A Dissertation Report On

Merger and Acquisition in India

Submitted to: Submitted by:

Dr. Smriti Tandon Gulam Hussnain

Exam roll no: 1401797, Enrollment No : GE - 17141786

MASTER OF BUSINESS ADMINISTRATION (2017-2019)

Department of Management Studies,

GRAPHIC ERA UNIVERSITY

DEHRADUN(UTTARAKHAND)
DECLARATION

I hereby declare that the project report entitled “Merger And Acquisition”
submitted for the Degree of Master of Business Administrtion, is my original
work and the project report has not formed the basis for the award of any
degree, diploma, associate ship, fellowship or similar to other titles. It has
not been submitted to any other other University or Institution for the award
of any degree or diploma

Gulam Hussnain

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ACKNOWLEDGEMENT

With all humility I would like to express this dissertation project has been
prepared on the basis of my learning through M.B.A(Finance) for gaining
practical experience and self development. Further, I am honored to have so
many wonderful people who helped me insistently in several ways for the
completion of this dissertation project report. The completion of my
dissertation project depends upon the co-operation, coordination and
combined efforts of several recourses of knowledge, inspiration and energy”.

I am extremely thankful to Prof. Smriti Tandon,who in spite of his busy

schedule of work spared his invaluable time to listen and guide all through
the project period. Without his active support and supervision it was not
possible to complete the project work.
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Lastly, All my friends deserve thanks for their cooperation and sharing of
valuable information that helped me in the preparation of this report.

Gulam hussnain

OBJECTIVES OF THE STUDY:

The study is an attempt to analyse the mergers and acquisition taking place
in Some select industries. For this purpose, the following sectors are
identified, in four different sections.

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A. BANKING INDUSTRY:

This study attempts to assets the success the successfulness of M & A.

strategy in banking industry. It analyses the implications of takeovers from
the financial points of view. The main objective of this study is to analyse and
compare the financial Performance of merger banks before and after merger.
The merger of GTB with OBC and their synergies is focused in this study.

B. PHARMACEUTICAL INDUSTRY:

In this section, the effects of the M & A are identified. A review on M & a
in Indian Pharmaceutical Industry and Global Pharma Company mergers and
presented.

C. STEEL INDUSTRY:
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 This section highlights a review on Mittal Arcelor combine. It includes
the strategic synergies, impact that the merged entity will have on the
steel industry and other aspects of the proposed deal.

D. CEMENT INDUSTRY:

The cement section reveals the M & A activities being out in this sector. It
Also present a carried review on Holcim’s acquisition of Gujarat Ambuj
Cement Ltd (GACL) and its implications for the industry.

IMPORTANCE OF THE STUDY:

Mergers and Acquisitions have gained importance in recent times. Business

consolidation by large industrial houses. Consolidation of business by

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multinationals operating in India, increasing competition against
domestic companies competition against imports have all combined to
super M & A activities in India.

SCOPE OF THE STUDY:

The scope of the study is restricted to only sectors which are the
banking industry, pharmaceutical industry, steel industry and the cement
industry. A focus on mergers of GTB with OBC and a review on Mittal –
Arcelor combine and Holcins’s acquisition deal GACL is presented.

STATEMENTS OF THE PROBLEM (BANKING INDUSTRY)

It is common knowledge that dramatic events like mergers,

takeovers an Restructuring of corporate sectors occupy the pages of

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business newspapers almost daily. Further they have become the focus of
public and corporate policy issues. This is an area of potential good and
proposed evaluations study on mergers and acquisitions. This study
attempts to asses the successfulness of M & A strategy in banking industry. It
analyses the implication from the financial point of view.

METHODOLOGY OF THE STUDY:

The study is intended to examine the performance of merged banks

in terms of its growth of total assets, profits, revenues, investment and
deposits. The performance of merged banks is compared taking four years of
pre-merger and four year of post - merger as the time frame. The year of
merger uniformly included in the post - merger period of all sample banks. A
random sample of seven banking units was drawn from the list of 20 banking

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units, which have undergone mergers and acquisition. A sample of 33% of
merged banks (7) from total merged banks (20) was drawn. While drawing
the sample banks for this study, the availability of financial data such as
financial statement, history of the companies etc was taken into account.

DATA COLLECTION OF THE STUDY:

The present study mainly depends on the secondary data. The

secondary data were collected for four years before and four years after the
merger. The required data were obtained from the Prowess Corporation
Database Software of CMIE. Chennai and a host of several newspapers,
magazines, journals and websites and compilation from reports published in
various newspapers at different times.

Tools used for Analysis (Banking Industry)

This study has analyzed the growth of total assets, profits, revenues,
investment And deposits of merged banks before and after the merger. In

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order to evaluate the performance, statistical tools like mean, standard
deviation and t=test have been used. The growth rates of sample banks for
all variables (mean values of variables before and after merger) have been
analyzed.
Limitations of the study:

 The study is confined to only select industries such as banking,

Pharmaceutical, steel and cement industries.
 The present study depends mainly on the secondary data. The secondary
data collected for analysis of banking industry were Limited for four
years and four years after the merger. Four years Limited considered to
be a short period for evaluation.
 A random sample of seven banking units was drawn from the list.
 some banking units. So they tend to possess the limitations of random
Sample.
 The conclusions and suggestions are on the basis of the theoretical
Aspects which may not be possible in practical side.
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  However, with these limitations, the study is not handicapped in any way.
With available data is taken to cover all aspects of the required
objectives.

Organization of the study:

The present study has been classified into four chapters as per
convenience
and availability of data. They are as follows:

1. Introduction

2. Profile of the organization

3. Mergers and Acquisitions – Analysis

4. Conclusions and Suggestions

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 The first chapter deals with Introduction of the study. It includes
theoretical aspects of definition reasons for Mergers and
Amalgamations, accounting aspects, Issues and Concerns of
Mergers and Acquisitions of Indian companies. A review of literature
is also presented. Other aspects included are objectives, importance,
scope of the study etc.

Index

1 Introduction to merger and 15

acquisition
2. Merger and Acquisition Process 28

3 Merger and acquisition accounting 31

4 Valuation Related To Mergers And 35

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 Acquisitions

5 Costs of Mergers and Acquisitions 37

6 The Deal Of Merger Or Acquisition 44

7 Merger and Acquisition Strategies 48

8 Impact Of Mergers And Acquisitions 50

9 Pros and Cons of merger & 55

acquisitions
10 Merger and Acquisition In India 61

11 Suggestions 81

12 Overall conclusions 86

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1.Introduction to merger and acquisition

We have been learning about the companies coming together to from another
company and companies taking over the existing companies to expand their
business. With recession taking toll of many Indian businesses and the feeling of
insecurity surging over our businessmen, it is not surprising when we hear about
the immense numbers of corporate restructurings taking place, especially in the last
couple of years. Several companies have been taken over and several have
undergone internal restructuring, whereas certain companies in the same field
of business have found it beneficial to merge together into one company. In this
context, it would be essential for us to understand what corporate restructuring and

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mergers and acquisitions are all about. The phrase mergers and acquisitions
(abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and
management dealing with the buying, selling and combining of different
companies that can aid, finance, or help a growing company in a given industry
grow rapidly.

Merger:
Merger refers to combination of two or more companies into one company
where one company survive and another lost its corporate existence. The
survivor company acquire the all the assets, stocks and liabilities of the
merged company or companies. Generally the survive company is the buyer
and the extinguish company is the seller. Example: Hindustan Co. Ltd and
Indian Reprographics Ltd. Combined to form HCL Limited.
In India, Merger is also known as Amalgamation. The acquiring company
(also referred to as the amalgamated Company or the merged company)

15
acquires the assets and liabilities of the acquired Company (also referred to as
the amalgamating company or the merging company or The target
company).Typically, the shareholders of the amalgamating company in
Exchange for their shares in the amalgamated company. Transferor Company
means the company which is amalgamated into another company; while
Transferee Company means the company into which the transferor company is
amalgamated Generally, Amalgamation is done between two or more
companies engaged in the same line of activity or has some synergy in their
operations. Again the companies may also combine for diversification of
activities or for expansion of services all the assets liabilities and stocks of the
company in consideration payment in the form of
1.Equity share of the transferee company
2.Debenture of the transferee company
3.Cash or

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 4.Mix of the above.
Merger is not like consolidation, it abolishes the merged company and the
surviving company take over all the privileges, rights and liabilities of the
merged company. It is a method by which the companies unify the asset
ownerships, previously which was controlled by separate bodies, legally.
Mergers are of different types based on the relationships between the
organizations involved these are discussed below:

1. Horizontal Merger: It involves the joining of two companies which are

not competing with each other directly. That is, those companies are willing
to sell the same kind of product to those customers who belong to a common
market.

2. Vertical Merger: Vertical merger involves the merging of a supplier and a

company or a customer and a company. For example, a tyre company may
merge with a rubber production company.

3. Product-extension Merger: It involves combining two companies who

sell different products in a common market. Those products may be related

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somewhat.

4. Market-extension Merger: Market-extension Merger involves the

merging of two firms who sell the same kind of product but in different
markets.

5. Conglomeration Merger: In a concentration merger, the participating

companies don’t have any related markets or products. In fact, they do not
possess any common business tie up.

How is Amalgamation different from a Merger?

View Points:-
1. Merger and Amalgamation basically carry same meaning. There is no
major difference between these two words.
2. From view point of Company law, 1956, both the words used as
synonyms. In fact the word amalgamation is not defined in Company Act,
1956.
3. Merger is used in Narrow sense and Amalgamation is used is Board Sense.

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4. The word "merger" or "amalgamation" means combining of two or more
companies into one respectively.
5. The word Amalgamation has no legal meaning. It weigh up a state of
things under which two companies are so joined as to form a third company,
or we can say one company is absorbed into and blended with another
company.
Example of
Merger = “Centurion bank of Punjab” is merge with “HDFC bank”
Amalgamation = Nirma and core health care.

Acquisition:
An acquisition is generally purchase of a smaller firm by a larger one.
Acquisition is also known as takeover or a buyout. An acquisition is the
purchase of all or a portion of a corporate asset or target company. Business
acquisition is the process of acquiring a company to build on strengths or
weaknesses of the acquiring company. A merger is similar to an acquisition
but refers more strictly to combining all of the interests of both companies
into a stronger single company. The end result is to grow the business in a
quicker and more profitable manner than normal organic growth would
allow. an acquisition is the purchase of one company by another in which no
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new company is formed. Examples of acquisitions are Tata Group
Acquired Corus.
A takeover may be done through the following ways:

 Open Market Purchase:

The acquirer buys the shares of the listed company in the stock market.
Generally, hostile takeovers are initiated in this manner.

 Negotiated / friendly acquisition:

The acquirer buys shares of the target company from one of more existing
Shareholders who are likely to be promoter shareholders- in a negotiated
transaction.

 Preferential allotment:

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 The acquirer buys shares of the target company, through a
preferential Allotment of stake in the company and also infuses funds into
the company.

 Bail – out takeovers:

A profit earning company takes over a financially sick company to bail
it out.
Difference between merger and acquisition

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 Important terms relating to mergers and acquisitions

Important terms are vital to the understanding of the entire process of

mergers and acquisitions. Every word encountered in the process of mergers
and acquisitions need to be carefully understood for a sound understanding
of the subject.

There are many important terms relating to mergers and acquisitions.

These terms may appear to be completely unrelated to mergers and
acquisitions but nevertheless, these terms may indicate a very important
process in mergers and acquisitions. Some of the important terms relating to
mergers and acquisitions are as follows:
Mergers
when two or more companies combine. The shareholders of the target firm
are adequately compensated for, if the merger is affected. Acquisition
when one company acquires another company. The company that is acquired
is known as target firm. The company, which acquires is called acquiring
company. An acquisition may be either friendly acquisition, when both the

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companies agree to the tender offer or may be unfriendly acquisition when
the companies do not agree with the tender offer.
Takeover
Takeover may be referred to as a corporate activity when a company places a
bid for acquiring another company. The company, which intends to take over
the target firm, makes an offer of the “outstanding shares” in case the target
firm is traded publicly.

Hostile takeover

Is defined as an “unfriendly takeover”. Such actions are usually revolted

against by the managers and executives of the target firm.
People pill

Under some circumstances of hostile takeover, the people pill is used to

prevent the takeover. The entire management team gives a threat to put in
their papers if the takeover takes place. Using this strategy will work out
provided the management team is very efficient and can take the company to

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new heights. On the other hand, if the management team is not efficient, it
would not matter to the acquiring company if the existing management team
resigns. So, the success of this strategy is quite questionable.
Sandbag
Sandbag is referred to as the process by which the target firm tends to defer
the takeover or the acquisition with the hope that another company, with
better offers may takeover instead. In other words, it is the process by which
the target company “kills time” while waiting for a more eligible company to
initiate the takeover.
Shark Repellent

There are instances when a target company, which is being aimed at for a
takeover resists the same. The target firm may do so by adopting different
means. Some of the ways include manipulating shares as well as stocks and
their values. All these attempts of the target firm resisting its acquisition or
takeover are known as shark repellent.
Golden parachute

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Is yet another method of preventing a takeover? This is usually done by
extending benefits to the top level executives lest they lose their
portfolio/jobs if the takeover is affected. The benefits extended are quite
lucrative.
Raider

May be referred to an acquiring company, which is always on the lookout for

firms with undervalued assets. If the company finds that a company (target)
does exists whose assets are undervalued, it buys majority of the shares from
that target company so that it can exercise control over the assets of the
target firm.
Saturday night special

Saturday night special is referred to as an action of the corporate companies,

whereby one company makes an attempt to takeover another company all of
a sudden by executing a public tender offer. The name is derived from the
fact that such attempts were made towards the weekends. However, such
practices have been stopped as per Williams Act. It has now been obligatory

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that if a company acquires more than 5% of stocks from another company,
this has to be reported to the SEC or the Securities Exchange Commission.
Macaroni defence
This is referred to the policy wherein a large number of bonds are issued. At
the same time the target company also assures people that the return on
investment for these bonds will be higher with the takeover has taken place.
This is another strategy embraced by the target firm for not succumbing to
the pressures of the acquiring company.

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2. Merger and Acquisition Process

.
Merger and Acquisition Process is a great concern for all the companies who
intend to go for a merger or an acquisition. This is so because, the process of
merger and acquisition can heavily affect the benefits derived out of the
merger or acquisition. So, the Merger and Acquisition Process should be such
that it would maximize the benefits of a merger or acquisition deal.

The Merger and Acquisition Process can be divided in to some steps. The
stepwise implementation of any merger process ensures its profitability.

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Step: 1 Preliminary assessment or business valuations In this first step
of Merger and Acquisition Process, the market value of the target company is
assessed. In this process of assessment not only the current financial
performance of the company is examined but also the estimated future
market value is considered. The company which intends to acquire the target
firm, engages itself in an thorough analysis of the target firm’s business
history. The products of the firm, its’ capital requirement, organizational
structure, brand value everything are reviewed strictly.
Step: 2 Phase of proposal after complete analysis and review of the target
firm’s market performance, in the second step, the proposal for merger or
acquisition is given. Generally, this proposal is given through issuing an non-
binding offer document.
Step: 3 Exit plan When a company decides to buy out the target firm and the
target firm agrees , then the latter involves in Exit Planning. The target firm
plans the right time for exit. It consider all the alternatives like Full Sale,
Partial Sale and others. The firm also does the tax planning and evaluates the
options of reinvestment.

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Step: 4 Structured Marketing After finalizing the Exit Plan, the target firm
involves in the marketing process and tries to achieve highest selling price.
In this step, the target firm concentrates on structuring the business deal.
Step: 5 Origination of Purchase Agreement or Merger Agreement In this
step, the purchase agreement is made in case of an acquisition deal. In case
of Merger also, the final agreement papers are generated in this stage.
Step:6 Stage of Integration In this final stage, the two firms are integrated
through Merger or Acquisition. In this stage, it is ensured that the new joint
company carries same rules and regulations throughout the organization.

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 3. Merger and acquisition accounting

M&A is done either by the purchase or pooling of interests methods. There

are some differences between these two accounting methods which are
discussed in the following below. in India it is also known as Accounting of
Amalgamation Following are two important merger and acquisition
accounting method:

1. Pooling of Interests Method:

Pooling of interests is a method of accounting that allows the balance
sheets of two companies to be added together during an acquisition or
merger. Pooling of interests is one of the accounting that companies can
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choose to employ when combining assets. The alternative would be the
purchase method in which the purchasing company adds the absorbed
company's assets to its value. it is also known as Net Assets Method is used
when all the modes of discharging the purchase consideration (e.g. Pref.
Shares, Equity shares or cash payable to shareholders of transferor
company) are not given and hence where Net Payment Method cannot be
adopted. Under this Method, purchase consideration is ascertained by
aggregating the agreed values of only those assets which have been taken
over by the transferee company and deducting it from the agreed value of
liabilities taken over.

2. Purchase Method:
‘Purchase Consideration’ under this method is taken as the aggregate of all
payments made in the form of shares, debentures, other securities and cash
to the shareholders of the transferor company. This method is also known as
Net payment method in amalgamation.
Computation of purchase consideration: For computing purchase
consideration, generally two methods are used:

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Purchase Consideration using net asset method: Total of assets taken
over and this should be at fair values minus liabilities that are taken over at
the agreed amounts. Agreed value means the amount at which the transferor
company has agreed to sell and the transferee company has agreed to take
over a particular asset or liability.

Particulars Rs.

Agreed value of assets taken over XXX

Less: Agreed value of liabilities taken over XXX

Purchase Consideration XXX

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2. Purchase consideration using payments method: Total of
consideration paid to both equity and preference shareholders in various
forms.
Example: A. Ltd takes over B. Ltd and for that it agreed to pay Rs 5,00,000 in
cash. 4,00,000 equity shares of Rs 10 each fully paid up at an agreed value of
Rs 15 per share. The Purchase consideration will be calculated as follows:
Particulars Rs.

Cash 5,00,000

4,00,000 equity shares of Rs10 fully 60,00,000

paid up at Rs15 per share

Purchase Consideration 65,00,000

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4.Valuation Related To Mergers And Acquisitions
Valuation related to mergers and acquisitions employ several procedures,
namely, the income based procedure, the asset based procedure and the
market based procedure.
There are many factors that determine whether a particular company
ought to be bought or not, such as the financial soundness of the subject
company. Along with that, the financial trends over the past couple of years
and the trends manifested in the macroeconomic indicators also need to be
judged. Valuation related to mergers and acquisitions usually follow these

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three methods: market based method, asset based method and income based
method. It may be felt that the market based method is the most relevant,
but all three methods are significant depending upon the situation prevailing
during the course of the mergers as well as acquisitions.
1. Market based method:
Valuation related to mergers and acquisitions estimated by the market
based method, compares various aspects of the target company with the
same aspects of the other companies in the market. These companies (not
the target company) usually possess a market value, which has been
established previously. Other aspects that need to be compared include
book value and earnings, or total revenue. Once all the data is collected, an
extensive comparison is made to find the value of the target/subject
company.
2. Asset based method:
Valuation related to mergers and acquisitions employ this method when the
subject or the target company is a loss making company. Under such
circumstances, the assets of the loss making company are calculated. Along
with this method, the market based method and the income based method
may also be employed. Valuations obtained from this method may generate

35
very small value; however it is more likely to generate the actual picture of
the assets of the target company.
3. Income based method:
Valuation related to mergers and acquisitions employing the income based
method take the net present value into consideration. The net present value
of income, which is likely to be in the future, is taken into account by the
application of a mathematical formula.

5. Costs of Mergers and Acquisitions

Abstract: Costs of Mergers and Acquisitions are calculated in order to

check to the viability and profitability of any Merger or Acquisition deal. The
different
Methods adopted for this cost calculation are the Replacement Cost
Method, Discounted Cash Flow Method and Comparative Ratio calculation
method.
Costs of Mergers and Acquisitions are very much important as it
determines the viability of any Merger or Acquisition. Any company finalizes

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a merger deal only after calculating the cost of merger. In case of acquisition,
when a company buys out another firm, it calculates the costs in order to
determine how beneficial will be the takeover.
1) Comparative Ratios:

The following are two examples of the many comparative metrics on

which
Acquirers may base their offers:

 P/E (Price-to-Earnings) Ratio:

With the use of this ratio, an acquirer makes an offer as a multiple of the
Earnings the target company is producing. Looking at the P/E for all the
stocks within the same industry group will give the acquirer good guidance
for what the target’s P/E multiple should be.
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  E/V Sales (Enterprise – value – to – Sales Ratio or Price – to –
Sales) Ratio:
With this ratio, the acquiring company makes an offer as a multiple of
the Revenues again. While being aware of the P/S ratio of other companies in
the industry.

2) Replacement Cost:
Replacement Costs actually refers to the cost of replacing the target firm.
Generally, Target Company’s value is calculated by adding the value of all the
equipments, machinery and the costs of salary payments to the employees.
So, the company which wishes to acquire the target firm, offers price
accounting to this value. But, if the target firm does not agree on the price
38
offered, then the other firm can create a competitor firm with same costing.
So, this idea of cost calculation is referred as the calculation of Replacement
Cost. But, it should be mentioned here that, in case of the firms, where the
main assets are not equipments and machinery, but people and their skills,
this type of cost calculation is not possible.
3) Discounted Cash Flow (DCF):
A key valuation tool in M & A discounted Cash flow analysis determines
a company’s current values according to its estimated future cash flows.
Forecasted free cash flows (operating profit + Depreciation + amortization of
goodwill – capital expenditures – cash taxes - Change in working capital) are
discounted to a present value using the Company’s weighted average costs of
capital (WACC).
Synergy: The Premium for Potential Success For the most part, acquiring
nearly always pay a substantial premium on the stock market value of the
companies they buy. The justification for doing so nearly always boils to the
notion of synergy. A merger benefits shareholders when a company’s post-
merger share price increases by the value of potential synergy.

39
 It would be highly unlikely for rational owners to sell if they would
benefit more by not selling. That means buyers will need to pay a premium if
they hope acquire the company, regardless of what pre-merger valuation
tells them. For sellers, that premium represents their company’s future
prospects. For buyers, the premium represents part of the merger synergy
they expect can be achieved. The following equation offers a good way to
think about synergy and how to determine if a deal makes sense. The
equation solves for the minimum required synergy.
Pre-Merger Value of Both Firms + synergy = Pre – Merger Stock Price
Post – Merger Number of Shares

In other words, the success of a merger is measured by whether

the value of the buyer is enhanced by the action. However, the practical

40
constraints of merger often prevent the expected benefits from being fully
achieved
What to Look For
It’s hard for investors to know when a deal is worthwhile. The burden of a
proof should fall on the acquiring company. To find mergers that have a
chance of success, investors should start by looking for same of these
criteria:

 A Reasonable Purchase Price: A premium of say, 10% above the

market price seems within the bounds of level headedness. A premium of 50
%, on the other hand, requires synergy of stellar proportions for the deal to
make sense. The investors should stay away from companies that participate
in such contents.

41
  Cash transaction: Companies that pay in cash tend to be more careful
when calculating bids, and valuations come closer to target. When stock is
used as the currency for acquisition, discipline can go by the way side.
 Sensible Appetite: An acquiring company should be targeting a
company that is smaller or in business that the acquiring company knows
intimately. Synergy is hard to create from companies in disparate business
areas.
Mergers are awfully hard to get right, so investors should look for acquiring
companies with a healthy grasp of reality. In other words, the success of a
merger is measured by whether the value of the buyer is enhanced by the
action. However, the practical constraints of merger soften prevent the
expected benefits from being fully achieved.

42
6. The Deal Of Merger Or Acquisition
the deal of merger or acquisition has been scripted below. Prior to the deal of
merger or acquisition is actually struck, there are many factors, which
determine the success of the entire process.
The commencement of the process of mergers and acquisition is marked
with a “tender offer”. A tender offer is an offer wherein the purchase of all or
some of the shares belonging to the shareholders is intended. The price fixed
for the same is of a premium rate as compared to the market price. The laws
formulated by the SEC or Securities And Exchange Commission necessitates
that if a company or an individual acquires 5% stock in a company, the same

43
should be conveyed to the SEC. A tender offer may either be a “friendly” one
or an “unfriendly” one. A company, which intends to acquire a company
eventually, buys out all the shares of the target company. However the limit is
restricted to only 5% and the outstanding shares are reported as SEC.
Declaration about the number of shares (the ones, which have been bought
and the outstanding ones) are made before the SEC.
The total price the acquiring company is ready to pay for the target company
and its assets is worked out with assistance from investment bankers as well
as the financial advisors. Thereafter the tender offer is published informing
the shareholders about the offer price as well as deadlines for either
rejecting the offer or accepting it.
Reaction of the target company:
The target company responds to the above course of action in any one of the
following ways:
(I) agree with the Offer terms: In the event it is felt by the top level
executives and managers that the offer price may be accepted, the deal of
merger or acquisition is struck.

44
(II) Try to negotiate: If the terms offered by the acquiring company are not
acceptable, then the shareholders of the target company will try to negotiate
the deal of merger or acquisition. The shareholders and the top level
management of the subject company will try to work out issues so that they
do not lose their jobs and simultaneously see the interest of the target
company.
(III) Looking for a White Knight: A White Knight is referred to another
company, which would like to go for a friendly takeover of the subject
company, thereby saving the target or the subject company from falling prey
to that company, which is intending for a hostile takeover of the target
company.
(IV) Using a Poison Pill: The target company uses a Poison pill wherein it
attempts to make its assets or shares less appealing to the company, which is
attempting the tale over. The target company may do it by two methods:
(a) By using a “flip in”: Permits the prevailing shareholders of the target
company to buy shares at a discounted rate.
(b) By using a “flip over”: Permits the shareholders to buy stakes of the
acquiring company at a discounted rate after the merger has taken place.

45
Closure of the deal of merger or acquisition:
When the tender offer has been finally agreed upon by the target company
and after fulfilling certain regulatory criteria, the deal of merger or
acquisition is executed wherein some kind of transaction takes place. During
the course of the transaction, the company, which buys the target company,
makes payment with stock, cash or with both.
.

46
 7. Merger and Acquisition Strategies
It is extremely important in order to derive the maximum benefit out of a
merger or acquisition deal. It is quite difficult to decide on the strategies of
merger and acquisition, especially for those companies who are going to
make a merger or acquisition deal for the first time. In this case, they take
lessons from the past mergers and acquisitions that took place in the market
between other companies and proved to be successful.
Through market survey and market analysis of different mergers and
acquisitions, it has been found out that there are some golden rules which
can be treated as the Strategies for Successful Merger or Acquisition Deal.
Before entering in to any merger or acquisition deal, the target company’s

47
market performance and market position is required to be examined
thoroughly so that the optimal target company can be chosen and the deal
can be finalized at a right price.
Identification of future market opportunities, recent market trends and
customer’s reaction to the company’s products are also very important in
order to assess the growth potential of the company.
After finalizing the merger or acquisition deal, the integration process of the
companies should be started in time. Before the closing of the deal, when the
negotiation process is on, from that time, the management of both the
companies require to work on a proper integration strategy. This is to ensure
that no potential problem crop up after the closing of the deal.
If the company which intends to acquire the target firm plans restructuring
of the target company, then this plan should be declared and implemented
within the the period of acquisition to avoid uncertainties.
It is also very important to consider the working environment and culture of
the workforce of the target company, at the time of drawing up Merger and
Acquisition Strategies, so that the labourers of the target company do not
feel left out and become demoralized.

48
 8. Impact Of Mergers And Acquisitions

Just as mergers and acquisitions may be fruitful in some cases, the impact of
mergers and acquisitions on various sects of the company may differ. In
the article below, details of how the shareholders, employees and the
management people are affected has been briefed.
Mergers and acquisitions are aimed at improving profits and productivity of
a company. Simultaneously, the objective is also to reduce expenses of the
firm. However, mergers and acquisitions are not always successful. At times,
the main goal for which the process has taken place loses focus. The success
of mergers, acquisitions or takeovers is determined by a number of factors.
Those mergers and acquisitions, which are resisted not only affects the
49
entire work force in that organization but also harm the credibility of the
company. In the process, in addition to deviating from the actual aim,
psychological impacts are also many. Studies have suggested that mergers
and acquisitions affect the senior executives, labour force and the
shareholders.

Impact Of Mergers And Acquisitions on workers or employees:

Aftermath of mergers and acquisitions impact the employees or the workers

the most. It is a well known fact that whenever there is a merger or an
acquisition, there are bound to be layoffs. In the event when a new resulting
company is efficient business wise, it would require less number of people to
perform the same task. Under such circumstances, the company would
attempt to downsize the labour force. If the employees who have been laid
off possess sufficient skills, they may in fact benefit from the lay off and move
on for greener pastures. But it is usually seen that the employees those who
are laid off would not have played a significant role under the new

50
organizational set up. This accounts for their removal from the new
organization set up. These workers in turn would look for re employment
and may have to be satisfied with a much lesser pay package than the
previous one. Even though this may not lead to drastic unemployment levels,
nevertheless, the workers will have to compromise for the same. If not
drastically, the mild undulations created in the local economy cannot be
ignored fully.
Management at the top:

Impact of mergers and acquisitions on top level management:

Impact of mergers and acquisitions on top level management may actually
involve a “clash of the egos”. There might be variations in the cultures of the
two organizations. Under the new set up the manager may be asked to
implement such policies or strategies, which may not be quite approved by
him. When such a situation arises, the main focus of the organization gets
diverted and executives become busy either settling matters among
themselves or moving on. If however, the manager is well equipped with a
degree or has sufficient qualification, the migration to another company may
not be troublesome at all.

51
Shareholders:

Shareholders of the acquired firm:

The shareholders of the acquired company benefit the most. The reason
being, it is seen in majority of the cases that the acquiring company usually
pays a little excess than it what should. Unless a man lives in a house he has
recently bought, he will not be able to know its drawbacks. So that the
shareholders forgo their shares, the company has to offer an amount more
than the actual price, which is prevailing in the market. Buying a company at
a higher price can actually prove to be beneficial for the local economy.
Shareholders of the acquiring firm:
They are most affected. If we measure the benefits enjoyed by the
shareholders of the acquired company in degrees, the degree to which they
were benefited, by the same degree, these shareholders are harmed. This can
be attributed to debt load, which accompanies an acquisition.

52
53
 9. Pros and Cons of merger & acquisitions
A look at the pros and cons of mergers. Are mergers in the public interest or
are mergers just beneficial for top executives and shareholders? When
looking at mergers it is important to look at the subject on a case by case
basis as each merger has a different possible benefits and costs. These are
the most likely advantages and disadvantages of a merger.
Pros:
1. Network Economies. In some industries, firms need to provide a national
network. This means there are very significant economies of scale. A national
network may imply the most efficient number of firms in the industry is one.
For example, when T-Mobile merged with Orange in the UK, they justified the
merger on the grounds that:
“The ambition is to combine both the Orange and T-Mobile networks, cut out
duplication, and create a single super-network. For customers it will mean
bigger network and better coverage, while reducing the number of stations
and sites – which is good for cost reduction as well as being good for the
environment.”

54
2. Research and development. In some industries, it is important to invest
in research and development to discover new products / technology. A
merger enables the firm to be more profitable and have greater funds for
research and development. This is important in industries such as drug
research.
3. Other Economies of Scale. The main advantage of mergers is all the
potential economies of scale that can arise. In a horizontal merger, this could
be quite extensive, especially if there are high fixed costs in the
industry. Note: if the merger was a merger or conglomerate merger, the
scope for economies of scale would be lower.
4. Avoid Duplication. In some industries it makes sense to have a merger to
avoid duplication. For example two bus companies may be competing over
the same stretch of roads. Consumers could benefit from a single firm with
lower costs. Avoiding duplication would have environmental benefits and
help reduce congestion.
5. Regulation of Monopoly. Even if a firm gains monopoly power from a
merger, it doesn’t have to lead to higher prices if it is sufficiently regulated by
the government. For example, in some industries the government have price

55
controls to limit price increases. That enables firms to benefit from
economies of scale, but consumers don’t face monopoly prices.
4. Greater Efficiency. Redundancies can be merited if they can be employed
more efficiently.
5. Protect an industry from closing. Mergers may be beneficial in a
declining industry where firms are struggling to stay afloat. For example, the
UK government allowed a merger between Lloyds TSB and HBOS when the
banking industry was in crisis.
6. Diversification. In a conglomerate merger two firms in different
industries merge. Here the benefit could be sharing knowledge which might
be applicable to the different industry. For example, AOL and Time-Warner
merger hoped to gain benefit from both new internet industry and old media
firm.
7. International Competition. Mergers can help firms deal with the threat
of multinationals and compete on an international scale.
8. Mergers may allow greater investment in R&D This is because the new
firm will have more profit which can be used to finance risky investment.

56
This can lead to a better quality of goods for consumers. This is important for
industries such as pharmaceuticals which require a lot of investment.
Cons:
1. Higher Prices. A merger can reduce competition and give the new firm
monopoly power. With less competition and greater market share, the new
firm can usually increase prices for consumers. For example, there is
opposition to the merger between British Airways (parent group IAG) and
BMI. This merger would give British Airways an even higher percentage of
flights leaving Heathrow and therefore much scope for setting higher prices.
Richard Branson (of Virgin) states:
“This takeover would take British flying back to the dark ages. BA has a track
record of dominating routes, forcing less flying and higher prices. This move
is clearly about knocking out the competition. The regulators cannot allow
British Airways to sew up UK flying and squeeze the life out of the travelling
public. It is vital that regulatory authorities, in the UK as well as in Europe,
give this merger the fullest possible scrutiny and ensure it is stopped.
2. Less Choice. A merger can lead to less choice for consumers.

57
3. Job Losses. A merger can lead to job losses. This is a particular cause for
concern if it is an aggressive takeover by an ‘asset stripping’ company – A
firm which seeks to merge and get rid of under-performing sectors of the
target firm.
4. Diseconomies of Scale. The new firm may experience dis-economies of
scale from the increased size. After a merger, the new bigger firm may lack
the same degree of control and struggle to motivate workers. If workers feel
they are just part of a big multinational they may be less motivated to try
hard.
Why M & A s Can Fail

Pitfalls of mergers are the reasons for failures and the pitfalls of
mergers are:

1. Poor Strategic Fit.

2. Cultural and Social Differences.

3. Incomplete and Inadequate due diligence.

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4. Poorly Managed Integration.

5. Paying too much.

6. Limited focus.

7. Failure to get the figures audited.

8. Failure to make immediate control.

9. Failure to set the place for integration.

10. Incompatibility of partners.

11. Failures to adopt the product to local taste.

12. Irrelevant core competence.

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 10. Merger and Acquisition In india
The practice of mergers and acquisitions has attained considerable
significance in the contemporary corporate scenario which is broadly used
for reorganizing the business entities. Indian industries were exposed to
plethora of challenges both nationally and internationally, since the
introduction of Indian economic reform in 1991. The cut-throat competition
in international market compelled the Indian firms to opt for mergers and
acquisitions strategies, making it a vital premeditated option.
Why Mergers and Acquisitions in India?
The factors responsible for making the merger and acquisition deals
favorable in India are:
 Dynamic government policies
 Corporate investments in industry
 Economic stability
 “ready to experiment” attitude of Indian industrialists
Sectors like pharmaceuticals, IT, ITES, telecommunications, steel,
construction, etc, have proved their worth in the international scenario and
the rising participation of Indian firms in signing M&A deals has further
triggered the acquisition activities in India.
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Top Indian Mergers and Acquisitions
Mergers and acquisitions (M & A) is the area of corporate finances,
management and strategy dealing which deals with purchasing and/or
joining with other companies.
TOP MERGER & ACQUISITION DEALS IN INDIA
1. TATA STEEL-CORUS: Tata Steel is one of the biggest ever Indian’s steel
company and the Corus is Europe’s second largest steel company. In 2007,
Tata Steel’s takeover European steel major Corus for the price of $12.02
billion, making the Indian company, the world’s fifth-largest steel producer.
Tata Sponge iron, which was a low-cost steel producer in the fast
developing region of the world and Corus, which was a high-value product
manufacturer in the region of the world demanding value products. The
acquisition was intended to give Tata steel access to the European markets
and to achieve potential synergies in the areas of manufacturing,
procurement, R&D, logistics, and back office operations.
2. VODAFONE-HUTCHISON ESSAR: Vodafone India Ltd. is the second
largest mobile network operator in India by subscriber base, after Airtel.
Hutchison Essar Ltd (HEL) was one of the leading mobile operators in
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 India. In the year 2007, the world’s largest telecom company in terms of
revenue, Vodafone made a major foray into the Indian telecom market by
acquiring a 52 percent stake in Hutchison Essat Ltd, a deal with the Hong
Kong based Hutchison Telecommunication International Ltd. Vodafone
main motive in going in for the deal was its strategy of expanding into
emerging and high growth markets like India. Vodafone’s purchase of 52%
stake in Hutch Essar for about $10 billion. Essar group still holds 32% in
the Joint venture.
3. HINDALCO-NOVELIS: The Hindalco Novelis merger marks one of the
biggest mergers in the aluminum industry. Hindalco industries Ltd. is an
aluminum manufacturing company and is a subsidiary of the Aditya Birla
Group and Novelis is the world leader in aluminum rolling, producing an
estimated 19percent of the world’s flat-rolled aluminum products. The
Hindalco Company entered into an agreement to acquire the Canadian
company Novelis for $6 billion, making the combined entity the world’s
largest rolled-aluminum Novelis operates as a subsidiary of Hindalco.
4. RANBAXY-DAIICHI SANKYO: Ranbaxy Laboratories Limited is an Indian
multinational pharmaceutical company that was incorporated in India in
1961 and Daiichi Sankyo is a global pharmaceutical company, the second
largest pharmaceutical company in Japan. In 2008, Daiichi Sankyo Co. Ltd.,
62
 signed an agreement to acquire the entire shareholders of the promoters of
Ranbaxy Laboratories Ltd, the largest pharmaceutical company in
India.Ranbaxy’s sale to Japan’s Daiichi at the price of $4.5 billion.
5. ONGC-IMPERIAL ENERGY: Oil and Natural Gas Corporation Limited
(ONGC), national oil company of India. Imperial Energy Group is part of the
India National Gas Company, ONGC Videsh Ltd (OVL). Imperial Energy
includes 5 independent enterprises operating in the territory of Tomsk
region, including 2 oil and gas producing enterprises. Oil and Natural Gas
Corp. Ltd (ONGC) took control of Imperial Energy UK Based firm operating
in Russia for the price of $1.9 billion in early 2009. This acquisition was the
second largest investment made by ONGC in Russia.

6. STERLITE- ASARCO: Sterlite is India’s largest non-ferrous metals and

mining company with interests and operations in aluminum, copper and
zinc and lead. Sterlite has a world class copper smelter and refinery
operations in India. Asarco, formerly known as American Smelting and
Refining Company, is currently the third largest copper producer in the
United States of America. In the year 2009, Sterlite Industries, a part of the
Vedanta Group signed an agreement regarding the acquisition of copper
mining company Asarco for the price of $ 2.6 billion. The deal surpassed
63
 Tata’s $2.3 billion deal of acquiring Land Rover and Jaguar. After the
finalization of the deal Sterlite would become third largest copper mining
company in the world.
7. TATA MOTORS-JAGUAR LAND ROVER: Tata Motors Limited (TELCO), is
an Indian multinational automotive manufacturing company
headquartered in Mumbai, India and a subsidiary of the Tata Group and the
Jaguar Land Rover Automotive PLC is a British multinational automotive
company headquarters in Whitley, Coventry, United Kingdom, and now a
subsidiary of Indian automaker Tata Motors. Tata Motors acquisition of
luxury car makerJaguar Land Rover was for the price of $2.3 billion. This
could probably the most ambitious deal after the Ranbaxy won. It certainly
landed Tata Motors in a lot of troubles.
8. RIL-RPL MERGER: Reliance Industries Limited (RIL) is an Indian
Conglomerate holding company headquartered in Mumbai, India. Reliance
is the most profitable company in India, the second-largest publicly traded
company in India by market capitalization. Reliance Petroleum Limited was
set up by Reliance Industries Limited (RIL), one of India’s largest private
sector companies based in Ahmedabad. Currently, Reliance
Industries taking over Reliance Petroleum Limited (RPL) for the price of
8500 crores or $1.6 billion.
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9.Flipkart- Myntra The huge and most talked about takeover or acquisition
of the year. The seven year old Bangalore based domestic e-
retaileracquired the online fashion portal for an undisclosed amount in
May 2014. Industry analysts and insiders believe it was a $300 million or
Rs 2,000 crore deal.Flipkart co-founder Sachin Bansal insisted that this was
a “completely different acquisition story” as it was not “driven by distress”,
alluding to a plethora of small e-commerce players either having wound up
or been bought over in the past two years. Together, both company heads
claimed, they were scripting “one of the largest e-commerce stories”.
10.Asian Paints- Ess Ess Bathroom Products Asian paints signed a
deal with Ess Ess Bathroom products Pvt Ltd to acquire its front end sales
business for an undisclosed sum in May, 2014. “The company on May 14,
2014 has entered into a binding agreement with Ess Ess Bathroom
Products Pvt. Ltd and its promoters to acquire its entire front-end sales
business including brands, network and sales infrastructure,” Asian Paints
said in a filing to the BSE on Wednesday. Ess Ess produces high end
products in bath and wash segment in India and taking them over led to a
3.3% rise in share price for Asian paints.

65
11.Ranbaxy- Sun Pharmaceuticals Sun Pharmaceutical Industries Limited,
a multinational pharmaceutical company headquartered in Mumbai,
Maharashtra which manufactures and sells pharmaceutical formulations
and active pharmaceutical ingredients (APIs) primarily in India and the
United States bought the Ranbaxy Laboratories. The deal is expected to be
completed in December, 2014.Ranbaxy shareholders will get 4 shares of
Sun Pharma for every 5 Ranbaxy shares held by them. The deal, worth $4
billion, will lead to a 16.4 dilution in the equity capital of Sun Pharma.
12.TCS- CM Tata Consultancy Services (TCS), the $13 billion flagship
software unit of the Tata Group, has announced a merger with the listed
CMC with itself as part of the group’s renewed efforts to consolidate its IT
businesses under a single entity.At present, CMC employs over 6,000
people and has annual revenues worth Rs 2,000 crores. The deal was inked
a few days back. TCS already held a 51% stake in CMC.
13.Yahoo- Bookpad The search engine giant, Yahoo, acquired the one year
old Bangalore based startup Bookpad for a little under $15 million, though
the exact amount has not been disclosed by either of the two parties
concerned. While the deal value is relatively small, this was the first
acquisition made by Yahoo, and was much talked about and hence finds a
66
 mention in our list. Bookpad was founded by three IIT Guwahati pass outs
and allows users to view, edit and annotate documents within a website or
an app.
14.Kotak Mahindra- ING Vysya In November 2014, Kotak Mahindra had
announced it was acquiring Bengaluru-headquartered ING Vysya in an all-
stock deal. The deal implies a price of Rs 790 for each ING Vysya share,
based on the average closing price of Kotak shares during the month to
November 19, valuing the deal at about Rs 15,000 crore. That was a 16 per
cent premium to a like measure of ING Vysya market price, Kotak Bank had
stated.

15.Centurion Bank of Punjab- HDFC During the year ended March 31,
2009, the Reserve Bank of India accorded its consent to the Scheme of
Amalgamation of Centurion Bank of Punjab Limited (“CBoP”) with HDFC
Bank Limited. Pursuant to the order of amalgamation, the operations of
both banks were merged with effect from May 23, 2008. On June 24, 2008
our Share Allotment Committee approved the allocation of 69,883,956
equity shares of Rs. 10/- each to the shareholders of CBoP pursuant to the
share swap ratio of one equity share of Rs. 10/- each of HDFC Bank Limited

67
for every twenty nine equity shares of Re. 1/- each held in CBoP by them as
on the record date viz. June 16, 2008. The amalgamation was accounted for
as a business combination under the purchase method of accounting.
.

M&AS IN THE INDIAN BANKING SECTOR - STRATEGIC AND FINANCIAL

IMPLICATIONS
The International banking scenario has shown major turmoil in the past
few years in terms of mergers and acquisitions. Deregulation has been the
main driver, through three major routes - dismantling of interest rate
controls, removal of barriers between banks and other financial
intermediaries, and lowering of entry barriers. It has lead to
disintermediation, investors demanding higher returns, price competition,
reduced margins, falling spreads and competition across geographies
forcing banks to look for new ways to boost revenues. Consolidation has
been a significant strategic tool for this and has become a worldwide
phenomenon, driven by apparent advantages of scale-economies,
68
 geographical diversification, lower costs through branch and staff
rationalization, cross-border expansion and market share concentration.
The new Basel II norms have also led banks to consider M&As.
This article looks at some M&As that have happened post-2000 in India to
understand the intent (of the targets and the acquirers), resulting synergies
(both operational and financial), modalities of the deal, congruence of the
process with the vision and goals of the involved banks, and the long term
implications of the merger. The article also analyses emerging future trends
and recommends steps that banks should consider, given the forecasted
scenario.
The Indian Banking Sector
The history of Indian banking can be divided into three main phases 1 :
 Phase I (1786- 1969) - Initial phase of banking in India when many small
banks were set up
 Phase II (1969- 1991) - Nationalisation, regularisation and growth
 Phase III (1991 onwards) - Liberalisation and its aftermath

69
With the reforms in Phase III the Indian banking sector, as it stands today, is
mature in supply, product range and reach, with banks having clean, strong
and transparent balance sheets. The major growth drivers are increase in
retail credit demand, proliferation of ATMs and debit-cards, decreasing
NPAs due to Securitisation, improved macroeconomic conditions,
diversification, interest rate spreads, and regulatory and policy changes
(e.g. amendments to the Banking Regulation Act).
Certain trends like growing competition, product innovation and branding,
focus on strengthening risk management systems, emphasis on technology
have emerged in the recent past. In addition, the impact of the Basel II
norms is going to be expensive for Indian banks, with the need for
additional capital requirement and costly database creation and
maintenance processes. Larger banks would have a relative advantage with
the incorporation of the norms.
Case Studies
The cases chosen for the purpose of this study were selected based on their
prominence and recency (all post-2000) to ensure that the motives driving
the deals will remain relevant in the current context.
Standard Chartered Acquires ANZ Grindlays Bank (November '00)
70
Intent
Standard Chartered wanted to capitalise on the high growth forecast for the
Indian economy. It aimed at becoming the world's leading emerging
markets bank and it thought that acquiring Grindlays would give it a well-
established foothold in India and add strength to its management
resources. For ANZ, the deal provided immediate returns to its
shareholders and allowed it to focus on the Australian market. Grindlays
had been a poor performer and the Securities Scam involvement had made
ANZ willing to wind up.
Benefits
Standard Chartered became the largest foreign bank in India with over 56
branches and more than 36% share in the credit card market. It also
leveraged the infrastructure of ANZ Grindlays to service its overseas
clients. 2
For ANZ, the deal, at a premium of US $700 million over book value, funded
its share buy-back in Australia (a defence against possible hostile takeover).
The merger also greatly reduced the risk profile of ANZ by reducing its
exposure to default prone markets. 3

71
Drawbacks
The post merger organisational restructuring evoked widespread criticism
due to unfair treatment of former Grindlays employees. 4 There were also
rumours of the resulting organisation becoming too large an entity to
manage efficiently, especially in the fast changing financial sector.
Bank of Baroda Acquires South Gujarat Local Area Bank Ltd (June '04)
Intent
According to the RBI, South Gujarat Local Area Bank had suffered net losses
in consecutive years and witnessed a significant decline in its capital and
reserves5. To tackle this, RBI first passed a moratorium under Section 45 of
the Banking Regulation Act 1949 and then, after extending the moratorium
for the maximum permissible limit of six months 6, decided that all seven
branches of SGLAB function as branches of Bank of Baroda. The final
decision about the merger was of the Government of India in consultation
with the RBI. Bank of Baroda was against the merger, and protested against
the forced deal7.

72
Benefits
The clients of SGLAB were effectively transferred to Bank of Baroda,
deriving the advantage of dealing with a more secure and bigger bank.
SGLAB did not benefit much, except that it was able to merge with a bigger
bank and able to retain its branches and customers, albeit under a different
name. Since BoB was a large entity (total assets of Rs. 793.2 billion at the
time of merger), addition of a small liability did not affect it much. Albeit
minor, it obtained seven more branches and the existing customers of
SGLAB. This further strengthened its position in rural Gujarat.
Drawbacks
There was no widespread criticism or any apparent drawback of the
merger since the financials involved were not very high.
ICICI Bank Ltd. Acquires Bank of Madura (March '01)
Intent
ICICI Bank Ltd wanted to spread its network, without acquiring RBI's
permission for branch expansion. BoM was a plausible target since its cash
management business was among the top five in terms of volumes. In

73
addition, there was a possibility of reorienting its asset profile to enable
better spreads and create a more robust micro-credit system post merger. 8
BoM wanted a (financially and technologically) strong private sector bank
to add shareholder value, enhance career opportunities for its employees
and provide first rate, technology-based, modern banking services to its
customers.
Benefits
The branch network of the merged entity increased from 97 to 378,
including 97 branches in the rural sector. 9 The Net Interest Margin
increased from 2.46% to 3.55 %. The Core fee income of ICICI almost
doubled from Rs 87 crores to Rs 171 crores. IBL gained an additional 1.2
million customer accounts, besides making an entry into the small and
medium segment. It possessed the largest customer base in the country,
thus enabling the ICICI group to cross-sell different products and services.
Drawbacks
Since BoM had comparatively more NPAs than IBL, the Capital Adequacy
Ratio of the merged entity was lower (from 19% to about 17%). The two
banks also had a cultural misfit with BoM having a trade-union system and

74
IBL workers being young and upwardly mobile, unlike those for BoM. There
were technological issues as well as IBL used Banks 2000 software, which
was very different from BoM's ISBS software. With the manual
interpretations and procedures and the lack of awareness of the technology
utilisation in BoM, there were hindrances in the merged entity.
Oriental Bank of Commerce Acquires Global Trust Bank Ltd (August
'04)
Intent
For Oriental Bank of Commerce there was an apparent synergy post merger
as the weakness of Global Trust Bank had been bad assets and the strength
of OBC lay in recovery.10 In addition, GTB being a south-based bank would
give OBC the much-needed edge in the region apart from tax relief because
of the merger. GTB had no choice as the merger was forced on it, by an RBI
ruling, following its bankruptcy.
Benefits
OBC gained from the 104 branches and 276 ATMs of GTB, a workforce of
1400 employees and one million customers. Both banks also had a common
IT platform. The merger also filled up OBC's lacunae - computerisation and

75
high-end technology. OBC's presence in southern states increased along
with the modern infrastructure of GTB.
Drawbacks
The merger resulted in a low CAR for OBC, which was detrimental to
solvency. The bank also had a lower business growth (5% vis-a-vis 15% of
peers). A capital adequacy ratio of less than 11 per cent could also
constrain dividend declaration, given the applicable RBI regulations.
Future of M&A in Indian Banking
In 2009, further opening up of the Indian banking sector is forecast to occur
due to the changing regulatory environment (proposal for upto 74%
ownership by Foreign banks in Indian banks). This will be an opportunity
for foreign banks to enter the Indian market as with their huge capital
reserves, cutting-edge technology, best international practices and skilled
personnel they have a clear competitive advantage over Indian banks.
Likely targets of takeover bids will be Yes Bank, Bank of Rajasthan, and
IndusInd Bank. However, excessive valuations may act as a deterrent,
especially in the post-sub-prime era.

76
Persistent growth in Indian corporate sector and other segments provide
further motives for M&As. Banks need to keep pace with the growing
industrial and agricultural sectors to serve them effectively. A bigger player
can afford to invest in required technology. Consolidation with global
players can give the benefit of global opportunities in funds' mobilisation,
credit disbursal, investments and rendering of financial services.
Consolidation can also lower intermediation cost and increase reach to
underserved segments.
The Narasimhan Committee (II) recommendations are also an important
indicator of the future shape of the sector. There would be a movement
towards a 3-tier structure in the Indian banking industry: 2-3 large
international banks; 8-10 national banks; and a few large local area banks.
In addition, M&As in the future are likely to be more market-driven, instead
of government-driven.
Conclusion
Based on the trends in the banking sector and the insights from the cases
highlighted in this study, one can list some steps for the future which banks
should consider, both in terms of consolidation and general business.
Firstly, banks can work towards a synergy-based merger plan that could
77
take shape latest by 2009 end with minimisation of technology-related
expenditure as a goal. There is also a need to note that merger or large size
is just a facilitator, but no guarantee for improved profitability on a
sustained basis. Hence, the thrust should be on improving risk management
capabilities, corporate governance and strategic business planning. In the
short run, attempt options like outsourcing, strategic alliances, etc. can be
considered. Banks need to take advantage of this fast changing
environment, where product life cycles are short, time to market is critical
and first mover advantage could be a decisive factor in deciding who wins
in future. Post-M&A, the resulting larger size should not affect agility. The
aim should be to create a nimble giant, rather than a clumsy dinosaur. At
the same time, lack of size should not be taken to imply irrelevance as
specialised players can still seek to provide niche and boutique services.
M&As have become very popular over the years especially during the last
two decades owing to rapid changes that have taken place in the
business environment. Business firms now have to face increased
competition not only from firms within the country but also from
international business giants thanks to globalization, liberalization,
technological changes, etc. Generally the objective of M&As is wealth
maximization of shareholders by seeking gains in terms of synergy,
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 economies of scale, better financial and marketing advantages,
diversification and reduced earnings volatility, improved inventory
management, increase in domestic market share and also to capture fast
growing international markets abroad. But astonishingly, though the
number and value of M&As are growing rapidly, the results of the
studies on the impact of mergers on the performance from the acquirers'
shareholders perspective have been highly disappointing.

11.SUGGESTIONS:

This study brings out the following suggestions:

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1) Investors in a company that is aiming to take over another company
must determine whether the purchase will beneficial or not. In this context,
the dealmakers have to employees different methods and tools such as
comparative ratios, replacement cost, discounted cost etc when assessing a
target company.

2) To find merges that have a chance of success, investors should look at

the criteria of reasonable purchase price, cash transactions etc. Investors
should for acquiring companies with a healthy grasp of reality.

3) a proper audit of the financial affairs of the target company. Areas to

look for are stocks, sale ability of finished products, receivable and their
collect ability, details and location of fixed assets, unsecured loans, claims
under litigation, loans from the promoters etc.
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 4) The chance of a successful takeover of an unrelated business can
be
considered to be very bright if the answers to the following question
are
a clear yes.

 Does the company have a top class management team to run the new
acquisition?

 Does the company have deep pockets to find unforeseen financial needs
of the company taken over?

 Does the company have adequate financial and information control

system that can be transplanted in the new company?

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5) Risk of failure will be minimized if there is a detailed evaluation of the
target company’s business conditions carried out by professionals in that
line of business. Detailed examination of the manufacturing facilities,
product design features, rejection rates, distribution system, profile of key
people and
Productivity of work force should be done. One should not be carried away
by good head quarter building, guest house on a beach, plenty of land for
expansion etc.
6) The first step after takeover is the integration of the new outfit with the
acquiring company in all respects. All functions such as marketing
commercial, finance, production, design and personnel should be put
in place.

7) After the signing of the M & A agreement, the top management should
not sit back and let things happen. The first 100 days after the takeover

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determine the speed with which the process of tackling the problems can
be achieved. Top management follow up is essential to go with a clear road
map of actions to be taken and set pace for implementing once the control
is assumed.

8) Alliances between two stronger companies are a safer bet than between
two weal partners. Frequently many strong companies actually seek
smaller
Partners in order to gain control while weal companies look for stronger
companies to bail them out. But, experience shows that the weak link
becomes a drag and causes friction between parties.

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 9) Adequate planning for the integration of the merger, establishing
efficient and effective reward system and incentive mechanisms and
establishing the most significant techniques and strategies for successful
mergers and acquisitions. Therefore these and other should be regarded as
substantially important in the realization of productive synergies through
mergers an acquisitions.

12.Overall conclusion
One size doesn’t fit all. Many companies find that the best route forward is
expanding ownership boundaries through mergers and acquisitions. For
others, separating the public ownership of a subsidiary or business segment
offers more advantages. At least in theory, mergers create synergies and
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economies of scale, expanding operations and cutting costs. Investors can
take comfort in the idea that a merger will delver enhanced market power.

By contrast, de-merged companies often enjoy improve operating

performance thanks to redesigned management incentives. Additional
capital can fund growth organically or through acquisition. Mean while,
investors benefit from the improved information flow from the de-merged
companies.

M & A comes in all shapes and investors need to consider the complex issues
involved in M & A. The most beneficial form of equity structure involves a
complete analysis of the costs and benefits associated with the deals.

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Still efforts for M & A will continue as a strategy for growth, for synergy, for
widening capabilities and expertise for accessing wider market etc. It is
important to assess the cost benefits involved and the optimum strategy
required whether or not M & A is the nectar of corporate life or poison pill
for destruction.

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