Someone stop me before I acquire another company
Less than a week ago the chairman of the world's largest banking company, Citigroup, Charles Prince, announced that Citigroup would now hold back on acquisitions and mergers, planning to emphasize organic growth. The idea was defuse the widespread speculation about further bank M&As after Bank of America announced its plans to acquire Fleet Bank.
But Citigroup just announced that it had just agreed to buy the consumer finance unit of Tampa-based Washington Mutual Finance. The $4 billion in assets will reportedly be added to the $104 billion in assets held by CitiFinancial, the consumer finance division of Citigroup. The value of the acquisition is $1.25 billion. By bank acquisition standards, this is a pretty small one.
None of this is too surprising. Citigroup, the financial giant, is the result of a long series of mergers, including Travelers Insurance, Shearson Lehmann, E. F. Hutton, Smith Barney, Salomon Brothers, Primerica, Commercial Credit, and scores of other institutions.
For Washington Mutual, it's a discard. As an article from Forbes magazine notes ("Citigroup Bulks Up on Consumer Financing", 11/25/2003),
Washington Mutual, known for its retail banking and mortgage lending business, is unloading the consumer lender it bought from Great Western Financial in July 1997. The unit, then known as Aristar, closed 1997 with $2.3 billion in assets. The business, however, no longer fits into Washington Mutual growth targets of larger urban and suburban markets.
The point is that, protestations to the contrary, oligopolies can help playing the gin game. Whatever the CEOs protest (such as Rupert Murdoch), they always have deals on the mind, either buying and selling. Organic growth is important too, but for many companies, it's an afterthought. Organic growth is all very well, but the real money for the executives is in M&As.
