It is essential to evolve one’s business; in order to do such a thing; you must make acquisitions that benefit the company. This is the case for BMO financial group, which, on Tuesday January 13th, purchased American International Group for $375 million cash. This purchase is undoubtedly going to help BMO expand financially, and will assist in it being one of the top four largest banks in Canada. According to John Aiken, an analyst at Dundee Securities, this deal was a steal for BMO, as they bought it for less than 1.1 times AIG’s book value, which actually had an average industry valuation of 1.3 times.
http://www.financialpost.com/news-sectors/trading-desk/financials/story.html?id=1171778
By, purchasing AIG, BMO has insured itself more potential of earning revenue in the future. This will give them more diverse selling activities and collections of revenues from customers, now with a $375 million entity in their hands. For the former AIG shareholders, however, this was the complete opposite. Although they had acquired sufficient revenue, it had to be sold, in order to pay off a $60 billion loan from the US government. Because BMO now has two very different sources of income, they may need to have two separate earnings management meanings, so as to run the operation section of the business more accurately.
Although the cost of AIG was quite high, especially when we think of the economy the way it is today, I believe this is a wise decision by the BMO financial group. $375 million is a lot of money, but it the cost of AIG may have been much higher, if not for their $60 billion loan from the US government. This will give BMO a wider range of customers, and more sources for revenue. Even with quite a bit of money already used for the purchase of AIG, with the right selling activities, like proper promotions, much higher revenues will be produced.
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I think BMO’s idea is great. On one hand BMO has more cash inflow. It means has more revenues that they are able to pay a loan from US governments. Without this plan, BMO might be got a risky on their finance. On other hand BMO can attracts more costumers. In order, BMO would earn more revenues. So, BMO can increase their revenues by providing different services for costumers. I do agreee to Raymond. In a long term, BMO will have more revenues than their expenses on the plan of AIG
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