Question

To: Kelley M&A Analysis Team

From: Thomas Mays, Senior Vice President of The Hoosier Bank

Subject: Big Merger On Walnut Street?

Mr. Isiah Knight, President and CEO of The Hoosier Bank is very concerned about a recent change in banking regulation coming from the state of Indiana. Banks in most metro areas of Indiana have previously been protected from outside competition by a law requiring banks to only operate in their hometowns’ metro areas. That law has just been repealed and local banks are now expecting to see smaller banks in each metro area acquired by gigantic global banks. Larger banks in each metro area are expected to be safe from acquisition threats because global banks would face higher regulatory scrutiny from both the State of Indiana and the Department of Justice (DOJ).

We are considering acquiring one of the banks smaller than us in the Bloomington metropolitan area local market. Mr. Knight wants to move faster than the global banks, and stay unchallenged by the Department of Justice. He believes Kirkwood Savings Bank would make a good target. Mr. Knight will call it ‘a merger of equals’ and say the proposed merger is good for local Bloomington business. Do you foresee any legal ramifications or challenges from the DOJ with the proposed merger? Below is a deposit market share table of the 8 banks in Bloomington.

Rank:	Bank:	Deposits In The Bloomington Market:
1	The Hoosier Bank	$500,000
2	First Bank of Bloomington	$300,000
3	State Bank of Monroe County	$200,000
4	Kirkwood Savings Bank	$200,000
5	Citizens Bank of Southern Indiana	$100,000
6	Farmers and Teachers Trust	$100,000
7	National Boilermaker's Bank	$50,000
8	The Wildcat Bank	$50,000

Answer 1

Rank	Bank:	Deposits (in $)	Market share (%)
1	The Hoosier Bank	500,000	33.33%
2	First Bank of Bloomington	300,000	20.00%
3	State Bank of Monroe County	200,000	13.33%
4	Kirkwood Savings Bank	200,000	13.33%
5	Citizens Bank of Southern Indiana	100,000	6.67%
6	Farmers and Teachers Trust	100,000	6.67%
7	National Boliermaker's Bank	50,000	3.33%
8	The Wildcat Bank	50,000	3.33%
	Total	1,500,000

The above table has been computed using the amount of total deposits of $1,500,000 as base. Thus market share % of Hoosier Bank = 500,000/1,500,000 = 33.33%. The market shares of other banks have also been computed in a similar manner.

When Hoosier Bank acquires Kirkwood savings bank then their combined share = (500,000+200,000)/1,500,000 = 46.67%. Thus after the merger the new entity will have a market share which will be less than 50% of the total market.

Also the number of banks is not declining significantly after this merger and hence The Hoosier Bank will not be in a position to abuse its market control in Indiana. The only thing that The Hoosier Bank will have to prove that the merger will not violate the anti-trust laws. The State of Indiana and the Department of Justice (DOJ) will ensure that the merged banking entity will not be in a position to abuse its competitive power and that benefits of the banking consumers in Indiana will not be harmed in any way before approving the merger.