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Applying Strategic Management Principles to the AIG/American General merger

[Name of the writer]

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         AIG bought American General Corp. for $23 billion and, thus, created the largest U.S. insurer by far. AIG is a leading international insurance and financial services organization and the largest underwriter of commercial and industrial insurance in the United States. American General is one of the nation’s largest diversified financial services organizations, providing retirement services, investments, life insurance, and consumer loans to more than 12 million customers.

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Strategic Management Principles

         The terms acquisition and merger are sometimes used interchangeably, but carry different connotations.

ACQUISITION:  XYZ Ltd buys and operates ZYX Ltd. Both brands and trademarks continue to work. Companies usually buy other businesses as part of an expansion program.

MERGER:  XYZ Ltd and ZYX Ltd merge. New identity: Complete Footwear, with a new brand and trademark.

         A business can have various reasons for acquiring or merging with another: Diversifying products, Saving on overheads, Cutting purchasing costs, Competitive advantage, Obtaining talented management, Gaining technological expertise and expanding the market.

         Strategic Management is about business and competition. The staff requires an understanding of competition and competitive strategies and they all have to be practically challenged by parallel businesses examples.

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         The reaction of the employees, or more importantly, their views about the merger have to be carefully evaluated in the first few weeks, because if they are not feeling comfortable with the current situation (especially the employees of American General) then counseling and special care has to be given to them in order to make them feel at home and even if few of them had to be laid off, their sense of security should be guaranteed by the end of the day for a productive and healthy corporate environment. This merger has been labeled one of the biggest in its kind, which certainly comes with a few pressures on the management staff as well as the workers in the arena. Those pressures should be channeled positively and in the near future, more and more staff meetings should be called to discuss and clear out any misconceptions the employees are holding against the newly formed union.

Case analysis

         AIG/American General merger may be only the first step in further consolidations and takeovers in the U.S. life and annuity sector. Many companies are smaller than American General, and even the largest may be attractive targets for European insurers, lured by the prospects of an expanding market as the U.S.

         Merging is only the first step for AIG/American General as complexities such as layoffs and management issues concerning both the companies are bound to arise very soon. For the senior managers, this is the key area to focus, as human resource is the most affected department in any acquisition or merger. As soon as the evaluation stage has begun, the managers have to keep in mind that the pre-merger data does not hold all accurate. People management is to be mobilized and put to test with all the employees of both the companies.

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         Immediately after AIG closed on its acquisition of American General, AIG's Maurice "Hank" Greenberg told reporters that AIG is set to announce lay-offs after Labor Day. " "There will definitely be layoffs. That, unfortunately, is inevitable," he said. The Delaware office may face the first cuts, Greenberg said, although he said he couldn't provide details. Delaware is where AIG's federal savings bank is based. Last week, the New York Banking Department ruled on AIG's appeal of the NYBD's (New York Bankers Department) previous decision to release information concerning American General's sub prime lending for which AIG had requested confidential treatment. The NYBD's August 27 letter informs AIG that much of the withheld information will be released "fifteen days after the date of this letter." But AIG's purpose as accomplished: to keep the information redacted until the acquisition was completed. (Innercity website)

         This acquisition represents an excellent strategic fit that creates new opportunities for both organizations, benefiting our customers and shareholders. American General joins the leading U.S.-based international insurance and financial services organization, and the largest underwriter of commercial insurance in the United States. AIG is also the leading international life and general insurance organization, and the addition of American General will significantly expand AIG’s domestic life business.

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         Strategic Management is an integration of many of the sub-disciplines that are part of business strategies. Developing an understanding of when and how to apply concepts and techniques applied in accounting, finance, management, and marketing segments and bridge the gap between theory and practice. The emphasis is put on combining analytical, integrative, and decision-making skills to plan and implement a strategic course of action for an enterprise. An analytical framework is developed which permits identification of central issues in a comprehensive case and formulation of alternative, well-supported recommendations for future action.

         Many aspects have to be looked into carefully, by the senior managers, such as business process consulting, operational strategies, strategic counseling and planning and management consulting. The merger is a challenge for both the companies and the outcome of it will only be determined by the efficient use of these strategies in a narrow span of time.

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         An ignored factor in all this is the prime one for the success of this merger. The customers. It is of vital importance that the customers, especially the ones with major shares, or even otherwise should be explicitly taken into confidence by either mass-mailing or private encounters that their interest is the held in the highest concern.


           Innercity website: (September 4,2001), URL: http://www.innercitypress.org/crreport.html, URL verified on 1st December 2001.


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