, and there is a need for it to merge with StanCorp FinancialGroup, Inc. The later company provides both insurance and financialservices. Operating in Portland, Oregon, the company boasts ofrevenue more than $2 billion annually(KansasCity Life Insurance, n.d).The merger will be best suited for these two companies, as theproducts of the company will be merged.
Themerger will be beneficial to the two companies. First, the mergerwill likely result in an increase for financial assistance that willbe given to the public exchanges. Also, through the mergers, thereare high chances that health care innovation will increase hencekeeping the costs as much affordable as possible and this happens dueto a reduction in the costs of operations. Also, when the twocompanies merge, there will be an effort to create innovative andtechnology driven products. The two companies will also be in aposition to increase the range of products and services that offercome up with extra options for the consumers.
Themerger between the Kansas City Life Insurance and StanCorp FinancialGroup will help in reducing the unnecessary costs and ensure thatthere are value-based payment agreements that will concentrate onoffering quality care and best practices for the clinical procedures.The mergers will also boost diversification as the two companies willseek to share on their strengths and points of weaknesses will beaddressed.
InternationalBusiness-Level Strategy and International Corporate Level Strategyfor AIG
Thecompany operates in diverse geographical regions, and its presence isfelt in more than 130 countries. The company has divided itsoperations into different segments which include Domestic, Far East,and other Foreign operations. Having the segmentation ensures thatthe business is clear.
AIGhas the performance-based career advancement policy. Employees wouldjoin the company and then leave after several years. This happensbecause the employees advance in positions and serve in differentchallenging capacities(Hill, Jones & Schilling, 2014).Thecompany ensured that there is an informal and open environment in itsoperations. Having this kind of environment ensures that theemployees are very comfortable and give their best. As a way ofensuring that there are understanding and teamwork, the chiefexecutive officer would meet with the employees at every level (Hill,Jones & Schilling, 2014).The meetings would be instrumental in ensuring that the developmentof the company is at pace.
Thecompany boasts of an organizational culture that is dynamic,innovative, result-oriented, and full of opportunities. The companyas a way of reducing the rate of employee turnover resorted tomotivating them. The motivation entailed salary and comprehensivebasic benefits package.
AIGis also known to apply the transnational strategy where it seeks toget a middle ground between the strategy it applies domestically andthat which it applies at the global level. Perhaps, the companygetting half of its profits from the domestic market and the otherhalf from the foreign markets can explain the transnational strategy(Hill,Jones & Schilling, 2014).AIG has been on the front of trying to balance the desire forefficiency with the need to adjust the local preferences within thedifferent countries. The products that AIG offers is same across themarkets and the brands are maintained.
Eventhough the AIG has been very good in its strategy, there is a needfor the company to consider the progressive evaluation of itsstrategies as nothing would stay the same. The strategy that isapplicable today may not be the best tomorrow. The market is dynamic.
Recommendationsfor Kansas City Life Insurance
ForKansas City Life Insurance to remain relevant and competitive in themarket, they have to ensure that there is proper coordination ofdifferent unit activities. The different products and services thatthey offer need to be coordinated. The unit activities need to bedivided by department and the individual job positions. By gettingthe employees to understand and talk about the same issues in thecompany, the firm will easily accomplish its goals.
Aspart of the business level strategy, the firm needs to use theavailable human resources that exist in the company. The labor withinthe company should be comprehensive enough to ensure that theoperations of the company are optimal. The firm has to ensure that ithas the right type of human labor for its operations (Hill,Jones & Schilling, 2014).The process will include analysis to establish whether the skilledand unskilled labor matches the business needs and functions.
Aspart of its strategy, the firm should come up with distinctiveadvantages. Having a product or service that differentiates KansasCity Life Insurance from the rest will be a selling point. The corecompetencies and the competitive advantages will give the clients orprospective customers a reason to use the service (Hill,Jones & Schilling, 2014).Some of the advantages that this insurance firm needs to considerinclude having cost-effective supply chain, producing unique goods orservices and being highly efficient in operations.
Greenberg,M. R., & Cunningham, L. A. (2013). TheAIG story.John Wiley & Sons.
Hill,C. W., Jones, G. R., & Schilling, M. A. (2014). Strategicmanagement: theory: an integrated approach.Cengage Learning.
KansasCity Life Insurance. (n.d). Kansas City Life. Retrieved fromhttps://www.kclife.com/ [Accessed 28/11/2016].
Mulherin,J. H. (2012). Mergersand Acquisitions.Edward Elgar Publishing.