mergers & acquisition in banking sector

8/9/2019 mergers & acquisition in banking sector

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Merger:-

A Merger may be defined as the combinationof twoor more independent business corporations

into a

single enterprise, usually involving theabsorptionof one or more firms by a dominant firm.

Mergers may be broadly classified asHorizontal,

Vertical or Conglomerate


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Acquisition:-

It is defined as an act of one enterprise of

acquiring,directly or indirectly of shares, votingrights, assets

or control over the management, of another

enterprise .


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Difference BetweenMergers & Acquisitions

Merges AcquisitionsThe case when two companiesdecide to move forward as a singlenew company instead of operatingbusiness separately.

The case when one company takes overanother and establishes itself as thenew owner of the business.

The stocks of both the companiesare surrendered, while new stocksare issued afresh.

The buyer company swallows thebusiness of the target company, whichceases to exist.

For example, Glaxo Welcome andSmithKline Beehcam ceased to existand merged to become a new company,

known as Glaxo SmithKline.

Dr. Reddy's Labs acquired Beta harmthrough an agreement amounting $597million.


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Regulatory acts for merger:- The Companies Act, 1956 The Takeovers Code, 1997

The Monopolies and Restrictive Trade Practices Act,1969

The Foreign Exchange Management Act, 1999 The Foreign Investment Promotion Board (FIPB)

The Reserve Bank ofIndia

The Income Tax Act, 1961

Mergers, amalgamations, de-mergers,acquisitions of business units or divisions, areall governed by The Companies Act for allregistered companies

Acquisition of shares in listed Indian companiesis governed by The Takeover Code, 1997.


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Motives behind M&A Economy of scale

Economy of scope

Increased revenue or market share

Cross-selling

Synergy

Taxation Vertical integration


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Types of merger

1. HORIZONTAL: Between enterprisesin the same product market and atthe same level of the production or

distribution cycle.2. VERTICAL: Between enterprisesthat operate at different levels ofthe production and distributioncycle.

3. CONGLOMERATE: Betweenenterprises operating in differentmarkets.


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Advantages of merger

Accessing new markets Maintaining growth momentum Acquiring visibility and international

brands Buying cutting edge technologyrather than importing it

Taking on global competition Improving operating margins andefficiencies

Developing new product mixes


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The Industrial Development Bank ofIndiaLimited commonly known by IDBI is oneofIndia's leading public sector banks and 4thlargest Bank in overall ratings.

TheIndustrial

Development Bank of

India (

IDBI)was established on July 1, 1964 under an Act of

Parliament.

10th largest development bank in the world interms of reach with 1228 ATMs, 720 branches

and 486 centers. Some of the institutions built by IDBI are NSE,

NSDL, SHCIL, the Credit Analysis & Research Ltd,the Exim Bank, SIDBI , the EntrepreneurshipD

evelopmentInstitute of

India.


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IDBI Bank

Type Public sector bank

Industry Banking

Financial services

Founded July 1964

Headquarters Mumbai,India

Key people Mr. R. M. Malla, CMD

Products Finance and insurance

Website www.idbibank.com


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IDBI Bank Ltd - Company Profile

SnapshotCompany Profile: IDBI Bank Ltd

Ticker: 500116

Exchanges: BOM

2010 Sales: 178,170,000,000

Major Industry: Financial

Sub Industry: Commercial Banks

Country: INDIA

Employees: 10201


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Total mergers ofIDBI

United Western Bank

Satara Swadeshi CommercialBank

Union Bank of Kolhapur

IDBI Ltd


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United Western Bank


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Saraswat Co-operative

Bank Ltd.(A Schedule Bank)


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Position of merged banks as on 31.03.2009

Name of Bank Date of Merger

TotalBusinessAdded

(Rs. Incr.) as on31.03.09

NumberofBranch

Licensesreceived

Gross NPAs on thedate of

merger(Rs. Incr.)

Gross NPAs on31.03.09

(Rs. Incr.)

Profitearnedfrom the

date of themerger(Rs. In cr.)

Maratha MandirCo. op. Bank Ltd.

20.03.06 1,104.28 12 66.54 29.79 29.48

Mandyi Co.-op.Bank Ltd.

30.03.07 1,157.24 19 40.38 17.68 38.14

Annasaheb KaraleJanata Sah. BankLtd.Murgharajendra

. Bank Ltd.

30.06.07 333.04 22 73.82 45.79 -2.04

Nasik Peoples Co-op. Bank Ltd.

21.12.07 251.35 14 56.24 41.92 6.75

South Indian Co-op. bank Ltd.

01.09.08 159.00 14 13.43 13.23 -3.11

KolhapurMaratha Co-op.

06.03.09 86.62 15 26.00 26.00 -2.42


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1. Maratha Mandir Co-op. Bank.

2. Mandyi Co-op. Bank Ltd.

3. Annashaheb Karale Janata Sahakari Bank.

4. Murgharajendra Sahakari Bank Ltd.

5. Nashik Peoples Co-op. Bank Ltd.

6. South Indian Co-op. Bank Ltd.

7. Kolhapur Maratha Co-op. Bank Ltd.


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KOLHAPUR MARATHA CO-OP. BANK

MERGED WITH SARASWAT BANK Those were merged on August 15, 2007.

It is the fifth acquisition for Saraswat Bank.

The Saraswat banks chiarman is Mr. Eknath Thakur.

Across the country there are 15 branches of KolhapurMaratha Co-op. Bank.

With the merger, the total branches of Saraswat Bankgoes to 172 and now including the Maratha bank.

Total Business added in Saraswat bank of Rs. 86.63caror.

NPA still constant from the date of merger i.e. Rs.26caror.

Saraswat co-op. bank goes on loos when it is merged

with Kolhapur Maratha Bank i.e. 2.42 crore.


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Reason of merger Kolhapur Maratha with a total business of Rs 110

crore and number of depositors of 1.31 lakhspread over 15 branches, had run into moredifferent types of difficulties.

Shareholders of the acquired bank will notreceive any shares after merger since the bank isa loss-making one. The merger is not with theintention of expansion but to protect smalldepositors.

It is also considering merging two cooperativebanks with itself. The bank has set a businesstarget of Rs 19,000 crore for the current financialyear and expects to touch Rs 25,000 crore by2010-11.


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Difficulties of Kolhapur

Mhanagar bank

The Kolhapur-based bank has reported an

accumulated loss of Rs 24 crore till dateand its gross non-performing assets stood

at 40 per cent. It has a deposit base of Rs

65 crore and advances base of Rs 45

crore.

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mergers & acquisition in banking sector