Mergers and Acquisitons of Banks 3 (1)

8/20/2019 Mergers and Acquisitons of Banks 3 (1)

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INDEX

SL.NO TOPIC PG. NO

1 ACKNOWLEDGEMENT 22 INTRODUCTION. 33 OVERVIEW OF INDIAN BANKING INDUSTRY. 84 TYPES OF MERGERS. 95 DIFFERENCE BETWEEN MERGERS AND

ACQUISITION.10

6 POSSIBLE IMPACT OF MERGERS AND ACQUISITION. 117 ADVANTAGES OF MERGERS. 128 REGULATIONS OF MERGER AND ACQUISITION. 15

9CHANGE IN SCENARIO OF BANKING SECTOR.

1710 PROCEDURES OF MERGERS AND ACQUISITIONS. 1811 WHY MERGERS FAIL? 2012 FINANCIAL IMPLICATIONS OF BANKING. 21

13 REASONS FOR MERGERS AND ACQUSITIONS. 2214 PROCEDURE FOR BANK MERGER. 2215 RBI GUIDELINES ON MERGERS AND ACQUISITON OF

BANKS.23

16 INFORMATION AND DOCUMENTS TO BE FURNISHED. 2417 RECOMMENDATION OF NARISIMHAM COMMITTEE. 2518 REASON BEHIND THE RECENT TREND OF MERGER

IN BANKING.28

19 CASE STUDIES. 2920 LATEST NEWS ABOUT MERGERS AND ACQUISITON

IN BANKING.35

21 EXECUTIVE SUMMARY 3722 CONCLUSION 3823 BIBLIOGRAPHY 39


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INTRODUCTION

The companies have been coming together to from another company andcompanies taking over existing companies to expand their business.

All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers, and other forms of co-operate restructuring. Thus importantissues both for business decisions and public policy formulation have beenraised. No firm is regarded as safe from takeover possibility. On the morepositive side Merger’s and Acquisition’s may be critical for healthy expansion andgrowth of the firm. Successful entry into new product and geographical marketmay require Merger’s and Acquisition’s at some stage for the firm’s development.Successful competition in international market depends on capabilities obtainedin a timely and efficient fashion through Merger’s and Acquisition’s.

To opt for a merger or not is a complex affair, especially in terms oftechnicality involved. This project has discussed almost all factors that themanagement may have to look into before going into merger. Considerableamount of brainstorm would be required by the managements before reaching aconclusion.

WHAT IS MERGER?

"Merger is absorption of one or more companies by a single existingcompany." Before we understand, what is Merger? First, let's find out the simplemeaning of an acquiring company and acquired companies.

Acquiring company is a single existing company that purchases the majority ofequity shares of one or more companies.

Acquired companies are those companies that surrender the majority of theirequity shares to an acquiring company.

Merger is a technique of business growth. It is not treated as a businesscombination. Merger is done on a permanent basis. Generally, it is done betweentwo companies. However, it can also be done among more than two companies.During merger, an acquiring company and acquired companies come together todecide and execute a merger agreement between them.

After merger, acquiring company survives whereas acquired companies do not


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survive anymore, and they cease to exist. Merger does not result in the formationof a new company. The management of acquiring company continues to lead themerger.

Merger is also defined as amalgamation. Merger is the fusion of two or moreexisting companies.

All assets, liabilities and the stock of one company stand transferred toTransferee Company in consideration of payment in the form of:· Equity shares in the transferee company,· Debentures in the transferee company,· Cash, or· A mix of the above modes

WHAT IS ACQUISITION?

Acquisition in general sense is acquiring the ownership in the property. In thecontext of business combinations, an acquisition is the purchase by onecompany of a controlling interest in the share capital of another existingcompany.

Methods of Acquisition:

An acquisition may be affected bya) Agreement with the persons holding majority interest in the company

management like members of the board or major shareholders commandingmajority of voting power;b) Purchase of shares in open market;c) To make takeover offer to the general body of shareholders;d) Purchase of new shares by private treaty;e) Acquisition of share capital through the following forms of considerations viz.Means of cash, issuance of loan capital, or insurance of share capital.


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Takeover:

A ‘takeover’ is acquisition and both the terms are used interchangeably. Takeoverdiffers from merger in approach to business combinations i.e. the process of takeover,transaction involved in takeover, determination of share exchange or cash price and the

fulfillment of goals of combination all are different in takeovers than in mergers. Forexample, process of takeover is unilateral and the offer or company decides about themaximum price. Time taken in completion of transaction is less in takeover than inmergers, top management of the offered company being more cooperative.

De-merger or corporate splits or division:

De-merger or split or divisions of a company are the synonymous terms signifying amovement in the company.The purpose for an offer or company for acquiring another company shall be reflected inthe corporate objectives. It has to decide the specific objectives to be achieved through

acquisition. The basic purpose of merger or business combination is to achieve fastergrowth of the corporate business.Faster growth may be had through product improvement and competitive position.Other possible purposes for acquisition are short listed below: -

(1) Procurement of supplies:

1. To safeguard the source of supplies of raw materials or intermediary product;

2. To obtain economies of purchase in the form of discount, savings in transportationcosts, overhead costs in buying department, etc.

3. To share the benefits of suppliers economies by standardizing the materials.

(2) Revamping production facilities:

1. To achieve economies of scale by amalgamating production facilities through moreintensive utilization of plant and resources;

2. To standardize product specifications, improvement of quality of product, expanding

3. Market and aiming at consumers satisfaction through strengthening after saleServices;

4. To obtain improved production technology and know-how from the offered company

5. To reduce cost, improve quality and produce competitive products to retain andImprove market share.


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(3) Market expansion and strategy:

1. To eliminate competition and protect existing market;

2. To obtain a new market outlets in possession of the offered;3. To obtain new product for diversification or substitution of existing products and toenhance the product range;

4. Strengthening retain outlets and sale the goods to rationalize distribution;

5. To reduce advertising cost and improve public image of the offered company;

6. Strategic control of patents and copyrights.

(4) Financial strength:1. To improve liquidity and have direct access to cash resource;

2. To dispose of surplus and outdated assets for cash out of combined enterprise;

3. To enhance gearing capacity, borrow on better strength and the greater assetsbacking;

4. To avail tax benefits;

5. To improve EPS (Earning per Share).

(5) General gains:

1. To improve its own image and attract superior managerial talents to manage itsaffairs;

2. To offer better satisfaction to consumers or users of the product.

(6) Own developmental plans:

The purpose of acquisition is backed by the offer or company’s own developmentalplans. A company thinks in terms of acquiring the other company only when it hasarrived at its own development plan to expand its operation having examined its owninternal strength where it might not have any problem of taxation, accounting, valuation,etc. But might feel resource constraints with limitations of funds and lack of skillmanagerial personnel’s. It has to aim at suitable combination where it could haveopportunities to supplement its funds by issuance of securities; secure additionalfinancial facilities eliminate competition and strengthen its market position.


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(7) Strategic purpose:

The Acquirer Company view the merger to achieve strategic objectives throughalternative type of combinations which may be horizontal, vertical, product expansion,market extensional or other specified unrelated objectives depending upon the

corporate strategies. Thus, various types of combinations distinct with each other innature are adopted to pursue this objective like vertical or horizontal combination.

(8) Corporate friendliness:

Although it is rare but it is true that business houses exhibit degrees of cooperative spiritdespite competitiveness in providing rescues to each other from hostile takeovers andcultivate situations of collaborations sharing goodwill of each other to achieveperformance heights through business combinations. The combining corporate aim atcircular combinations by pursuing this objective.

(9) Desired level of integration: Mergers and acquisition are pursued to obtain the desired level of integration betweenthe two combining business houses. Such integration could be operational or financial.This gives birth to conglomerate combinations. The purpose and the requirements ofthe offer or company go a long way in selecting a suitable partner for merger oracquisition in business combinations.


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OVER VIEW OF INDIAN BANKING INDUSTRY

India has an extensive banking network, in both urban and rural areas. All largeIndian banks are nationalized, and all Indian financial institutions are in the public

sector. The Reserve Bank of India is the central banking institution. It is the soleauthority for issuing bank notes and the Supervisory body for banking operations inIndia6. It supervises and administers exchange control and banking regulations, andadministers the government's monetary policy. It is also responsible for grantinglicenses for new bank branches. 36 foreign banks operate in India with full bankinglicenses.

Indian Banking System

The banking system has three tiers. These are the scheduled commercial banks; theregional rural banks which operate in rural areas not covered by the scheduled banks;

and the cooperative and special purpose rural banks. Commercial banks arecategorized as scheduled and non-scheduled banks, but for the purpose of assessmentof performance of banks, the Reserve Bank of India categories them as public sectorbanks, old private sector banks, new private sector banks and foreign banks.

Scheduled and non-Scheduled BanksThere are 93 scheduled commercial banks, Indian and foreign; 196 regional ruralbanks. In Cooperative sector- nearly 2000 cooperative banks operate, which includenon-scheduled banks. In terms of business, the public sector banks, namely the StateBank of India and the nationalized banks, dominate the banking sector.Scheduled Commercial Banks (SCBs) in India are categorized in five different groups

according to their ownership and/or nature of operation. These bank groups are: (I)State Bank of India and its associates, (ii) Nationalized Banks, (iii) Regional RuralBanks, (IV) Foreign Banks and (v) Other Indian Scheduled Commercial Banks (in theprivate sector). The site provides facility of aggregating data for various Bank-groups.


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TYPES OF MERGERS

Merger or acquisition depends upon the purpose of the offeror company it wants toachieve. Based on the offerors’ objectives profile, combinations could be vertical,horizontal, circular and conglomeratic as precisely described below with reference to the

purpose in view of the offeror company.

(A) Vertical combination:

A company would like to take over another company or seek its merger with thatcompany to expand espousing backward integration to assimilate the resources ofsupply and forward integration towards market outlets. The acquiring company throughmerger of another unit attempts on reduction of inventories of raw material and finishedgoods, implements its production plans as per the objectives and economizes onworking capital investments. In other words, in vertical combinations, the mergingUndertaking would be either a supplier or a buyer using its product as intermediary

material for final production.The following main benefits accrue from the vertical combination to the acquirercompany i.e.1. It gains a strong position because of imperfect market of the intermediary products,scarcity of resources and purchased products;2. Has control over products specifications.

(B) Horizontal combination:

It is a merger of two competing firms which are at the same stage of industrial process.The acquiring firm belongs to the same industry as the target company. The mail

purpose of such mergers is to obtain economies of scale in production by eliminatingduplication of facilities and the operations and broadening the product line, reduction ininvestment in working capital, elimination in competition concentration in product,reduction in advertising costs, increase in market segments and exercise better controlon market.

(C) Circular combination:

Companies producing distinct products seek amalgamation to share commondistribution and research facilities to obtain economies by elimination of cost onduplication and promoting market enlargement. The acquiring company obtains benefits

in the form of economies of resource sharing and diversification.(D) Conglomerate combination:It is amalgamation of two companies engaged in unrelated industries like DCM andModi Industries. The basic purpose of such amalgamations remains utilization offinancial resources and enlarges debt capacity through re-organizing their financialstructure so as to service the shareholders by increased leveraging and EPS, loweringaverage cost of capital and thereby raising present worth of the outstanding shares.


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DIFFERENCE BETWEEN MERGERS ANDACQUISTION

Merger

The case when two companies (often of same

size) decide to move forward as a single new

company instead of operating business

separately.

Acquisition

The case when one company takes over

another and establishes itself as the new owner

of the business.

The stocks of both the companies are

surrendered, while new stocks are issued

afresh.

The buyer company “swallows” the business of

the target company, which ceases to exist.

For example, Glaxo Wellcome and SmithKline

Beehcam ceased to exist and merged to

become a new company, known as Glaxo

SmithKline.

Dr. Reddy's Labs acquired Beta pharm through

an agreement amounting $597 million.


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POSSIBLE IMPACT OF MERGERS ANDACQUISITIONS

Impacts on EmployeesMergers and acquisitions may have great economic impact on the employees of theorganization. In fact, mergers and acquisitions could be pretty difficult for the employeesas there could always be the possibility of layoffs after any merger or acquisition. If themerged company is pretty sufficient in terms of business capabilities, it doesn't need thesame amount of employees that it previously had to do the same amount of business.Due to the changes in the operating environment and business procedures, employeesmay also suffer from emotional and physical problems.

Impact on Management

The percentage of job loss may be higher in the management level than the generalemployees. The reason behind this is the corporate culture clash. Due to change incorporate culture of the organization, many managerial level professionals, on behalf oftheir superiors, need to implement the corporate policies that they might not agree with.It involves high level of stress.

Impact on Shareholders

Impact of mergers and acquisitions also include some economic impact on theshareholders. If it is a purchase, the shareholders of the acquired company get highlybenefited from the acquisition as the acquiring company pays a hefty amount for theacquisition. On the other hand, the shareholders of the acquiring company suffer somelosses after the acquisition due to the acquisition premium and augmented debt load.

Impact on CompetitionMergers and acquisitions have different impact as far as market competitions areconcerned. Different industry has different level of competitions after the mergers andacquisitions. For example, the competition in the financial services industry is relativelyconstant. On the other hand, change of powers can also be observed among the marketplayers.


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ADVANTAGES OF MERGERS

Mergers and takeovers are permanent form of combinations which vest inmanagement complete control and provide centralized administration which are notavailable in combinations of holding company and its partly owned subsidiary.Shareholders in the selling company gain from the merger and takeovers as thepremium offered to induce acceptance of the merger or takeover offers much moreprice than the book value of shares. Shareholders in the buying company gain in thelong run with the growth of the company not only due to synergy but also due to “bootstrapping earnings”.

Mergers and acquisitions are caused with the support of shareholders, manager’sad promoters of the combing companies. The factors, which motivate the shareholdersand managers to lend support to these combinations and the resultant consequencesthey have to bear, are briefly noted below based on the research work by variousscholars globally.

(1) From the standpoint of shareholders

Investment made by shareholders in the companies subject to merger should enhancein value. The sale of shares from one company’s shareholders to another and holdinginvestment in shares should give rise to greater values i.e. the opportunity gains inalternative investments. Shareholders may gain from merger in different ways viz. Fromthe gains and achievements of the company i.e. through(a) Realization of monopoly profits;(b) Economies of scales;(c) Diversification of product line;(d) Acquisition of human assets and other resources not available otherwise;(e) Better investment opportunity in combinations.

One or more features would generally be available in each merger where shareholdersmay have attraction and favor merger.


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(2) From the standpoint of managers

Managers are concerned with improving operations of the company, managing theaffairs of the company effectively for all round gains and growth of the company which

will provide them better deals in raising their status, perks and fringe benefits. Mergerswhere all these things are the guaranteed outcome get support from the managers. Atthe same time, where managers have fear of displacement at the hands of newmanagement in amalgamated company and also resultant depreciation from the mergerthen support from them becomes difficult.

(3) Promoter’s gains

Mergers do offer to company promoters the advantage of increasing the size of theircompany and the financial structure and strength. They can convert a closely held andprivate limited company into a public company without contributing much wealth and

without losing control.4) Benefits to general public

Impact of mergers on general public could be viewed as aspect of benefits and costs to:(a) Consumer of the product or services;(b) Workers of the companies under combination;(c) General public affected in general having not been user or consumer or the workerin the companies under merger plan.

(a) Consumers

The economic gains realized from mergers are passed on to consumers in the form oflower prices and better quality of the product which directly raise their standard of livingand quality of life. The balance of benefits in favour of consumers will depend upon thefact whether or not the mergers increase or decrease competitive economic andproductive activity which directly affects the degree of welfare of the consumers throughchanges in price level, quality of products, after sales service, etc.

(b) Workers community

The merger or acquisition of a company by a conglomerate or other acquiring companymay have the effect on both the sides of increasing the welfare in the form ofpurchasing power and other miseries of life. Two sides of the impact as discussed bythe researchers and academicians are:firstly, mergers with cash payment to shareholders provide opportunities for them toinvest this money in other companies which will generate further employment andgrowth to uplift of the economy in general.Secondly , any restrictions placed on such mergers will decrease the growth andinvestment activity with corresponding decrease in employment. Both workers and


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REGULATIONS OF MERGER AND ACQUISTIONS

Mergers and acquisitions are regulated under various laws in India. The objective ofthe laws is to make these deals transparent and protect the interest of all shareholders.

They are regulated through the provisions of:-

The Companies Act, 1956The Act lays down the legal procedures for mergers or acquisitions:-

Permission for merger: - Two or more companies can amalgamate only when theamalgamation is permitted under their memorandum of association. Also, the acquiringcompany should have the permission in its object clause to carry on the business of theacquired company. In the absence of these provisions in the memorandum ofassociation, it is necessary to seek the permission of the shareholders, board ofdirectors and the Company Law Board before affecting the merger.

Information to the stock exchange: - The acquiring and the acquired companiesshould inform the stock exchanges (where they are listed) about the merger.

Approval of board of directors: - The board of directors of the individual companiesshould approve the draft proposal for amalgamation and authorize the managements ofthe companies to further pursue the proposal.

Application in the High Court: - An application for approving the draft amalgamationproposal duly approved by the board of directors of the individual companies should bemade to the High Court.

Shareholders' and creators' meetings: - The individual companies should holdseparate meetings of their shareholders and creditors for approving the amalgamationscheme. At least, 75 percent of shareholders and creditors in separate meeting, votingin person or by proxy, must accord their approval to the scheme.

Sanction by the High Court: - After the approval of the shareholders and creditors,on the petitions of the companies, the High Court will pass an order, sanctioning theamalgamation scheme after it is satisfied that the scheme is fair and reasonable. Thedate of the court's hearing will be published in two newspapers, and also, the regionaldirector of the Company Law Board will be intimated.

Filing of the Court order: After the Court order, its certified true copies will be filedwith the Registrar of Companies.

Transfer of assets and liabilities: - The assets and liabilities of the acquiredcompany will be transferred to the acquiring company in accordance with the approvedscheme, with effect from the specified date.


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Payment by cash or securities: - As per the proposal, the acquiring company willexchange shares and debentures and/or cash for the shares and debentures of theacquired company. These securities will be listed on the stock exchange.

The Competition Act, 2002The Act regulates the various forms of business combinations through Competition.Under the Act, no person or enterprise shall enter into a combination, in the form of anacquisition, merger or amalgamation, which causes or is likely to cause an appreciableadverse effect on competition in the relevant market and such a combination shall bevoid. Enterprises intending to enter into a combination may give notice to theCommission, but this notification is voluntary. But, all combinations do not call forscrutiny unless the resulting combination exceeds the threshold limits in terms of assetsor turnover as specified by the Competition Commission of India. The Commission whileregulating a 'combination' shall consider the following factors:- Actual and potential competition through imports;Extent of entry barriers into the market;Level of combination in the market;Degree of countervailing power in the market;Possibility of the combination to significantly and substantially increase prices or

profits;Extent of effective competition likely to sustain in a market;

Availability of substitutes before and after the combination;Market share of the parties to the combination individually and as a combination;Possibility of the combination to remove the vigorous and effective competitor or

competition in the market;Nature and extent of vertical integration in the market;Nature and extent of innovation;Whether the benefits of the combinations outweigh the adverse impact of the

combination.Thus, the Competition Act does not seek to eliminate combinations and only aims toeliminate their harmful effects.


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CHANGE IN SCENARIO OF BANKING SECTOR

1. The first mega merger in the Indian banking sector that of the HDFC Bank with TimesBank, has created an entity which is the largest private sector bank in the country.

2. The merger of the city bank with Travelers Group and the merger of Bank of Americawith Nation Bank have triggered the mergers and acquisition market in the bankingsector worldwide.

3. With the help of M & A in the banking sector, the banks can achieve significantgrowth in their operations and minimize their expenses to a significant level Competitionis reduced because merger eliminates competitors from the banking industry.

4. In India mergers especially of the PSBS may be subject to technology and tradeunion related problem. The strong trade union may prove to be big obstacle for thePSBS mergers. Technology of the merging banks to should complement each otherNPA management. Management of efficiency, cost reduction, tough competition fromthe market players and strengthens of the capital base of the banks are some of theproblem which can be faced by the merge entities. Mergers for private sector banks willbe much smoother and easier as again that of PSBS.

THE BANKING SCENARIO HAS BEEN CHANGING AT FAST PLACE.

Bank traditionally just borrower and lenders, has started providing complete corporate

and retail financial services to its customers1. Technology drive has benefited the customers in terms of faster improve convenientbanking services and Varity of financial products to suit their requirement. ATM's, PhoneBanking, Net banking, anytime and anywhere banking are the services which bank havestarted offering following the changing trend in sectors. In plastic money segmentcustomer have also got a new option of debits cards against the earlier popular creditcard. Earlier customers had to conduct their banking transaction within the restrictedtime frame of banking hours. Now banking hours are extended.

2. ATM’s ,Phone banking and Net banking had enable the customer to transact as per

their convince customer can now without money at any time and from any branchacross country as certain their account transaction, order statements of their accountand give instruction using the tally banking or on online banking services.3. Bank traditionally involve working capital financing have started offering consumerloans and housing loans. Some of the banks have started offering travel loans, as wellas many banks have started capitalizing on recent capital market boom by providingIPO finance to the investors.


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PROCEDURE OF MERGERS & ACQUISITIONS

Public announcement:To make a public announcement an acquirer shall follow the following procedure:

1. Appointment of merchant banker:The acquirer shall appoint a merchant banker registered as category – I with SEBI toadvise him on the acquisition and to make a public announcement of offer on his behalf.

2. Use of media for announcement:Public announcement shall be made at least in one national English daily one Hindidaily and one regional language daily newspaper of that place where the shares of thatcompany are listed and traded.

3. Timings of announcement:Public announcement should be made within four days of finalization of negotiations orentering into any agreement or memorandum of understanding to acquire the shares orthe voting rights.

4 . Contents of announcement:Public announcement of offer is mandatory as required under the SEBI Regulations.

(1) Paid up share capital of the target company, the number of fully paid up and partiallypaid up shares.

(2) Total number and percentage of shares proposed to be acquired from public subjectto minimum as specified in the sub-regulation (1) of Regulation 21 that is:a) The public offer of minimum 20% of voting capital of the company to theshareholders;b) The public offer by a raider shall not be less than 10% but more than 51% ofshares of voting rights. Additional shares can be had @ 2% of voting rights inany year.

(3) The minimum offer price for each fully paid up or partly paid up share;

(4) Mode of payment of consideration;

(5) The identity of the acquirer and in case the acquirer is a company, the identity of thepromoters and, or the persons having control over such company and the group, ifany, to which the company belongs;

(6) The existing holding, if any, of the acquirer in the shares of the target company,including holding of persons acting in concert with him;


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(7) Salient features of the agreement, if any, such as the date, the name of the seller,the price at which the shares are being acquired, the manner of payment of theconsideration and the number and percentage of shares in respect of which theacquirer has entered into the agreement to acquire the shares or the consideration,monetary or otherwise, for the acquisition of control over the target company, as the

case may be;(8) The highest and the average paid by the acquirer or persons acting in concert withhim for acquisition, if any, of shares of the target company made by him during thetwelve month period prior to the date of the public announcement;

(9) Objects and purpose of the acquisition of the shares and the future plans of theacquirer for the target company, including disclosers whether the acquirer proposesto dispose of or otherwise encumber any assets of the target company:Provided that where the future plans are set out, the public announcement shallalso set out how the acquirers propose to implement such future plans;

(10) The ‘specified date’ as mentioned in regulation 19;

(11) The date by which individual letters of offer would be posted to each of theshareholders;

(12) The date of opening and closure of the offer and the manner in which and the dateby which the acceptance or rejection of the offer would be communicated to the shareholders;

(13) The date by which the payment of consideration would be made for the shares inrespect of which the offer has been accepted;

(14) Disclosure to the effect that firm arrangement for financial resources required toimplement the offer is already in place, including the details regarding the sources ofthe funds whether domestic i.e. from banks, financial institutions, or otherwise orforeign i.e. from Non-resident Indians or otherwise;

(15) Provision for acceptance of the offer by person who own the shares but are not theregistered holders of such shares;(16) Statutory approvals required to obtain for the purpose of acquiring the shares underthe Companies Act, 1956, the Monopolies and Restrictive Trade Practices Act, 1973,and/or any other applicable laws;

(17) Approvals of banks or financial institutions required, if any;(18) Whether the offer is subject to a minimum level of acceptances from theshareholders; and(19) Such other information as is essential for the shareholders to make an informeddesign in regard to the offer


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WHY MERGERS FAIL?

It's no secret that plenty of mergers don't work. Those who advocate mergers willargue that the merger will cut costs or boost revenues by more than enough to justifythe price premium. It can sound so simple: just combine computer systems, merge afew departments, use sheer size to force down the price of supplies and the mergedgiant should be more profitable than its parts. In theory, 1+1 = 3 sounds great, but inpractice, things can go awry. Historical trends show that roughly two thirds of bigmergers will disappoint on their own terms, which means they will lose value on thestock market. The motivations that drive mergers can be flawed and efficiencies fromeconomies of scale may prove elusive. In many cases, the problems associated withtrying to make merged companies work are all too concrete.

The Obstacles to Making it Work

Coping with a merger can make top managers spread their time too thinly andneglect their core business, spelling doom. Too often, potential difficulties seem trivial tomanagers caught up in the thrill of the big deal.

The chances for success are further hampered if the corporate cultures of thecompanies are very different. When a company is acquired, the decision is typicallybased on product or market synergies, but cultural differences are often ignored. It's amistake to assume that personnel issues are easily overcome. For example, employeesat a target company might be accustomed to easy access to top management, flexiblework schedules or even a relaxed dress code. These aspects of a working environmentmay not seem significant, but if new management removes them, the result can beresentment and shrinking productivity.

More insight into the failure of mergers is found in the highly acclaimed study fromMcKinsey, a global consultancy. The study concludes that companies often focus toointently on cutting costs following mergers, while revenues, and ultimately, profits,suffer. Merging companies can focus on integration and cost-cutting so much that theyneglect day-to-day business, thereby prompting nervous customers to flee. This loss ofrevenue momentum is one reason so many mergers fail to create value for

shareholders.


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FINANCIAL IMPLICATIONS OF BANKING M&A

These indicators include measures of financial performance: asset and liability composition capital structure liquidity risk exposure profitability financial innovation and efficiency

As dependent variable, we measure change of performance as the difference betweenthe merged banks two-year average return on equity ( ROE ) after the acquisition andthe weighted average of the ROE of the merging banks two years before theacquisition.

Table: Definition of the variables

Reno Definition formula1 Performance Change ( ∆ROE ) Return on equity (After merger)

2 Liquidity (LIQ) Liquid Asset/Total Deposit

3 Cost-income ratio (COST/INC) Total cost/Total revenue

4 Capital to asset ratio (CA/TA) Total capital/Total asset

5 Loans to total assets ratio (LOAN/TA)) Net Loans/Total asset

6 Credit Risk (BADL/INT_INC) Loan loss provision/Net interestrevenues

7 Diversity Earning (OOR/TA) Other operational revenues/Totalassets

8 Off balance sheet (OBS/TA) Off balance sheet item/Total asset

9 Loans to deposit ratio (LOANS/DEP) Customer loan to Customerdeposit


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REASONS FOR MERGERS AND ACQUISITIONS Capacity Economies of Scale Accessing technology or skills Tax reasons Growth with External Efforts Deregulation Technology New Products/Services Over Capacity Customer Base

PROCEDURE FOR BANK MERGER

The procedure for merger either voluntary or otherwise is outlined in the respectivestate statutes/ the Banking regulation Act. The Registrars, being the authorities vestedwith the responsibility of administering the Acts, will be ensuring that the due processprescribed in the Statutes has been complied with before they seek the approval of theRBI. They would also be ensuring compliance with the statutory procedures for notifyingthe amalgamation after obtaining the sanction of the RBI.

Before deciding on the merger, the authorized officials of the acquiring bank and themerging bank sit together and discuss the procedural modalities and financial terms.

After the conclusion of the discussions, a scheme is prepared incorporating therein theall the details of both the banks and the area terms and conditions.

Once the scheme is finalized; it is tabled in the meeting of Board of directors ofrespective banks. The board discusses the scheme thread bare and accords itsapproval if the proposal is found to be financially viable and beneficial in long run.

After the Board approval of the merger proposal, an extra ordinary general meeting ofthe shareholders of the respective banks is convened to discuss the proposal and seektheir approval.

After the board approval of the merger proposal, a registered valuer is appointed tovaluate both the banks. The valuer valuates the banks on the basis of its share capital,market capital, assets and liabilities, its reach and anticipated growth and sends itsreport to the respective banks.

Once the valuation is accepted by the respective banks , they send the proposalalong with all relevant documents such as Board approval, shareholders’ approval,valuation report etc. to Reserve Bank of India and other regulatory bodies such Security& exchange board of India SEBI for their approval.

After obtaining approvals from all the concerned institutions, authorized officials ofboth the banks sit together and discuss and finalize share allocation proportion by the

acquiring bank to the shareholders of the merging bank SWAP ratio


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RBI GUIDELINES ON MERGERS & ACQUISITIONS OF BANKS

- With a view to facilitating consolidation and emergence of strong entities and providingan avenue for non-disruptive exit of weak/unviable entities in the banking sector, it hasbeen decided to frame guidelines to encourage merger/amalgamation in the sector.

Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bankto formulate a scheme with regard to merger and amalgamation of banks, the StateGovernments have incorporated in their respective Acts a provision for obtaining priorsanction in writing, of RBI for an order, inter alia, for sanctioning a scheme ofamalgamation or reconstruction.

The request for merger can emanate from banks registered under the same State Actor from banks registered under the Multi State Co-operative Societies Act (Central Act)for takeover of a bank/s registered under State Act. While the State Acts specificallyprovide for merger of cooperative societies registered under them, the position withregard to take over of a co-operative bank registered under the State Act by a co-operative bank registered under the CENTRAL

Although there are no specific provisions in the State Acts or the Central Act for themerger of a co-operative society under the State Acts with that under the Central Act, itis felt that, if all concerned including administrators of the concerned Acts are agreeableto order merger/ amalgamation, RBI may consider proposals on merits leaving the

question of compliance with relevant statutes to the administrators of the Acts. In otherwords, Reserve Bank will confine its examination only to financial aspects and to theinterests of depositors as well as the stability of the financial system while consideringsuch proposals.


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INFORMATION & DOCUMENTS TO BE FURNISHEDBY THE ACQUIRER OF BANKS

1. Draft scheme of amalgamation as approved by the Board of Directors of the acquirerbank.

2. Copies of the reports of the valuers appointed for the determination of realizablevalue of assets (net of amount payable to creditors having precedence over depositors)of the acquired bank.

3. Information which is considered relevant for the consideration of the scheme ofmerger including in particular:-

A. Annual reports of each of the Banks for each of the three completed financial yearsimmediately preceding the proposed date for merger.

B. Financial results, if any, published by each of the Banks for any period subsequent tothe financial statements prepared for the financial year immediately preceding theproposed date of merger.

C. Pro-forma combined balance sheet of the acquiring bank as it will appearconsequent on the merger.

D. Computation based on such pro-forma balance sheet of the following:-1. Tier I Capital2. Tier II Capital3. Risk-weighted Assets4. Gross and Net NPA's5. Ratio of Tier I Capital to Risk-weighted Assets6. Ratio of Tier II Capital to Risk-weighted Assets7. Ratio of Total Capital to Risk-weighted Assets8. Tier I Capital to Total Assets9. Gross and Net NPA’s to Advances10. Cash Reserve Ratio11. Statutory Liquidity Ratio


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RECOMMENDATION OF NARASIMHAM COMMITTEE ON BANKINGSECTOR REFORMS

Globally, the banking and financial systems have adopted information andcommunications technology. This phenomenon has largely by passed the Indian

banking system, and the committee feels that requisite success needs to be

achieved in the following areas:-

- Banking automation

- Planning, Standardization of electronic payment systems

- Telecom infrastructure

- Data were

Merger between banks and DFL's and NBFC's need to be based on synergies andshould make a sound commercial sense. Committee also opines that merger

between strong banks / fls would make for greater economic and commercial sense

and would be a case where the whole is greater than the sum of its party and have a

‘force multiplier effect”. It also have merger should not be seen as a means of bailing

out weak banks.

A weak bank could be nurtured into healthy units. Merger could also be a solution toa after cleaning up their balances sheets it only say if these is no Voltaire response

to a takeover of such bank, a restructuring commission for such PSB, can consider

other options such as restructuring , merger and amalgamations to it not closure.


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The committee also options that while licensing new private sector banks, the initial

capital requirement need to be review. It also emphasized on a transparent

mechanism for deciding the ability of promoter to professionally manage the bank.

The committee also feels that a minimum threshold capital for old private banks also

deserved threshold capitals. The committee also opined that a promoter group

couldn't hold more that 40 percent of the equity of a bank.

The Narasimham Committee also suggested that the merger could be a solution to

‘Weak banks’ Coney after clearing up the balance sheets) with a strong public sector

bank.

Source: Narasimham Committee report on banking sector reforms.

Changes after the merger:-

While, BOM had an attractive business per employee figure of Rs.202 lakh, a

better technological edge and had a vast base in southern India when compared to

Federal bank. While all these factors sound good, a cultural integration would be a

tough task ahead for ICICI Bank.

ICICI Bank has announced a merger with 57-year-old Bank of Madure, with 263branches, out of which 82 of them are in rural areas, with most of them in southern

India. As on the day of announcement of merger) 09-12-00), Kotak Mahindra group was

holding about 12 percent stake in BOM, the Chairman BOM, Mr.K.M. Thaiagarajan,

along with his associates was holding about 26 percent stake, Spic groups has about

4.7 percent, while LIC and UTI were having marginal holdings. The merger will give

ICICI Bank a hold on South India market, which has high rate of economic

development.

The board of Director at ICICI has contemplated the following synergies emerging from

the merger:


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Financial Capability: The amalgamation will enable them to have a stronger financial

and operational structure, which is supposed to be capable of greater resource/deposit

mobilization. And ICICI will emerge a one of the largest private sector banks in the

country.

Branch network: The ICICI’s branch network would not only 264, but also increases

geographic coverage as well as convenience to its customers.

Customer base: The emerged largest customer base will enable the ICICI bank to offer

banking financial services and products and also facilitate cross-selling of products and

services of the ICICI groups.

Tech edge: The merger will enable ICICI to provide ATM's, Phone and the Internet

banking and finical services and products and also facilitate cross-selling of products

and services of the ICICI group.

Focus on Priority Sector : The enhanced branch network will enable the Bank to focus

on micro-finance activities through self-help groups, in its priority sector initiatives

through its acquired 87 rural and 88 semi-urban branches.

Source: Report submitted at EGM on January 19, 2001.

THE SWAP RATIO:

The swap ratio has been approved in the ratio of 1:2 – two shares of ICICI Bank for

every one share of Bank of Madera.

The deal with Bank of Madera is likely to dilute the current equity capital by around 12

percent. And the merger is expected to bring 20 percent gains in EPS of bank.

And also the bank’s comfortable capital Adequacy Ratio (CAR) of 19.64 percent has

declined to 17.6 percent.


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REASONS BEHIND THE RECENT TREND OFMERGER IN BANKING SECTOR

The question on top everybody’s mind is

Are banks and bankers on the road to redundancy?First consider the reasons that one does not need banks in large numbers any more

A depositor today can open a cheque account with a money market mutual fund andobtain both higher returns and greater and greater flexibility. Indian mutual funds arequeuing up to offer this facility.

After can be drawn or a telephone bill paid easily through credit cards.

Even if a bank is just a safe place to put away your savings, you need not go to it.There is always an ATM you can do business with.

If you are solvent and want to borrow money, you can do so on your credit card- withfar fewer hassles.

An ‘AAA’ corporate can directly borrow from the market through commercial papersand get better rates in the bargain. In fact the banks may indeed be left with dad creditrisk or those that cannot access the capital market. This once again makes a shift tonon-fund based the activities all the more important.


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CASE STUDIESCase study I

Agrees to amalgamate Bank of Rajasthan :

ICICI Bank has entered into an agreement with certain shareholders of Bank ofRajasthan (BoR) to amalgamate BoR, with a tentative share exchange ratio of 1:4.72(25 shares of ICICI Bank for 118 shares of BoR). The final exchange ratio will be basedon due diligence and independent valuation reports. Assuming a share swap ratio of1:4.72, the deal values BoR at Rs30.4b and will lead to ~3% equity dilution for ICICIBank.

Branch addition, stronger North India network are key positives :

The key positives for ICICI Bank will be a 23% increase in the number of branches anda stronger network in North India. Over 60% of BoR’s 463 branches are in the state of

Rajasthan and ~70% are in North India. BoR’s biggest competitors in the state ofRajasthan are SBI’s subsidiary, State Bank of Bikaner and Jaipur (~750 branches),Bank of Baroda (~350 branches) and Punjab National Bank (~310 branches).

Deal at a significant premium; Improvement in deposit franchisee will be keyvalue driver:

The implied valuation of BoR at 4.8x trailing book value appears expensive, as the book


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needs to be adjusted for the re-assessment of BoR’s NPAs by ICICI Bank. The keynear-term challenges for ICICI Bank will be assessment of BoR’s asset quality,rationalization and re-positioning of BoR’s branches, and possible regulatory issues.We will review our target price for ICICI Bank post the merger details. Maintain Buy.

Valuing BoR at Rs66m/branch

While BoR’s asset base is just 5% of ICICI Bank’s, its 463 branches will result in a~23% increase in ICICI Bank’s existing network of 2,000 branches. A share swap ratioof 1:4.72 (25 shares of ICICI Bank for 118 shares of BoR) implies a valuation of Rs66mper branch and 0.2x the deposit base for BoR. It is noteworthy that ICICI Bank hasopened 580 new branches (1.3x BoR’s branch network) since March 2009 at a cost ofRs8m-10m per branch. However, it takes almost two years for a new branch to breakeven

. Comparison of BOR and ICICIBasis BoR ICICI BANK

CASA Deposits Rs 4163crores Rs 21000crores

Business per month Rs 47crores Rs 304crores

Return on average assets 0.7% 1%

Net non-performing assets 1.05% 2.1%

Implied price per branch lower than last deal in the sector

In the last deal in the sector, HDFC Bank had valued CBoP at Rs285m per branch and0.5x the deposit base. ICICI Bank had acquired Sangli Bank at Rs3.5b, valuing SangliBank at ~Rs18m per branch. While the price that ICICI Bank is paying is in line with thevaluations of other old private sector banks, it is significantly lower than the CBoP deal.

Benefit of Merger for ICICI Bank1. The proposed amalgamation would substantially enhance ICICI Bank’s branchnetwork, already the largest among Indian private sector banks, and especiallystrengthen its presence in northern and western India.2. The rationale for the merger, according to the ICICI Bank management, is that itwould have taken the bank three years to build the kind of low-cost current account andsavings account (CASA) relationship; it gets to build upon now with the latest move.ICICI Bank has had its sights set firmly on expanding its share of CASA deposits.


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CASE STUDY 2

PRESENT STATUS OF STATE BANK OF INDIA State Bank of India is the largest state-owned banking and financial services

company in India, by almost every parameter - revenues, profits, assets, marketcapitalization, etc.

SBI has 21000 ATM’s, 26500 branches including the branches of its associate banks.

The bank has 131 overseas offices spread over 32 countries. It has branches of theparent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and environs,

Los Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo.

Financial Performance OF STATE BANK OF INDIARATIOS Mar '06 Mar '07 Mar '08 Mar '09 Mar '10Net Profit Margin 11.21 10.12 11.65 12.03 10.54Return on Net Worth (%) 15.94 14.50 13.72 15.7413.89Net Interest Income/Total Funds 3.71 3.85 3.87 3.793.82

Asset Turnover Ratio 5.10 5.44 6.32 7.20 7.26

Interest expended/Interest earned 56.32 59.35 65.23 67.28 66.66Capital Adequacy Ratio 11.88 12.34 13.47 14.25 13.39

Advances/total funds(%) 65.66 76.16 78.31 78.34 74.22Credit Deposit Ratio 62.11 73.44 77.51 74.97 75.96


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STATE BANK OF INDORE

-On August 26, 2010, State Bank of Indore was officially merged with State Bank ofIndia.

State Bank of Indore was formerly named as Bank of Indore Ltd. It was establishedunder a special charter of His Highness Maharaja Tukojirao Holker-III, the then ruler ofMalwa region.

It became a subsidiary of State Bank of India on 1 January 1960, under the StateBank of India Subsidiary Banks Act, 1959.

In the following year (1962), State Bank of Indore took over the business of The Bankof Dewas Ltd.

In 1965, State Bank of Indore took over The Dewas Senior Bank Ltd. as well.

State Bank of Indore was upgraded to class 'A' category bank in 1971.

The business turnover of the Bank crossed Rs.47000 Crore at the end of December2008.

It has emerged as the premier bank of Madhya Pradesh due to its steady progress.

The SBI with the sanction of Govt. of India entered into negotiations with State Bankof Indore for the acquisition on Oct 8, 2009.

The Board of Directors of State Bank of Indore On October 31, 2009, approved theScheme of Acquisition of State Bank of Indore (SBIN) by SBI, under Section 35 of theSBI Act, 1955.

SBI has already announced a share swap ratio of 34:100 for the merger. That means,SBI would give its 34 shares for every 100 shares of State Bank of Indore held byminority shareholders.

For this purpose, SBI would issue up to over 1.16 lakh shares of face value Rs 10each to minority shareholders of State Bank of Indore.

After the merger, the issued capital of SBI would increase from Rs 634.96 crore up toa maximum of Rs 635.08 crore.

Both the banks separately and independently appointed M/s Haribhakti & company


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(qualified chartered accountants and M/s Axis Bank ltd. (Category 1 merchant bankers)as the independent valuers.

M/s Kotak Mahindra capital company ltd.(Category 1 merchant bankers) wasappointed by both the banks independently to provide a fairness opinion to valuation of

the independent valuers. After the merger, SBI will be left with five associate banks, State Bank of Bikaner and

Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore andState Bank of Hyderabad. Among these, the State Banks of Bikaner and Jaipur, Mysoreand Travancore are listed companies.

PURPOSE OF THE MERGER

The merger would avoid competition between the two entities and lead to easier

access to funds at competitive rates, compared to what State Bank of Indore wouldhave managed for its growing balance sheet.

Acquisition of State Bank of Indore by SBI would allow economies of scale in terms offootprint, manpower and other resources.

State Bank of Indore has a large number of branches outside Madhya Pradesh andChhattisgarh and all of them would be controlled conveniently from SBI's local headoffices in various states leading to substantial cost savings.

.


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BANK MERGER TO AFFECT ON INSURANCE SECTOR

Feb 26 (IANS) Bank mergers in India are likely to impact the insurance sector as manyinsurers have select banks as their banc assurance partners. Banc assurance is thesale of life, pension and investment products through the branch network of a bank.

The recent merger announcement of HDFC Bank and Centurion Bank of Punjab Ltd isexpected to impact the business of Aviva Life Insurance Co Ltd and ICICI LombardGeneral Insurance Co Ltd.

Centurion Bank is the banc assurance partner for these two insurers.

The arrangements might be discontinued because HDFC Bank sells life and non-lifeinsurance policies of group companies HDFC Standard Life Insurance Co Ltd andHDFC General Insurance Co Ltd.

After the opening up of the insurance sector, banks have come to occupy an importantrole in insurance distribution, particularly for private life insurers.

Banks procure nearly 40 percent of the fresh business for life insurers. It is notsurprising therefore to have life insurers whose very lifeline is their banking partners.

Insurers find recruiting and training individual agents a time-consuming and costlyprocess. There are also issues like agency attrition and small-sized policies procured byagents.

For new private life insurers who want to achieve fast revenue growth, banks are the

only source of business.

Banks also find that selling life insurance products is a lucrative activity.

Normally banc assurance deals are for three years and each bank can represent onlyone insurer as a corporate agent.

Realizing their vital role, banks are now dictating the terms of the banc assurance deals.In some cases banks are demanding commission and other fees totaling nearly 70percent of the first year premium on a policy, say industry experts However, new privatelife insurers are finding it difficult to sign up a banking partner to sell their products as

early entrants have already inked distribution agreements with them.Some banks have started representing a new life insurer at regular intervals.

For instance, Aviva Life had recently inked a banc assurance deal with the Bank ofRajasthan, which has switched life insurance partners in recent times.


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Initially, the bank vended policies of Birla Sun Life Insurance Co Ltd. It changed over toLife Insurance Corp of India (LIC) before signing up with Aviva Life.

V. Srinivasan, chief financial officer of Bharti Axa Life Insurance Co Ltd, said that theone bank-one insurer concept was not right and would lead to skewed scenario.

“A bank has a wide variety of customers. No single insurer can satisfy the needs of allthe bank customers. A bank should be allowed to be a broker and sell the policies ofdifferent insurers

LATEST NEWS ABOUT MERGERS ANDACQUISITION IN BANKING SECTOR

Banking sector reforms in India are in the progress. Both Finance Ministry of India andReserve Bank of India (RBI) are actively suggesting many far reaching reforms forbanking and financial industry of India.

One of such reforms pertains to regulating mergers and acquisitions (M&A) pertaining tobanking sector. Till now the Competition Commission of India (CCI) has a say in theM&A pertaining to banking companies.

However, with the recent proposed amendments in the Banking Regulations Act, 1949,only RBI would have power to regulate M&A pertaining to banking sector. In fact, the

proposed amendments have already been approved by Cabinet of India.Ex- Finance Minister Pranab Mukherjee has also recently said that RBI would havethe final say on bank M&A. He told that banking mergers and acquisitions will not comeunder the purview of the Competition Act or the Companies Act.

Indian mergers and acquisitions in 2011 may surpass this year’s record $71 billion ofdeals, led by oil and gas, metals and mining companies, according to M&A bankersincluding Topsy Mathew of Standard Chartered.

Billionaire Sunil Mittal’s $10.7 billion acquisition of mobile-phone operators in Africa ledan almost four-fold increase in takeovers this year as deals surpassed 2007’s $69billion, according to data compiled by Bloomberg.

Companies in Asia-Pacific including India and China are expected to be the mostacquisitive buyers in 2011 as attractive valuations and domestic competition drive dealsglobally, according to Bloomberg’s M&A Global Outlook survey. Overseas firms maytarget Indian pharmaceutical and consumer firms, and local enterprises will seek naturalresources, said Bank of America, ranked No. 3.


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“Outbound deals would continue to be highly active given that international companies’valuations are still relatively depressed, and Indian companies have access to debt andequity capital,” Saurabh Agrawal, the 41-year-old head of India investment banking atCharlotte, North Carolina-based Bank of America, wrote in an e-mailed response to

questions. “Inbound and local deals will also take place.”Cross-border deals rose to a record $59.2 billion in India this year, after Mittal’s NewDelhi-Bharti Airtel in March agreed to buy the African assets of Zain for $10.7 billion.Outbound M&A accounted for 74% of that volume. The acquisition spree in India, Chinaand Brazil contrasts with a slowdown in global deals. Mergers worldwide are down 46%from 2007’s record. In the US, the world’s largest market, volumes are 51% lower, andlevels in Europe are down by 59%.

“Large Indian corporate is going through a growth phase: they think there is a lot ofopportunity, they think they have access to capital,” 35-year-old Mathew, managing

director for M&A for India, said in an interview. The London-based bank climbed 13places to No. 2 among Indian takeover advisers this year, its highest ranking. “They arecapitalizing on the positive sentiment to undertake long-term strategictransactions,” he said.

The mergers and acquisitions of banks will now come under the purview of the BankingRegulation Act. This means M&A in banking sector would no more require the approvalof the Competition Commission of India.-


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EXECUTIVE SUMMARY Merger is absorption of one or more companies by a single existing company. During merger, an acquiring company and acquired companies come together to

decide and execute a merger agreement between them. Acquisition in general sense is acquiring the ownership in the property. In the

context of business combinations, an acquisition is the purchase by onecompany of a controlling interest in the share capital of another existingcompany.

The banking system has three tiers. These are the scheduled commercial banks;the regional rural banks which operate in rural areas not covered by thescheduled banks; and the cooperative and special purpose rural banks.

Commercial banks are categorized as scheduled and non-scheduled banks, butfor the purpose of assessment of performance of banks, the Reserve Bank ofIndia categories them as public sector banks, old private sector banks, new

private sector banks and foreign banks. Types of merger:(A) Vertical combination(B) Horizontal combination(C) Circular combination(D) Conglomerate combination

Shareholders may gain from merger in different ways viz. From the gains andachievements of the company i.e. through

(a) Realization of monopoly profits; (b) Economies of scales;

(c) Diversification of product line; (d) Acquisition of human assets and other resources not available otherwise; (e) Better investment opportunity in combinations. Impact of mergers on general public could be viewed as aspect of benefits and

costs to:(a) Consumer of the product or services;(b) Workers of the companies under combination;(c) General public affected in general having not been user or consumer or theworker in the companies under merger plan.

To make a public announcement an acquirer shall follow the following procedure:1.Appointment of merchant banker2. Use of media for announcement3. Timings of announcement4 . Contents of announcement.

Every bank must follow the guidelines issued by RBI, with the approval ofRBI.


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CONCLUSION

One of the most common reasons for mergers and acquisitions is the belief that"synergies" exist, allowing the two companies to work more efficiently together than

either would separately. Such synergies may result from the firms' combined ability toexploit economies of scale, eliminate duplicated functions, share managerial expertise,and raise larger amounts of capital.

Another reason for banks to move towards merger is that they are motivated by a desirefor greater market power. The 'human factor' is a major cause of difficulty in making theintegration between two companies work successfully. If the transition is carried outwithout sensitivity towards the employees who may suffer as a result of it, and withoutawareness of the vast differences that may exist between corporate cultures, the resultis a stressed, unhappy and uncooperative workforce - and consequently a drop inproductivity. Decision to carry out a merger or acquisition should consider not only the

legal and financial implications, but also the human consequences - the effect of thedeal upon the two companies' managers and employee

Almost 60 -70% mergers and acquisitions and the reason for the failure is culturaldifferences, flawed intentions, and sometimes decisions are taken without properlyanalysis the future of the merger. Merger of BoR an old private sector bank with India's2nd largest private sector bank will definitely help both of this parties as ICICI Bank canextend it activities as it total number branches will go up by 25% and BoR will also getnew direction as it already witness the share price of BoR in BSE is almost doubledafter the announcement of the merger


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BIBLIOGRAPHY

1. www.investopedia.com

2.

www.business.mapsofindia.com

3. www.bloomberg.com

4. www.legalserviceindia.com

5. www.slideboom.com

6. www.papercamp.com

7. www.moneycontrol.com
http://www.investopedia.com/http://www.investopedia.com/http://www.business.mapsofindia.com/http://www.bloomberg.com/http://www.legalserviceindia.com/http://www.slideboom.com/http://www.slideboom.com/http://www.papercamp.com/http://www.papercamp.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.papercamp.com/http://www.slideboom.com/http://www.legalserviceindia.com/http://www.bloomberg.com/http://www.business.mapsofindia.com/http://www.investopedia.com/

Documents

Mergers and Acquisitons of Banks 3 (1)