Global Investor Publishing (GIP)’s financial problems are industry related. Two primary industry events lead to the 1998 Russian financial crisis: (1.) the onset of the Asian financial crisis in 1997 precipitated a speculative attack on the Russian ruble resulting in a loss of approximately $6 billion in foreign exchange reserves by the Central Bank of Russia for defending the ruble, and (2.) a decrease in demand for Russia’s largest exports, crude oil and nonferrous metals, triggered price drops that severely impacted foreign exchange reserves. On August 13, 1998, the Russia stock market, bond, and currency markets collapsed from investor fear of a government debt default and/or devaluation of the ruble. As a result, the Russian government was forced to default on its domestic sovereign debt, devalue the ruble, and suspend payments by commercial banks to foreign creditors for 90-days.
Based on the timing of the Russian financial crisis, GIP’s 1998 net loss of -104.3% from the prior year (- $6,177 in 1998 vs. $144,710 in 1997), and the firm’s desperation to protect its market share from further decline, merging with Emerging Markets Fund Research (EMFR) makes sense. The merger would provide the combined firms with economies of scale, growth opportunities, diversification, increase revenues, expansion into new markets, defensive measures for protecting its market share, and management efficiencies. For a merger to successfully deliver an improvement in economies of scale, the expected cost savings must be properly identified and fully implemented. Any failure to properly forecast the benefits will diminish the justification for the acquisition (Sullivan, 2012).
The primary issues involve synergies, integration, and purchase price of merging a publishing firm with a data company. The risk is significantly increased the more synergies are relied upon for