Develop learners ability to evaluate and write a given case

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Reference no: EM132267972

ASSIGNMENT

PURPOSE

The purpose of this assignment is to develop learners' ability to evaluate and write a given case study using the concepts learnt in strategic management.

REQUIREMENT

Read the articles below and answer the questions at the end of each article.

ARTICLE ONE:

CIMB eyes Jupiter Securities to facilitate JV with Chinese brokerage

PETALING JAYA: CIMB Group Holdings Bhd is looking at acquiring Jupiter Securities Sdn Bhd from Olympia Industries Bhd for more than RM50mil as part of a larger corporate exercise to facilitate its joint venture (JV) with China Galaxy Securities Co Ltd.

Sources said that CIMB was looking at acquiring Jupiter Securities mainly to get an additional license for its stock broking business that would eventually merge with China Galaxy Securities as part of a wider exercise to expand its reach and reduce cost.

At the moment, CIMB already has a stock broking license under its investment bank (IB). However, sources said it required another license for the JV company that it is setting up with China Galaxy Securities to operate in Malaysia.

"CIMB would like to park all its stock broking business in the region in the JV with China Galaxy Securities. To do this, it would need a license to operate in Malaysia through that JV. "CIMB IB's license is for itself only," a source said. Jupiter Securities is a smallish broking firm that is loss-making and is presently a subsidiary of Main Market-listed small-cap numbers forecast operator company Olympia.

While gaming is Olympia's mainstay business, it also has other business divisions including property and financial services through Jupiter Securities. In the financial year ended Dec 31 2016 (FY16), Jupiter Securities posted a narrowed loss to RM1.39mil from RM2.5mil in FY15.

For FY16, Jupiter Securities raked in RM6.99mil in revenue, which was lower than the RM7.57mil revenue reported in FY15. The financial performance of Jupiter Securities is affected by market share and trading volume, the company said. For an acquisition price tag of RM50mil, Jupiter Securities is priced at 7.14 times sales for FY16, while its asset size is still unknown at this time. The stock broking business is generally a tough business to operate in and players usually lose money.

CIMB's cost of running the business is estimated at RM600mil to RM700mil, noted RHB Research in an earlier report. And these costs are expected to be lowered following the JV with China Galaxy Securities that is expected to be completed by the first half of this year. China Galaxy Securities is one of the biggest Chinese securities companies and is listed on the Hong Kong Stock Exchange with more than eight million customers that conduct its business mostly online.

Its economies of scale and reach pave the way for it to sustain its business in the ultra-competitive world of broking. The JV is on a 50:50 basis between both the companies. The stock broking industry in Malaysia is quite fragmented and this acquisition will be the first for this year, but in recent times, other similar acquisitions have taken place.

Last year, KAF Investment Bank Bhd successfully privatised KAF-Seagroatt & Campbell Bhd for RM248.64mil or RM2.70 a share with the purchase of the remainder of the 76.74% stake. The mandatory general offer came after KAF Investment entered into an agreement to buy a 76.74% stake in KAF-Seagroatt from Akka Sdn Bhd, Akka Holdings Sdn Bhd, Datuk Khatijah Ahmad and Thariq Usman Ahmad. The KAF privatisation was first announced in 2015.

A similar consolidation was seen in the IB space then in 2013 when Hwang-DBS (M) Bhd (HDBS) sold its IB business to Affin Holdings Bhd for RM1.36bil. HDBS also sold its 51% stake in its equity research unit to Alliance Financial Group Bhd for RM393,945 cash. Other standalone smallish stock broking companies that are in the market with a licence to operate in the local IB space include SJ Securities Sdn Bhd, Mercury Securities Sdn Bhd, TA Securities Holdings Bhd and M&A Securities Sdn Bhd.

a. Identify the main problem in the case.

b. What strategy is CIMB thinking of using? Include excerpts from the case.

c. Do you think that the strategy in (b) is justified? Why or why not? (Include excerpts from the case and justification based on strategic management concepts covered in your module).

Reference no: EM132267972

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