Spellchecked - Mba - Project - Mergers and Aquisitions

PROJECT REPORT ON
MERGERS AND ACQUISITIONS IN

INDIAN BANKING SECTOR
Submitted in partial fulfillment of the requirements for the award of the
degree of
MASTERS IN BUSINESS ADMINISTRATION
Submitted by
Name of Student: Ramachandrudu Danturthi
MBA–IV Semester
Enrollment No: KTB3001
Roll No.
Session 2018 – 19
To Whom It May Concern
I Ramachandrudu Danturthi,
Enrollment No._________________________________
Roll No._____________________________
hereby declare that the Project Report entitled is an
original work and the same has not been submitted to any
other Institute/University for the award of any other
degree.
Date: Signature of the Student
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ACKNOWLEDGEMENT
I am very thankful to the faculty of ISBM UNIVERSITY for providing all

the facilities to complete my project.
I, gratefully acknowledge the valuable guidance and support of faculty

members of ISBM UNIVERSITY, who have been of immense help to me
in choosing the topic and successful completion of the project.
I extend my sincere thanks to all who have either directly or indirectly

helped me for the completion of this project.
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TABLE OF CONTENTS
I ABOUT THE PROJECT
1. INTRODUCTION
2. PROBLEM BACKGROUND
3.PROBLEM DEFINITION
4. RESEARCH DESIGN
5. LIMITATIONS
II ABOUT THE TOPIC
1. INDUSTRY PROFILE
2. TYPES OF MERGER
3. MOTIVES BEHIND MERGER
4. ADVANTAGES OF MERGER
III COMPANY ANALYSIS
1. ANALYSIS OF ICICI&BANK OF MADURA

2. ANALYSIS OF HDFC&TIMES BANK
3. ANALYSIS OF OBC&GTB
IV CONCLUSIONS
V CALCULATOINS PART
VI APPENDIX
VII BIBLIOGRAPHY
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EXECUTIVE SUMMARY
Merger is a combination of two or more companies into one company. The acquiring
company, (also referred to as the amalgamated company or the merged company)
acquires the assets and the liabilities of the target company (or amalgamating
company). Typically, shareholders of the amalgating company get shares of the
amalgamated company in exchange for their shares in the Target Company.
There are two ways which company can grow; one is internal growth and the other
one is external growth. The internal growth suffers from drawbacks like the problem
of raising adequate finances, longer implementation time of the projects, uncertain
etc. in order to overcome these problems a company can grow externally by
acquiring the already existing business firms. This is the route of mergers and
acquisition.
OBJECTIVE
To evaluate whether the mergers and acquisitions in banking sector create any
shareholder value or not.
RESEARCH TOOLS
Financial ratios, Economic Value added and market Value Added.
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SAMPLE DESIGN
A sample of three mergers has been taken and the financial statements of five years
had been analyzed. The five-year period comprises of Pre-merger period and post
merger period.
FINDINGS
 Shareholders of the target company has benefited more than the acquired
company.
 The post merger analysis is showing the increasing trend in MVA&EVA.
 The market price has increased during merger period of target companies.
 All the parameters are showing increasing trend after merger period.
 EPS of the acquired companies has increased more than 100% in post merger
period.
CONCLUSION
My final and ultimate conclusion is , yes, merger of all these companies have created
value to the shareholders of the target company and acquired company.
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Mergers and acquisitions in India
Mergers and acquisitions aim towards Business Restructuring and increasing

competitiveness and shareholder value Via increased efficiency. In the market place
it is the survival of the fittest.
India has witnessed a storm of mergers in recent years. The Finance Act,1999
clarified many issues relating to Business Reorganizations there by facilitating and
making business-restructuring tax neutral. As per Finance Minister this has been
done to accelerate internal liberalization and to release productive energies and
creativity of Indian businesses.
The year 1999-2000 has notched-up deals over Rs.21000 crore which is over 1% of
India’s GDP. This level of activity was never seen in Indian corporate sector.
InfoTech, Banking , media , pharma, cement , power are the sectors, which are more
active in mergers and acquisitions.
Consolidation of banking industry-an overview
HDFC Bank and Times Bank tied the merger knot in year 1999. The coming
together of two likeminded private banks for mutual benefit was a land mark event
in the history of Indian banking.
Many analysis viewed this action as opening of the floodgate of a spate of mergers
and consolidations among the banks, but this was not to be, it took nearly a year for
another merger. The process of consolidation is a slow and painful process. But the
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wait and watch game played by the banks seems to have come to an end. With
competition setting in and tightening of the prudential norms by the apex bank the
players in the industry seems to be taking turns to merge.
It was the turn Bank Of Madura to integrate with ICICI Bank. This merger is
remarkable different from the earlier ones. It is a merger between banks of two
different generations. It marks the beginning of the acceptance of merger with old
generation banks, which seemed to be out of place with numerous embedded
problems.
The markets seem to be in favor of bank consolidation. As in the case of HDFC

Bank and Times Bank, this time also market welcomed the merger of ICICI Bank
and Bank of Madura. Each time a merger is announced it seems to set out a signal in
the industry of further consolidation. The shares of the bank reached new heights.
This time it was not only the turn of the new private sector banks, but also the shares
of old generation private banks and even public sector banks experienced an buying
interest. Are these merger moves a culmination of the consolidation in the industry?
Will any bank be untouched and which will be left out?
To answer this question let us first glance through the industry and see where the
different players are placed. The Indian banking industry is consisting of four
categories-public sector banks, new private sector banks and foreign banks. The
public sector banks control a major share of the banking operations. These include
some of the biggest names in the industry like Stare Bank of India and its associate
banks, Bank of Baroda, Corporation bank etc. their strength lies in their reach and
distribution network. Their problems rage from high NPA’s to over employment. The
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government controls these banks. Most of these banks are trying to change the
perception. The government controls these banks. Most of these banks are trying to
change the perception. The recent thrust on reduction of government stake, VRS and
NPA settlement are steps in this direction. However, real consolidation can happen if
government reduces its stake and changes its perception on the need of merger. The
government’s stand has always been that consolidation should happen to save a bank
from collapsing. The old private sector banks are the banks, which were established
prior the Banking
Nationalization Act, but could not be nationalized because of their small size. This
segment includes the Bank Of Madura, United Western Bank, Jammu and Kashmir
bank; etc. who banks are facing competition from private banks and foreign banks.
They are trying to improve their margins. Though some of the banks in this category
are doing extremely well, the investors and the markets seem not to reward them
adequately. These banks are unable to detach themselves effectively from the older
tag. The new private banks came into existence with the amendment of Banking
Regulation Act in 1993, Which permitted the entry of new private sector banks.
Of the above the spotlight is on the old generation private banks. The OGPBs can
become easy takeover targets. The sizable portfolios of advances and deposits act as
an incentive. Added to this these banks have a diversified shareholder base, which
inhibits them from launching an effective battle against the potential acquirers. The
effective shield against takeovers for these banks could be to get into strategic
alliances like the Vysya bank model, which has bank Brussels Lambert of the Dutch
ING Group as a strategic investor. United Western Bank and Lord Krishna Bank are
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already on a lookout for strategic partners. But the problems go beyond the
shareholding pattern and are far rooted. The prudential norms like the increasing
CAR and the minimum net worth requirements are making the very existence of
these banks difficult. They are finding it difficult. They are finding difficult to raise
capital and keep up with the ever-tightening norms .one of the survival routes fore
these banks is to merge with another bank.
Mergers: Making sense of it all

In the process of merger banks will have to give due importance to synergies and
complimentary adhesions. The merger must make sound business sense and reflect
in increasing the shareholder value. It should help increase the bank’s net worth and
its capital adequacy. A merger should expand business opportunity for both banks.
The other critical and competitive edge for survival is the cost of funds, which
means stable deposits and risk diversification. Network size is very important in this
perspective because one cannot grow staying in one place because the asset market
in every place is limited. Unless one prepares the building blocks for growth by
looking outside one’s area he either sells out or gets acquired. The features, which a
bank looks in its target seems to be the distribution network (number of branches
and geographical distribution), number of clients and financial parameters like cost
of funds, capital adequacy ratio, NPA and provision cover.
The merger of strong entities should be encouraged. The reason for the merger
should not be to save a bank from extinction rather the motive must be to go join for
the distant advantages of both combining banks towards a mutual benefit. PS
Shenoy, chairman and managing director, Bank of Baroda said,” today public sector
bank can merge with another bank only through moratorium route.” That means you
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can takeover only a dead and you die yourself and allow to be merged with a strong
bank. Unfortunately, this is not the spirit behind the merger and acquisition.
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Time for strategic alliance
It is not only important for banks to merge with banks but also entities in the other
business activities. Strategic partnership could become the in thing. Strategic
mergers between banks for using each other’s infrastructure enabling remittance of
funds to various centers among the strategic partner banks can give the account
holder the flexibility of purchasing a draft payable at centers where the strategic tie-
up exists. The strategic tie-up could also include a
bank with another specialized investment bank to provide value-added services. Tie-
ups
Could also be between a bank and technology firm to provide advanced services. It
is these
Strategic tie-ups that are set to increase in future. These along with providing vale-
added benefits, also help in building positive perceptions in the market.
In a macro perspective mergers and acquisition can prove effective on strengthening

the Indian financial sector. Today, while Indian banks have made tremendous strides
in extending the reach domestically, internationally the Indian system is conspicuous
by its absence. The are very few catering mostly to India related business. As a
result India does not have a presence in international financial markets. If India has
to emerge as an international banking center the presence of large banks with foreign
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presence is essential. With globalization and strategic alliances Indian banks would
grow originally. The would-be large banks with international presence. Globally the
banking industry is consolidating through cross-border mergers. India seems to be
far behind. The law does not allow the foreign banks with branch network to acquire
Indian banks. But who knows with pressures of globalization the law of the land
could be amended paving way for a cross border deal.
While the private sector banks are on the threshold of improvement, the public
sector banks (PSB”s) are slowly contemplating automation to accelerate and cover
the lost ground. To contend with new challenges posed by the private sector banks,
PSB”s are pumping huge amounts to update their IT but still, it looks like, public
sector banks need to shift the gears, accelerate their movements, in the right
direction by automation their branches and providing, Internet banking services.
Private sector banks, in order to compete with large and well-established public
sector banks, are not only foraying into IT, but also shaking hands with peer banks to
establish themselves in the market. While one of the first initiatives was taken in
November 1999, when Deepak Prakesh of HDFC and S.M.Datta of Times bank
shook hands, created history. It is the first merger in the Indian banking, signaling
that Indian banking sector joined the mergers and acquisitions bandwagon. Prior to
this private bank merger, there have been quite a few attempts made by the
government to rescue weak banks and synergize the operations to achieve scale
economies but unfortunately they were all futile. Presently ‘size’ of the bank is
recognized as one of the major strengths in the industry. And, mergers amongst
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strong banks can both a means to strengthen the base, and of course, to face the
cutthroat competition.
The appetite for mergers is making a come back among the public sector banking
industry. The instincts are aired openly at various forums and conferences. The bank
economist conference perhaps set the ball rolling after the special secretary for
banking Devi Dayal stressed the importance of the size as a factor. He pointed out
the consolidation through merger and acquisition was becoming a trend in the global
banking scenario wanted the Indian counterparts to think on the same lines. There is
also a feeling threat there are far too many banks. PS Shenoy, chairman and
managing director of Bank of Baroda, said, “There are too many banks to handle the
size of business.” The pace of mergers will hasten. As the time runs out and the
choice of target banks with complimentary businesses gets reduced there would be a
last-minute rush to acquire the remaining banks, which will hasten the process of
consolidation.
Mergers and Acquisitions in India - A general Analysis - Corporate law
The Indian economy has been growing with a rapid pace and has been emerging at
the top, be it IT, RandD, pharmaceutical, infrastructure, energy, consumer retail,
telecom, financial services, media, and hospitality etc. It is second fastest growing
economy in the world with GDP touching 9.3 % last year. This growth momentum
was supported by the double digit growth of the services sector at 10.6% and
industry at 9.7% in the first quarter of 2006-07. Investors, big companies, industrial
houses view Indian market in a growing and proliferating phase, whereby returns on
capital and the shareholder returns are high. Both the inbound and outbound mergers
and acquisitions have increased dramatically. According to Investment bankers,
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Merger and Acquisition (MandA) deals in India will cross $100 billion this year,
which is double last year's level and quadruple of 2005.
In the first two months of 2007, corporate India witnessed deals worth close to $40
billion. One of the first overseas acquisitions by an Indian company in 2007 was
Mahindra and Mahindra's takeover of 90 percent stake in Schoneweiss, a family-
owned German company with over 140 years of experience in forging business.
What hit the headlines early this year was Tata's takeover of Corus for slightly over
$10 billion. On the heels of that deal, Hutchison Whampoa of Hong Kong sold their
controlling stake in Hutchison-Essar to Vodafone for a whopping $11.1 billion.
Bangalore-based MTR's packaged food division found a buyer in Orkala, a
Norwegian company for $100 million. Service companies have also joined the
MandA game.
The taxation practice of Mumbai-based RSM Ambit was acquired by

PricewaterhouseCoopers. There are many other bids in the pipeline. On an average,
in the last four years corporate earnings of companies in India have been increasing
by 20-25 percent, contributing to enhanced profitability and healthy balance sheets.
For such companies, MandAs are an effective strategy to expand their businesses
and acquire global footprint.
Mergers or amalgamation, result in the combination of two or more companies into

one, wherein the merging entities lose their identities. No fresh investment is made
through this process. However, an exchange of shares takes place between the
entities involved in such a process. Generally, the company that survives is the buyer
which retains its identity and the seller company is extinguished.
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Definitions:
Mergers, acquisitions and takeovers have been a part of the business world for
centuries. In today's dynamic economic environment, companies are often faced
with decisions concerning these actions - after all, the job of management is to
maximize shareholder value. Through mergers and acquisitions, a company can (at
least in theory) develop a competitive advantage and ultimately increase shareholder
value. The said terms to a layman may seem alike but in legal/ corporate
terminology, they can be distinguished from each other:
# Merger: A full joining together of two previously separate corporations. A true
merger in the legal sense occurs when both businesses dissolve and fold their assets
and liabilities into a newly created third entity. This entails the creation of a new
corporation.
# Acquisition: Taking possession of another business. Also called a takeover or

buyout. It may be share purchase (the buyer buys the shares of the target company
from the shareholders of the target company. The buyer will take on the company
with all its assets and liabilities. ) or asset purchase (buyer buys the assets of the
target company from the target company)
In simple terms, A merger involves the mutual decision of two companies to

combine and become one entity; it can be seen as a decision made by two "equals",
whereas an acquisition or takeover on the other hand, is characterized the purchase
of a smaller company by a much larger one. This combination of "unequals" can
produce the same benefits as a merger, but it does not necessarily have to be a
mutual decision. A typical merger, in other words, involves two relatively equal
companies, which combine to become one legal entity with the goal of producing a
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company that is worth more than the sum of its parts. In a merger of two
corporations, the shareholders usually have their shares in the old company
exchanged for an equal number of shares in the merged entity. In an acquisition, the
acquiring firm usually offers a cash price per share to the target firm's shareholders
or the acquiring firm's share's to the shareholders of the target firm according to a
specified conversion ratio. Either way, the purchasing company essentially finances
the purchase of the target company, buying it outright for its shareholders
# Joint Venture: Two or more businesses joining together under a contractual

agreement to conduct a specific business enterprise with both parties sharing profits
and losses. The venture is for one specific project only, rather than for a continuing
business relationship as in a strategic alliance.
# Strategic Alliance: A partnership with another business in which you combine

efforts in a business effort involving anything from getting a better price for goods
by buying in bulk together to seeking business together with each of you providing
part of the product. The basic idea behind alliances is to minimize risk while
maximizing your leverage.
# Partnership: A business in which two or more individuals who carry on a

continuing business for profit as co-owners. Legally, a partnership is regarded as a
group of individuals rather than as a single entity, although each of the partners file
their share of the profits on their individual tax returns.
Many mergers are in truth acquisitions. One business actually buys another and
incorporates it into its own business model. Because of this misuse of the term
merger, many statistics on mergers are presented for the combined mergers and
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acquisitions (MandA) that are occurring. This gives a broader and more accurate
view of the merger market .
Types of Mergers
From the perception of business organizations, there is a whole host of different
mergers. However, from an economist point of view i.e. based on the relationship
between the two merging companies, mergers are classified into following:
# Horizontal merger- Two companies that are in direct competition and share the
same product lines and markets i.e. it results in the consolidation of firms that are
direct rivals. E.g. Exxon and Mobil, Ford and Volvo, Volkswagen and Rolls Royce
and Lamborghini
# Vertical merger- A customer and company or a supplier and company i.e. merger
of firms that have actual or potential buyer-seller relationship eg. Ford- Bendix,
Time Warner-TBS.
# Conglomerate merger- generally a merger between companies which do not have

any common business areas or no common relationship of any kind. Consolidated
firma may sell related products or share marketing and distribution channels or
production processes. Such kind of merger may be broadly classified into following:
# Product-extension merger - Conglomerate mergers which involves companies
selling different but related products in the same market or sell non-competing
products and use same marketing channels of production process. E.g. Phillip
Morris-Kraft, Pepsico- Pizza Hut, Proctor and Gamble and Clorox
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# Market-extension merger - Conglomerate mergers wherein companies that sell the
same products in different markets/ geographic markets. E.g. Morrison supermarkets
and Safeway, Time Warner-TCI.
# Pure Conglomerate merger- two companies which merge have no obvious
relationship of any kind. E.g. BankCorp of America- Hughes Electronics.
On a general analysis, it can be concluded that Horizontal mergers eliminate sellers
and hence reshape the market structure i.e. they have direct impact on seller
concentration whereas vertical and conglomerate mergers do not affect market
structures e.g. the seller concentration directly. They do not have anticompetitive
consequences.
The circumstances and reasons for every merger are different and these
circumstances impact the way the deal is dealt, approached, managed and
executed. .However, the success of mergers depends on how well the deal makers
can integrate two companies while maintaining day-to-day operations. Each deal has
its own flips which are influenced by various extraneous factors such as human
capital component and the leadership. Much of it depends on the company's
leadership and the ability to retain people who are key to company's on going
success. It is important, that both the parties should be clear in their mind as to the
motive of such acquisition i.e. there should be census- ad- idiom. Profits, intellectual
property, costumer base are peripheral or central to the acquiring company, the
motive will determine the risk profile of such MandA. Generally before the onset of
any deal, due diligence is conducted so as to gauze the risks involved, the quantum
of assets and liabilities that are acquired etc.
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Legal Procedures for Merger, Amalgamations and Take-over
The basis law related to mergers is codified in the Indian Companies Act, 1956
which works in tandem with various regulatory policies. The general law relating to
mergers, amalgamations and reconstruction is embodied in sections 391 to 396 of
the Companies Act, 1956 which jointly deal with the compromise and arrangement
with creditors and members of a company needed for a merger. Section 391 gives
the Tribunal the power to sanction a compromise or arrangement between a
company and its creditors/ members subject to certain conditions. Section 392 gives
the power to the Tribunal to enforce and/ or supervise such compromises or
arrangements with creditors and members. Section 393 provides for the availability
of the information required by the creditors and members of the concerned company
when acceding to such an arrangement. Section 394 makes provisions for facilitating
reconstruction and amalgamation of companies, by making an appropriate
application to the Tribunal. Section 395 gives power and duty to acquire the shares
of shareholders dissenting from the scheme or contract approved by the majority.
And Section 396 deals with the power of the central government to provide for an
amalgamation of companies in the national interest. In any scheme of amalgamation,
both the amalgamating company or companies and the amalgamated company
should comply with the requirements specified in sections 391 to 394 and submit
details of all the formalities for consideration of the Tribunal. It is not enough if one
of the companies alone fulfils the necessary formalities. Sections 394, 394A of the
Companies Act deal with the procedures and the requirements to be followed in
order to effect amalgamations of companies coupled with the provisions relating to
the powers of the Tribunal and the central government in the matter of bringing
about amalgamations of companies.
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After the application is filed, the Tribunal would pass orders with regard to the
fixation of the dates of the hearing, and the provision of a copy of the application to
the Registrar of Companies and the Regional Director of the Company Law Board in
accordance with section 394A and to the Official Liquidator for the report
confirming that the affairs of the company have not been conducted in a manner
prejudicial to the interest of the shareholders or the public. Before sanctioning the
scheme of amalgamation, the Tribunal has also to give notice of every application
made to it under section 391 to 394 to the central government and the Tribunal
should take into consideration the representations, if any, made to it by the
government before passing any order granting or rejecting the scheme of
amalgamation. Thus the central government is provided with an opportunity to have
a say in the matter of amalgamations of companies before the scheme of
amalgamation is approved or rejected by the Tribunal.
The powers and functions of the central government in this regard are exercised by
the Company Law Board through its Regional Directors. While hearing the petitions
of the companies in connection with the scheme of amalgamation, the Tribunal
would give the petitioner company an opportunity to meet all the objections which
may be raised by shareholders, creditors, the government and others. It is, therefore,
necessary for the company to keep itself ready to face the various arguments and
challenges. Thus by the order of the Tribunal, the properties or liabilities of the
amalgamating company get transferred to the amalgamated company. Under section
394, the Tribunal has been specifically empowered to make specific provisions in its
order sanctioning an amalgamation for the transfer to the amalgamated company of
the whole or any parts of the properties, liabilities, etc. of the amalgamated company.
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The rights and liabilities of the employees of the amalgamating company would
stand transferred to the amalgamated company only in those cases where the
Tribunal specifically directs so in its order.
The assets and liabilities of the amalgamating company automatically gets vested in
the amalgamated company by virtue of the order of the Tribunal granting a scheme
of amalgamation. The Tribunal also make provisions for the means of payment to
the shareholders of the transferor companies, continuation by or against the
transferee company of any legal proceedings pending by or against any transferor
company, the dissolution (without winding up) of any transferor company, the
provision to be made for any person who dissents from the compromise or
arrangement, and any other incidental consequential and supplementary matters to
secure the amalgamation process if it is necessary. The order of the Tribunal granting
sanction to the scheme of amalgamation must be submitted by every company to
which the order applies (i.e., the amalgamating company and the amalgamated
company) to the Registrar of Companies for registration within thirty days.
Motives behind M and A

These motives are considered to add shareholder value:
# Economies of Scale: This generally refers to a method in which the average cost
per unit is decreased through increased production, since fixed costs are shared over
an increased number of goods. In a layman's language, more the products, more is
the bargaining power. This is possible only when the companies merge/ combine/
acquired, as the same can often obliterate duplicate departments or operation,
thereby lowering the cost of the company relative to theoretically the same revenue
stream, thus increasing profit. It also provides varied pool of resources of both the
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combining companies along with a larger share in the market, wherein the resources
can be exercised.
# Increased revenue /Increased Market Share: This motive assumes that the company
will be absorbing the major competitor and thus increase its power (by capturing
increased market share) to set prices.
# Cross selling: For example, a bank buying a stock broker could then sell its
banking products to the stock brokers customers, while the broker can sign up the
bank' customers for brokerage account. Or, a manufacturer can acquire and sell
complimentary products.
# Corporate Synergy: Better use of complimentary resources. It may take the form of
revenue enhancement (to generate more revenue than its two predecessor standalone
companies would be able to generate) and cost savings (to reduce or eliminate
expenses associated with running a business).
# Taxes : A profitable can buy a loss maker to use the target's tax right off i.e.
wherein a sick company is bought by giants.
# Geographical or other diversification: this is designed to smooth the earning results
of a company, which over the long term smoothens the stock price of the company
giving conservative investors more confidence in investing in the company.
However, this does not always deliver value to shareholders.
# Resource transfer: Resources are unevenly distributed across firms and interaction
of target and acquiring firm resources can create value through either overcoming
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information asymmetry or by combining scarce resources. Eg: Laying of employees,
reducing taxes etc.
# Improved market reach and industry visibility - Companies buy companies to
reach new markets and grow revenues and earnings. A merge may expand two
companies' marketing and distribution, giving them new sales opportunities. A
merger can also improve a company's standing in the investment community: bigger
firms often have an easier time raising capital than smaller ones.
Advantages of MandA's:
The general advantage behind mergers and acquisition is that it provides a
productive platform for the companies to grow, though much of it depends on the
way the deal is implemented. It is a way to increase market penetration in a
particular area with the help of an established base. As per Mr D.S Brar (former
C.E.O of Ranbaxy pharmaceuticals), few reasons for MandA's are:
# Accessing new markets
# maintaining growth momentum
# acquiring visibility and international brands
# buying cutting edge technology rather than importing it
# taking on global competition
# improving operating margins and efficiencies
Recommendations of Narasimham Committee on Banking Sector Reforms

The Narasimham Committee on banking sector reforms suggested that ‘merger
should not be viewed as a means of bailing out weak banks. They could be a solution
to the problem of weak banks but only after cleaning up their balance sheet.’ The
government has tried to find a solution on similar lines, and passed an ordinance on
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September 4, 1993, and took the initiative to merger New Bank of India (NBI) with
Punjab National Bank (PNB). Ultimately, this turned out to be an unhappy event.
Following this, there was a long silence in the market till HDFC Bank successfully
took over Times Bank. Market gained confidence, and subsequently, there were two
more mega mergers. The merger on Bank Of Madura with ICICI Bank, and of
Global Trust Bank with UTI Bank, emerging as a new bank, UTI Bank, emerging as
a new bank, UTI-Global Bank.
The following are the recommendations of the committee
 Globally, the banking and financial systems have adopted information and
communications technology. This phenomenon has largely bypassed the
Indian banking system, and the committee feels that requisite success needs to
be achieved in the following areas:
1. Bank automation
2. Planning, standardization of electronic payment systems
3. Telecom infrastructure
4. Data warehousing network
 Mergers between banks and DFIs and NBFCs need to be based on synergies
and should make a sound commercial sense. Committee also opines that
mergers between strong banks/FIs would make for grater economic and
commercial sense and would be a case where the whole is greater than the
sum of its parts and have a “force multiplier effect”. It is also opined that
mergers should not be seen as a means of bailing out weak banks.
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 A weak bank could be nurtured into healthy units. Merger could also be a
solution to a weak bank, but the committee suggests it only after cleaning up
their balance sheets. It also says, if there is no voluntary response to a
takeover of there banks a restructuring, merger amalgamation, or if not
closure.
 The committee also opines that, licensing new private sector banks, the initial
capital requirements need to be reviewed. It also emphasized on a transparent
mechanism for deciding the ability of promoters to professionally manage the
banks. The committee also feels that a minimum threshold capital for old
private banks also deserves attention and mergers could be one of the options
available for reaching the required threshold capitals. The committee also
opined that a promoter group couldn’t hold more than 40% of the equity of a
bank.
The Indian banking and financial sector-a wealth creator or a wealth

destroyer?
The Indian banking and financial sector (BFS) destroyed 22 paise of market value
added (MVA) for every rupee invested in it, which is really poor compared to the
BFS sector in the U.S, which has created 92 cents of MVA per unit of invested
capital. The good news is that the performance of the wealth creating Indian banks
has been better than that of the wealthy creating US banks.
But the sad part is that the banks, which h destroy 59 paise of wealth for every rupee
invested, consume about 88% of total capital invested in out BFS sector. As a
benchmark, the US economy invests 83% of its capital in wealth creators.
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The appetite for mergers is making a comeback among the public sector banking
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consolidation.
Mergers and Acquisitions in India - A general Analysis - Corporate law
The Indian economy has been growing with a rapid pace and has been emerging at
the top, be it IT, RandD, pharmaceutical, infrastructure, energy, consumer retail,
telecom, financial services, media, and hospitality etc. It is second fastest growing
economy in the world with GDP touching 9.3 % last year. This growth momentum
was supported by the double digit growth of the services sector at 10.6% and
industry at 9.7% in the first quarter of 2006-07. Investors, big companies, industrial
houses view Indian market in a growing and proliferating phase, whereby returns on
capital and the shareholder returns are high. Both the inbound and outbound mergers
and acquisitions have increased dramatically. According to Investment bankers,
Merger and Acquisition (MandA) deals in India will cross $100 billion this year,
which is double last year's level and quadruple of 2005.
In the first two months of 2007, corporate India witnessed deals worth close to $40
billion. One of the first overseas acquisitions by an Indian company in 2007 was
Mahindra and Mahindra's takeover of 90 percent stake in Schoneweiss, a family-
owned German company with over 140 years of experience in forging business.
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What hit the headlines early this year was Tata's takeover of Corus for slightly over
$10 billion. On the heels of that deal, Hutchison Whampoa of Hong Kong sold their
controlling stake in Hutchison-Essar to Vodafone for a whopping $11.1 billion.
Bangalore-based MTR's packaged food division found a buyer in Orkala, a
Norwegian company for $100 million. Service companies have also joined the
MandA game.
The taxation practice of Mumbai-based RSM Ambit was acquired by

PricewaterhouseCoopers. There are many other bids in the pipeline. On an average,
in the last four years corporate earnings of companies in India have been increasing
by 20-25 percent, contributing to enhanced profitability and healthy balance sheets.
For such companies, MandAs are an effective strategy to expand their businesses
and acquire global footprint.
Mergers or amalgamation, result in the combination of two or more companies into

one, wherein the merging entities lose their identities. No fresh investment is made
through this process. However, an exchange of shares takes place between the
entities involved in such a process. Generally, the company that survives is the buyer
which retains its identity and the seller company is extinguished.
Definitions:
Mergers, acquisitions and takeovers have been a part of the business world for
centuries. In today's dynamic economic environment, companies are often faced
with decisions concerning these actions - after all, the job of management is to
maximize shareholder value. Through mergers and acquisitions, a company can (at
least in theory) develop a competitive advantage and ultimately increase shareholder
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value. The said terms to a layman may seem alike but in legal/ corporate
terminology, they can be distinguished from each other:
# Merger: A full joining together of two previously separate corporations. A true
merger in the legal sense occurs when both businesses dissolve and fold their assets
and liabilities into a newly created third entity. This entails the creation of a new
corporation.
# Acquisition: Taking possession of another business. Also called a takeover or

buyout. It may be share purchase (the buyer buys the shares of the target company
from the shareholders of the target company. The buyer will take on the company
with all its assets and liabilities. ) or asset purchase (buyer buys the assets of the
target company from the target company)
In simple terms, A merger involves the mutual decision of two companies to

combine and become one entity; it can be seen as a decision made by two "equals",
whereas an acquisition or takeover on the other hand, is characterized the purchase
of a smaller company by a much larger one. This combination of "unequals" can
produce the same benefits as a merger, but it does not necessarily have to be a
mutual decision. A typical merger, in other words, involves two relatively equal
companies, which combine to become one legal entity with the goal of producing a
company that is worth more than the sum of its parts. In a merger of two
corporations, the shareholders usually have their shares in the old company
exchanged for an equal number of shares in the merged entity. In an acquisition, the
acquiring firm usually offers a cash price per share to the target firm's shareholders
or the acquiring firm's share's to the shareholders of the target firm according to a
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specified conversion ratio. Either way, the purchasing company essentially finances
the purchase of the target company, buying it outright for its shareholders
# Joint Venture: Two or more businesses joining together under a contractual

agreement to conduct a specific business enterprise with both parties sharing profits
and losses. The venture is for one specific project only, rather than for a continuing
business relationship as in a strategic alliance.
# Strategic Alliance: A partnership with another business in which you combine

efforts in a business effort involving anything from getting a better price for goods
by buying in bulk together to seeking business together with each of you providing
part of the product. The basic idea behind alliances is to minimize risk while
maximizing your leverage.
# Partnership: A business in which two or more individuals who carry on a

continuing business for profit as co-owners. Legally, a partnership is regarded as a
group of individuals rather than as a single entity, although each of the partners file
their share of the profits on their individual tax returns.
Many mergers are in truth acquisitions. One business actually buys another and
incorporates it into its own business model. Because of this misuse of the term
merger, many statistics on mergers are presented for the combined mergers and
acquisitions (MandA) that are occurring. This gives a broader and more accurate
view of the merger market .
Types of Mergers
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From the perception of business organizations, there is a whole host of different
mergers. However, from an economist point of view i.e. based on the relationship
between the two merging companies, mergers are classified into following:
# Horizontal merger- Two companies that are in direct competition and share the
same product lines and markets i.e. it results in the consolidation of firms that are
direct rivals. E.g. Exxon and Mobil, Ford and Volvo, Volkswagen and Rolls Royce
and Lamborghini
# Vertical merger- A customer and company or a supplier and company i.e. merger
of firms that have actual or potential buyer-seller relationship eg. Ford- Bendix,
Time Warner-TBS.
# Conglomerate merger- generally a merger between companies which do not have

any common business areas or no common relationship of any kind. Consolidated
firma may sell related products or share marketing and distribution channels or
production processes. Such kind of merger may be broadly classified into following:
# Product-extension merger - Conglomerate mergers which involves companies
selling different but related products in the same market or sell non-competing
products and use same marketing channels of production process. E.g. Phillip
Morris-Kraft, Pepsico- Pizza Hut, Proctor and Gamble and Clorox
# Market-extension merger - Conglomerate mergers wherein companies that sell the
same products in different markets/ geographic markets. E.g. Morrison supermarkets
and Safeway, Time Warner-TCI.
# Pure Conglomerate merger- two companies which merge have no obvious
relationship of any kind. E.g. BankCorp of America- Hughes Electronics.
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On a general analysis, it can be concluded that Horizontal mergers eliminate sellers
and hence reshape the market structure i.e. they have direct impact on seller
concentration whereas vertical and conglomerate mergers do not affect market
structures e.g. the seller concentration directly. They do not have anticompetitive
consequences.
The circumstances and reasons for every merger are different and these
circumstances impact the way the deal is dealt, approached, managed and
executed. .However, the success of mergers depends on how well the deal makers
can integrate two companies while maintaining day-to-day operations. Each deal has
its own flips which are influenced by various extraneous factors such as human
capital component and the leadership. Much of it depends on the company's
leadership and the ability to retain people who are key to company's on going
success. It is important, that both the parties should be clear in their mind as to the
motive of such acquisition i.e. there should be census- ad- idiom. Profits, intellectual
property, costumer base are peripheral or central to the acquiring company, the
motive will determine the risk profile of such MandA. Generally before the onset of
any deal, due diligence is conducted so as to gauze the risks involved, the quantum
of assets and liabilities that are acquired etc.
Legal Procedures for Merger, Amalgamations and Take-over

The basis law related to mergers is codified in the Indian Companies Act, 1956
which works in tandem with various regulatory policies. The general law relating to
mergers, amalgamations and reconstruction is embodied in sections 391 to 396 of
the Companies Act, 1956 which jointly deal with the compromise and arrangement
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with creditors and members of a company needed for a merger. Section 391 gives
the Tribunal the power to sanction a compromise or arrangement between a
company and its creditors/ members subject to certain conditions. Section 392 gives
the power to the Tribunal to enforce and/ or supervise such compromises or
arrangements with creditors and members. Section 393 provides for the availability
of the information required by the creditors and members of the concerned company
when acceding to such an arrangement. Section 394 makes provisions for facilitating
reconstruction and amalgamation of companies, by making an appropriate
application to the Tribunal. Section 395 gives power and duty to acquire the shares
of shareholders dissenting from the scheme or contract approved by the majority.
And Section 396 deals with the power of the central government to provide for an
amalgamation of companies in the national interest. In any scheme of amalgamation,
both the amalgamating company or companies and the amalgamated company
should comply with the requirements specified in sections 391 to 394 and submit
details of all the formalities for consideration of the Tribunal. It is not enough if one
of the companies alone fulfils the necessary formalities. Sections 394, 394A of the
Companies Act deal with the procedures and the requirements to be followed in
order to effect amalgamations of companies coupled with the provisions relating to
the powers of the Tribunal and the central government in the matter of bringing
about amalgamations of companies.
After the application is filed, the Tribunal would pass orders with regard to the
fixation of the dates of the hearing, and the provision of a copy of the application to
the Registrar of Companies and the Regional Director of the Company Law Board in
accordance with section 394A and to the Official Liquidator for the report
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confirming that the affairs of the company have not been conducted in a manner
prejudicial to the interest of the shareholders or the public. Before sanctioning the
scheme of amalgamation, the Tribunal has also to give notice of every application
made to it under section 391 to 394 to the central government and the Tribunal
should take into consideration the representations, if any, made to it by the
government before passing any order granting or rejecting the scheme of
amalgamation. Thus the central government is provided with an opportunity to have
a say in the matter of amalgamations of companies before the scheme of
amalgamation is approved or rejected by the Tribunal.
The powers and functions of the central government in this regard are exercised by
the Company Law Board through its Regional Directors. While hearing the petitions
of the companies in connection with the scheme of amalgamation, the Tribunal
would give the petitioner company an opportunity to meet all the objections which
may be raised by shareholders, creditors, the government and others. It is, therefore,
necessary for the company to keep itself ready to face the various arguments and
challenges. Thus by the order of the Tribunal, the properties or liabilities of the
amalgamating company get transferred to the amalgamated company. Under section
394, the Tribunal has been specifically empowered to make specific provisions in its
order sanctioning an amalgamation for the transfer to the amalgamated company of
the whole or any parts of the properties, liabilities, etc. of the amalgamated company.
The rights and liabilities of the employees of the amalgamating company would
stand transferred to the amalgamated company only in those cases where the
Tribunal specifically directs so in its order.
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The assets and liabilities of the amalgamating company automatically gets vested in
the amalgamated company by virtue of the order of the Tribunal granting a scheme
of amalgamation. The Tribunal also make provisions for the means of payment to
the shareholders of the transferor companies, continuation by or against the
transferee company of any legal proceedings pending by or against any transferor
company, the dissolution (without winding up) of any transferor company, the
provision to be made for any person who dissents from the compromise or
arrangement, and any other incidental consequential and supplementary matters to
secure the amalgamation process if it is necessary. The order of the Tribunal granting
sanction to the scheme of amalgamation must be submitted by every company to
which the order applies (i.e., the amalgamating company and the amalgamated
company) to the Registrar of Companies for registration within thirty days.
Motives behind M and A

These motives are considered to add shareholder value:
# Economies of Scale: This generally refers to a method in which the average cost
per unit is decreased through increased production, since fixed costs are shared over
an increased number of goods. In a layman's language, more the products, more is
the bargaining power. This is possible only when the companies merge/ combine/
acquired, as the same can often obliterate duplicate departments or operation,
thereby lowering the cost of the company relative to theoretically the same revenue
stream, thus increasing profit. It also provides varied pool of resources of both the
combining companies along with a larger share in the market, wherein the resources
can be exercised.
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# Increased revenue /Increased Market Share: This motive assumes that the company
will be absorbing the major competitor and thus increase its power (by capturing
increased market share) to set prices.
# Cross selling: For example, a bank buying a stock broker could then sell its
banking products to the stock brokers customers, while the broker can sign up the
bank' customers for brokerage account. Or, a manufacturer can acquire and sell
complimentary products.
# Corporate Synergy: Better use of complimentary resources. It may take the form of
revenue enhancement (to generate more revenue than its two predecessor standalone
companies would be able to generate) and cost savings (to reduce or eliminate
expenses associated with running a business).
# Taxes : A profitable can buy a loss maker to use the target's tax right off i.e.
wherein a sick company is bought by giants.
# Geographical or other diversification: this is designed to smooth the earning results
of a company, which over the long term smoothens the stock price of the company
giving conservative investors more confidence in investing in the company.
However, this does not always deliver value to shareholders.
# Resource transfer: Resources are unevenly distributed across firms and interaction
of target and acquiring firm resources can create value through either overcoming
information asymmetry or by combining scarce resources. Eg: Laying of employees,
reducing taxes etc.
# Improved market reach and industry visibility - Companies buy companies to
reach new markets and grow revenues and earnings. A merge may expand two
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companies' marketing and distribution, giving them new sales opportunities. A
merger can also improve a company's standing in the investment community: bigger
firms often have an easier time raising capital than smaller ones.
Advantages of MandA's:
The general advantage behind mergers and acquisition is that it provides a
productive platform for the companies to grow, though much of it depends on the
way the deal is implemented. It is a way to increase market penetration in a
particular area with the help of an established base. As per Mr D.S Brar (former
C.E.O of Ranbaxy pharmaceuticals), few reasons for MandA's are:
# Accessing new markets
# maintaining growth momentum
# acquiring visibility and international brands
# buying cutting edge technology rather than importing it
# taking on global competition
# improving operating margins and efficiencies
In the banking and financial sector too. The winners on the MVA-scale are different
from those on traditional Size-based measures such as total assets, revenues, and
profit after tax and market value of equity. Indeed, the banks with most assets such
as State Bank Of India and Industrial Development Bank Of India are amongst the
biggest wealth destroyers. SBI tops on size-based measures like revenues, PAT, total
assets, market value of equity, but appears among the bottom ranks for wealth
creation. On the other hand, HDFC and HDFC Bank top the MVA rankings even
though they do not appear in the top 10 ranking based on total assets or revenues.
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PROBLEM BACKGROUND
Profitable growth constitutes one of the prime objectives of the business firms. This
can be achieved ‘internally’ either through the process of introducing/developing
new products or by expanding/enlarging the capacity of existing product (s).
Alternatively, growth process can be facilitated ‘externally’ by acquisition of
existing firms. This acquisition may be in the form of mergers, acquisitions,
amalgamations, takeovers, absorption, consolidation, and so on. The internal growth
is also termed as organic growth while external growth is called inorganic growth
There are strengths and weaknesses of both the growth processes. Internal expansion
apart from enabling the firm to retain control with itself also provides flexibility in
terms of choosing equipment, mode of technology, location, and the like which are
compatible with its exaction operations. However internal expansion usually
involves a longer implementations period and also entails greater uncertainties
particularly associated with development of new products. Above all there might be
sometimes problem of raising adequate finances required for the implementation of
various capital budgeting projects involving expansion. Acquisitions and mergers
obviates, in most of the situations, financing problems as substantial/full payments
are normally made in the form of the shares of the acquiring company. Further it also
expedites the pace of growth as acquired firm already has the facilities or products
and therefore saves time otherwise requires in building up new facilities from
scratch as in the case of internal expansion.
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PROBLEM DEFINITON
What is shareholder value?
Value is a very subjective term. There are many factors, which influence a person to
invest in a particular company. For some it may be capital appreciation, for some it
may be consistency in the earnings of the company, for some it may be the dividends
that the company pays or it may be the reputation of the company. But normally the
market price of the shares is prime motivation factor behind an investment by an
investor.
Hence we can say that a company has created wealth has created wealth when there
is an increase in the market price of the shares. Theoretically also, the financial goal
of a company is to maximize the owner’s economic welfare. Owner’s economic
welfare can be maximized when shareholders wealth is maximized which is
reflected in the increased market value of the shares.
RESEARCH TOOLS
Financial ratios, Economic Value added and Market Value Added.
The above tools which are used to evaluate whether mergers and acquisitions create
any shareholder value or not signify the following:
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The financial ratios that are used in the study are:
1. Return on capital employed
2. Return on Net worth
3. Return on equity
4. Earnings per share
5. Cash earnings per share
Return on capital employed
ROCE = PBIT/ CAPITAL EMPLOYED
PBIT = PBDT + Non- RECURRING EXPENSES – Non recurring income
CAPITAL EMPLOYED = Net fixed assets + Net Current Assets – fictitious

assets
Return on net worth
RONW = PAT / NETWORTH
PAT = profit after tax
NETWORTH = equity share capital +reserves and surplus – fictitious assets

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Earnings per share
EPS = PAT / number of shares
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Cash earnings per share
CEPS = ( PAT + DEPRICIATION ) / number of shares
Economic Value Added
Economic value added ( EVA ) is the after-tax cash flow generated by business
minus the cost of capital it has deployed to generate that cash flow. Representing
real profit versus paper profit , EVA underlies shareholder value, increasingly the
main target of leading company’s strategies. Share holders are the players who
the firm with its capital; they invest to gain a return on that capital.
EVA can be defined as the net operating profit minus the charge of opportunity
cost of all the capital employed into the business. As such , EVA is an estimate of
true “ economic profit” that means to say the amount that the shareholders or
lenders would get by investing in the securities of comparable risk.
The capital charge is an important and distinctive aspect of EVA. Many a times
under traditional accounting system many companies report profits but it is not so
actually. According to Peter.F.Drucker “unless a company is earning more than its
cost of capital, it is operating at loss”.
Thus, EVA is the profit as shareholders define it. To illustrate it, suppose a person
invested Rs.100 in a company. The company is earning at the rate of 20% that
means to say the earnings of the company is Rs 20 while its cost of capital is 15%
that means to say that the company has to pay Rs. 15 to its shareholders. Thus,
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the amount of profit in excess of the cost of capital that is Rs. 5( 20-15) id the
EVA.
Mathematically,
EVA = NOPAT – (capital employed * weighted average cost of capital
But for Banking and Financial sector,
EVA=NOPAT – (net worth * cost of equity)
Where,
NOPAT = net operating profit adjusted to taxes
Market value added (MVA)

MVA = market value added, is a measure of the value added by the company’s
management over and above the capital invested in the company bye its
investors. It is the value added in excess of economic capital employed.
MVA=market value of the firm-economic capital.
Where,
Market value of the firm-market price*number of shares.
Economic capital=capital employed.
LIMITATIONS
The major limitation of the project is the time frame. The post merger analysis is
just for one year and one year is too less period to judge the effect of a merger.
1. The analysis is based on various ratios hence all the limitations of the ratio
analysis become a part of the limitations of the study.
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2. Whole of the analysis is based on the balance sheets and profit and loss
accounts, which is a secondary data. Hence it suffers from being very reliable.
3. The cost of equity has been calculated on the basis of DIVIDEND
APPROACH method. So all the limitations of that method have a place here.
Merger
Merger is a combination of two or more companies into one company. In India, we

call mergers as amalgamations, in legal parlance. The acquiring company, (also
referred to as the amalgamated company or the merged company) acquires the assets
and the liabilities of the target company (or amalgamating company). Typically,
shareholders of the amalgamating company get shares of the amalgamated company
in exchange for their existing shares in the target company. Merger may involve
absorption or consolidation.
Takeover
Takeover can be defined as the acquisition of controlling interest in a company by

another company. It does not lead to the dissolution of the company whose shares
are being acquired. It simply means a change in the controlling interest in a company
through the acquisition of its share by another group.
Horizontal merger
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A horizontal merger involves merger of two firms operating and competing in the
same kind of business activity. Forming a larger firm may have the benefit of
economies of scale. But the argument that horizontal mergers occur to realize
economies of scale are not true horizontal mergers is regulated for their potential
negative effect on expectation. Many as potentially creating monopoly power on the
part of the combined firm enabling it to engage in anticompetitive practices also
believe horizontal mergers.
Vertical mergers
Vertical mergers occur between firms in different stages of production operation. In

oil industry, for example, distinctions are made between exploration, and production,
refining and marketing to ultimate customer. The efficiency and affirmative rationale
of vertical integration rests primarily in the costliness of market exchange and
contracting
Conglomerate mergers
Conglomerate mergers involve firms engaged in unrelated business activates.

Among conglomerate mergers, three types have been distinguished:
 Product-extension merger broaden the product lines of the firms. These are the
mergers between the firms in related businesses and may also be called as
concentric mergers.
 A geographic market extension merger involves two firms whose operations
have been conducted in non-overlapping geographic areas.
 Finally, the other conglomerate mergers, which are often referred to as pure
conglomerate mergers involve, unrelated business activities. These would not
qualify as either as product-extension or market-extension.
Two important characteristics that define a conglomerate firm are

 First, a conglomerate firm controls a range of activities in various industries
that require different skills in specific managerial functions of research,
applied engineering, production, marketing and so on.
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 Second, mainly external acquisitions and mergers achieve the diversification,
not by internal development.
 To Utilize under-utilized market power

 As a response to shrinking growth and / or profit opportunities in one’s own
industry
 A desire to diversify.
 Economics of scale; a firm can increase its income with less than
proportionate investment
 Establishing a transnational bridgehead without excessive startup costs to gain
access to a foreign market.
 A desire to utilize fully the particular resources or personnel that are
controlled by the firm, particularly in context of managerial skills.
 A desire to displace existing management.
 To circumvent government regulations.
 An individual owing or controlling a firm may be motivated for merger with a
desire to create an image of aggressiveness and strategic opportunism, empire
building and to amass vast economic power of the company.
Economic motives Personal motives Strategic motives

Marketing economies of Increase sales pursuit of Increase profitability
scale man power
Risk spreading Managerial challenge Acquisition of a
competitor
Increase profitability Respond to market Acquisition of inefficient
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failures management
Cost reduction Enhance managerial Defense mechanism
prestige
Acquisition of raw Create shareholder value
material
Technical economies of
scale
Different valuation of
target
Operating economies
When two companies combine, it may be possible for them to avoid or reduce
overlapping functions and facilities. The combined firm enables to consolidate a
number of managerial Functions such as purchasing, production, marketing, R&D
etc. the logic of operating economies lies in the concept of synergy.
Diversification
Diversification generally means expansion of operation through the merger of firms
in unrelated lines of business. Such mergers are called conglomerate mergers.
Growth
Growth implies expansion of a firm’s operation in terms of sales, profit and assets.
When a company is unable to grow internally because of resource and management
constraints, it can grow extremely by taking over operations of another company.
Acquisition may yield the desire of growth faster, easier and cheaper than the
internal growth.
Limit competition and exploiting factor markets
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Merger can give monopoly power to the merged entity. Thus, by limiting
competition, it can earn super normal profits.
Financing
Sometimes internal growth may not be possible due to financial constraint. Financial
an external growth becomes easy if operations of other company can be acquired
through the exchange of shares.
Taxation
The urge to minimize tax liability, particularly when the managerial tax rate is high,
may also cause merger of two companies. The carry forward of a tax loss is yet
another reason for some of the merger.
Personal reasons
There may be a number of personal motivations, with or without economic
substance, for merger activity. For example, owners of a closely held firm may like
to be acquired by a widely held company whose shares are well distributed and well
traded in the stock market. This enables them to diversify their portfolio and
improve marketability and liquidity of their holdings.
Bank Of Madura is a profitability, well capitalized, Indian private sector

commercial bank operating for the last 57 years. The bank has an extensive network
of 263 branches, with a significant presence in the southern states of India. The bank
47
had total assets of Rs. 39.88 billion and deposits of Rs 33.95 billion as on September
30, 2000, The bank had a capital adequacy ratio of 15.8% as on March 31,2000. The
bank’s equity shares are listed on the Stock ratio Exchange at Mumbai and Chennai
and National Stock Exchange in India.
ICICI Bank is a leading Indian private sector commercial bank, promoted by ICICI
limited (NYSE: IC). ICICI Bank is one of the leading private sector banks in the
country. ICICI Bank had total assets of Rs 120.63 billion and deposits of Rs. 97.28
billion as on September 30, 2000. The bank’s capital adequacy ratio stood at 17.59%
as on September 30, 2000. The Bank’s branch network including extension counters
presently covers 106 locations across India. ICICI Bank is India’s largest ATM
provider with 546 ATMs as on June 30, 2001.
The equity shares of the bank are listed on the Stock Exchange at Mumbai, Calcutta,
Delhi, Chennai, Vadodara and National Stock Exchange in India. ICICI Bank’s
American Depository Shares are listed on the New York Stock Exchange.
The ICICI, one of the largest financial institutions in India had an asset base of
Rs.582 billion in 2000. It is an integrated wide spectrum of financial activities, with
its presence in almost all the areas of financial services, right from lending,
investment and commercial banking, venture capital financing, consultancy and
advisory services to on-line stock broking, mutual funds and custodial services. In
July 1998, to synergize its group operations, restructuring was designed, and as a
result ICICI Bank has emerged.
On April 1, 1999, in order to provide a sharp focus, ICICI Bank restructured its
business into three SBUs namely, corporate banking, retail banking and treasury, this
48
restructured model enabled the bank to provide cross- selling opportunities through
ICICI’s strong relationships with 1000 corporate entities in India. The bank
pioneered in taking initiatives and providing one-stop financial solutions to
customers with speed and quality. In a way to reach customers, it has used multiple
delivery channels including conventional branch outlets,
ATMs, telephone call-centers and also through Internet. The bank also ventured into
a number of B2B and B2C initiatives in the last year to maintain its leadership in
India. The B2B solutions provided by the bank is aimed at facilitating on-line supply
chain management for its corporate clients by linking them with their suppliers and
leaders in a closed business loop. The bank is always ahead in advanced IT, and used
as a competitive to tool lure new customers.
In February 2000 , ICICI Bank was one of the first few Indian banks to raise its
capital through American Depository Shares in the International market , which has
received an overwhelming response for its issue of $ 175 million, with a total order
if USD 2.2 billion .At the time of filling the prospectus , with the US Securities and
Exchange Commission, the Bank had mentioned that the proceeds of the issue
would be used to acquire a bank
As on March 31, 2000, bank had a network of 81 branches, 16 extension counters

and 175 ATMs. The capital adequacy ratio was at 19.64% of risk-weighted assets, a
significant excess of 9% over RBI’s benchmark.
49
ICICI Bank has been scouting for private banker for merger, with a view to expand
its assets and client base and geographical coverage. Though it had 21% of stake, the
choice of Federal bank, was not lucrative due to employee size (6600), per employee
business is as low at Rs.161 lakh and a snail pace of Rs. 202 lakhs, 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 for ICICI Bank.
ICICI Bank has announced a merger with 57-year old BOM, with 263 branches, 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% stake in BOM, the chairman BOM, Mr. K.M Thiagarajan, along with his
associates was holding about 26% stake, Spic group has about 4.7%, while LIC and
UTI were having marginal Holdings. The merger will give ICICI Bank a hold on
south Indian market which has high rate of economic development.
The swap ratio has been approved in the ratio of 1:2 – two shares of ICICI bank
for every one share of BOM. The deal with BOM is likely to dilute the current
equity capital by around 2%. And the merger is expected to bring 20% gains in EPS
of ICICI Bank. And also, the bank’s comfortable Capital Adequacy Ratio of 19.64%
has declined to 17.6%.
ICICI Bank, a largest private sector bank took over Bank of Madura in order to
expand its customer base and branch network. When we look at the key parameters
such as net worth, total deposits, advances and NPAs, the ICICI bank is in a much
better position. The net worth of the former is four folds the latter. And in terms of
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total deposits and advances the former is three-fold higher than the latter. When we
take a look at the NPA s to net advances and the non-performing assets are four-fold
higher in latter case, then that of the former. The ICICI Bank which was looking out
for strategic alliances after it received its proceeds from ADS issue, had a tie up
with BOM only to expand its customer base of different cadres is a difficult task, one
has to wait watch to what extent the alliance will be successful.
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consolidation.
52
consolidation.
53
The board of directors at ICICI has contemplated the following synergies
emerging from the merger
Financial capability
The amalgamation will enable them to have a stronger financial and operational
structure, which is supposed to be capable of grater resource / deposit mobilization.
And ICICI will emerge as one of the largest private sector banks in the country.
Branch network
The ICICI’s branch network would not only increase by 264, but also increase
geographic coverage as well as convenience to its customers.
Customer base
The emerged largest network base will enable the ICICI bank to offer banking and
financial services and products and also facilitate cross selling of products and
services of the ICICI group.
Tech edge
The merger will enable ICICI to provide ATM s, phone and the Internet banking and
financial services and products to a large customer base , with expected savings in
costs and operating expenses.
Focus on priority sector

The enhances 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.
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The scheme of amalgamation will increase the empty base of ICICI Bank to Rs.
220.36 crore. ICICI Bank will issue 235.4 lakh shares of Rs. 10 each to the
shareholders of BOM. The merged entity will have an increase of asset base over
Rs.160 billion and a deposit base of Rs. 131 billion. The merged entity will have 360
branches and similar number of ATMs across the country and also enable ICICI
Bank to serve a large customer base of 1.2 million customers of BOM through a
wider network, adding to the customer base to 2.7 million.
Managing rural branches
ICICI’s major branches are in major metros and cities, whereas BOM spread its
wings mostly in semi urban and city segments of south India. There is a task
ahead lying for the merged entity to increase dramatically the business mix of rural
branches of BOM . On the other hand , due to geographic location of its branches
and level of competition , ICICI Bank will have a tough time to cope with.
Managing software
Another task, which stands on the way , is technology . While ICICI Bank ,which is
a fully automated entity is using the packages , banks 2000, BOM has computerized
90% of its business and was conversant with ISBS software . The BOM branches
are supposed to switch over to banks 2000 . Though it is not a difficult task , with
80% computer literate staff would need effective retraining which involves a cost .
The ICICI Bank needs to invest Rs. 50 crore, for upgrading BOM’s 263 branches.
55
Managing human resources
One of the greatest challenges before ICICI Bank is managing the Human resources
. When the head count of ICICI Bank is taken , it is less than 1500 employees ; on
the other hand, BOM has over 2500. The merged entity will have about 4000
employed which will make it one of the largest banks among the new generation
private sector banks. The staff of ICICI Bank is drawn from 75 various banks,
mostly young qualified professionals with computer background and prefer to work
in metros or big cities with good remuneration packages.
While under the influence of the trade unions most of the BOM employees have
lower career aspirations. The announcement by H.N.Sinor, CEO and MD of ICICI,
that there would be no VRS or retrenchment, creates a new hope amongst the BOM
employees. It is a tough task ahead to mange. On the order hand, their pay would be
revised upwards.
Crucial parameters
Name Book value of Market price Earnings Dividend P/E Profit per
of the Bank on the on the day of per share paid (in ratio employee (in
Bank day of merger announcement %) lakh)1999-2000
announcement of merger
BOM 183.3 131.60 38.7 55 3 1.73
ICICI 58.0 169.90 5.4 15 - 7.83
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Managing client base
The client base of ICICI Bank, after merger, will be as big as 2.7 million from its
past o.5 million, an accumulation of 2.2 million from BOM. The nature and quality
of clients is not of uniform quality. The BOM has built up its client base for a ling
time, in a hard way, on the basis of personalized services. In order to deal with the
BOM’s clientele, the ICICI Bank needs to redefine its strategies to suit to the new
clients . it may be difficult for them to reestablish the relationship, which could also
hamper the image of the bank.
Merger of H D F C and times Bank
The merger deal between Times Bank and HDFC Bank was a successful venture,
facilitating the HDFC Bank to emerge as the largest private sector bank on India.
The new entity, HDFC Bank , now has a customer base of 6,50,000 to serve and a
network of 017 branches . With merger, HDFC Bank’s total deposits touched Rs
6,900 crore and the size of the balance crossed massive 9,000 crore mark . The Bank
not only gained from the existing infrastructure but also employee work culture.
One more advantage to the bank is the expansion of the branch network . The
strategy adopted by HDFC Bank in setting up branches has been that of incurring
lowest cost with about 6-8 employees per branch who will look after both the
servicing and marketing functions. Since setting up of a new branch is a costly
affair , acquiring a readymade branch network is easier . The merger also had
product harmonization as HDFC had the visa network and Times Bank had master
card network . Thus ,on account of merger , both the networks would branches
( 65%) and Times Bank with more urban branches ( 43%) overlapping of branch ,
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leading to enlarged potential market . Although , the HDFC Bank private sector
bank , with a percentage of public sector than that of a pure private sector bank , the
merger between HDFC and Times Bank ( relatively less stronger bank ) was a
strategic alliance and there are no apparent adverse teachers after merger.
Financial standings
HDFC Bank (Rs) Times Bank (Rs)

Business per employee 520,2000 500,000
Profit per employee 1,000,000 722,000
In the takeover of Times Bank ( spread 1.66% ) by HDFC Bank ( spread 3.38%),
the pre-deal HDFC Bank’s business – per – employee was Rs. 520, 000 while
profit- per-employee was Rs.1 million . The respective figures for Times Bank were
Rs .500, 000 and Rs . 722, 000. Times Bank had a retail base of 150 , 000 accounts ,
an added attraction. Post –deal , HDFC Bank’s strength rose to over 650, 000 retail
accounts, a network of 107 branches and deposits of Rs.70 billion and a turnover
of about Rs.100 billion , making it the top bank among the foreign and private
banks.
Growing organically at 30% or 15,000 to 17,000 new accounts a month , it would

have taken two years for HDFC to gain Times Bank’s 170, 000 customers . By
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acquiring it has become possible in just six months along with a higher rate of
growth in the future.
ANALYSIS OF ICICI & BOM
EPS
If we look at he EPS of ICICI there is constant growth in EPS from 11.52 rs to

27.35 rs from 2002 year to 2006 year. Which is good symbol to the share holders of
the company. The EPS of the BOM is also increasing year by year from 1996 to
2000 in 1996 EPS of the BOM is rs 9.59 and by 2000 it is increased to 37.5. the
major difference here is ICICI EPS is after merger and BOM EPS before merger. If
we take ICICI EPS 11.52 and 100%. The EPS has increased to 237.4% so it has
growth rate if 137.% in the next 4years this is very good on part of the company.
RONW
There is fluctuations in RNOW of ICICIC Bank from 2002-2007-1 st three year
it was in increasing order and the last two years it has come down. In 2002 it was
0.085 and in 2006 it is 0.1079 though there are fluctuations in RNOW but it is better
compared to 1st year. Same is the case with BOM for the 1 st 2years it is increasing 3rd
year it has decreased in 1st year it is 0.109 and in 2nd ear it is 0.208 and in 3rd year it is
again came down to 0.179 and the year it has come down to 0.139 but again in 5 th
year i.e. in 2000 it has increased to 0.178. so there are many fluctuations in RNOW
of Both the companies. B this we can say that it is in satisfactory position but not
that much safe to the companies.
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ROCE
This is also facing fluctuation period but compared to 1996 it is better in 2000.
In 1996 it is 5.89 where as in 2000 it is 6.75. in 1997 it has grown up to 8.9 which is
safe symbol on side of the company i.e BOM but again in 1998 it has come down to
5.52 after fluctuations the growth of ROCE has increased by 115% same is the case
with ICICI it is in fluction position but from 2002 to 2006. the growth rate of the
ROCE has increased hugely i.e by 796%.i.e it has increased from 1.89 to 15.05
which shows the Excellency in performance of the company. Though ROCE of both
the companies are changing it will not effect to the company position.
CEPS
Cash earning price of share of ICICI is good in position from last five years.
There is continuous increase in CEPS of ICICIC exception 2005. in 2005 there is
slightly decrease in CEPS but it has recovered its loans in 2006 and it has increased
its CEPS to 34.39 in 2006. BOM records are also showing good cash position from
last five years. In 1996 it was 21.64 where as in 200 its position is 52.63 so it has
increased its position more than 150% in five years comparing both companies
CEPS both the companies have performed well for their last 5years of finances
periods so we can say that CEPS position is good.
MVA
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After merge in 2002 the MVA position of the ICICI Bank is 5090.07 and after
that again it has recovered its position it MVA was 2345.1 in 2003 which is showing
the companies high efficiency. And it has increased in the year 2004 i.e its MVA was
16068.7 it position has increased from 2002 to 2006 construal which is excellent
situation from companies point of view. In 2005 its is 25742.6 and in 2006 in has
increased to 52036.08 which is approximately more than double has far as MVA
concern the position of the company is excellent.
EVA
The EVA is 467.89 in 2002 where as it is 1396.98 in 2003 which is showing

198% growth rate in one year. If we see the trends of determine of EVA i.e VOPAT
COE of NETWORKING has increased it we look at overall view of the EVA from
2002-2005 it has created value to the companies i.e from 467.89 to 3567.58 which is
more than 600% what a company wants more than thus which adds value to the
share holders of the company and at the same time maintaining borrowings which
leads to payment of cost of capital. From 2004 to 2005 the EVA has increased to
20% i.e from 2971.13 to 3567.58 the reason for constant growth of EVA may be
continuous growth rate of VOPT.
ANALSIS OF HDFC & TIMES BANK
EPS
The EPS trend of HDFC Bank is showing increasing from 2002 to 2006. the
EPS of the company is 10.56 in 2002 and 27.04 in 2006. the EPS growth rate has
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increased by 256% in five years which is happy analysis for the shareholders of the
HDFC Bank. Same trend is maintained by TIMES BANK it is showing continuous
increase in EPS for the last 5years before merger. Its EPS growth has increased by
1426% which is showing good position of the company. But comparing HDFC Bank
and TIMES BANK EPS TIMES Bank EPS is showing better position than HDFC
Bank.
RONW
The RONW trend of HDFC Bank is showing the fluctuations. In 2002 it was 0.153
where as in 2003 it has increased to 0.168 and in 2006 it has come down to 0.1597.
this fluctuations may be due to increase in the capital employed and slow growth
rate of PAT. The best performance of HDFC Bank is in 2004 in this year its RONW
is 0.184. TIMES BANK is also showing the same changes in RONW. In 1995 it was
0.0183 and in 0.1584. it has decreased. But this analysis is on pre merger analysis of
Target Company and post merger analysis of acquired company. So we can’t exactly
compare these two figures. But the performance of HDFC is betterthan TIMES
BANK as far as RONW concerned.
ROCE
The HDFC BANK is showing growth in ROCE from 2002 to 2005 and a
slight decrease in 2006 i.e from 15.62 to 13.49. But comparing to 2002 it has grown
up tremendously. i.e it has increase as 14125% in last five years. Which is good sign
for the company to invest in many investment alternatives and can do expansion of
the business.
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The TIME BANK ROCE position is bad in last 4years during pre merger period. It
is showing the decreasing trend that is from 11.51 to 4.202 which is bad signal for
company. This may be one of the reasons for TIMES BANK to take decision to
merge with HDFC BANK.
CEPS
If we look at cash earnings of the TIMES BANK it is in increasing order i.e

from 0.194 per share to 3.367 per share. It may be because of the high increase rate
of PAT. But this is not that much satisfactory to the share holders. Face value of
shares is 10 rs and CEPS is 3.367 in 1999 so it is not good to the company. Share
bolder will loose faith on company.
HDFC bank is showing good increasing trend in CEFS. In 2002 it is 13.01 which is
more than trace value and in 2006 it had increased to 32.74 i.e the growth rate of the
CEPS is 251.65% which is good to retain the shareholders trust on the Bank. By this
we can say that HDFC BANK has added value to the siiry after merger.
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MVA
This is the analysis by which we can decide the performance of the company
in the market position. The MVA of HDFC BANK has increased tremendously. In
2002 it was 2787.12 and it has increased to 16447.3 by the end of 2006. by which
we can say the market position of HDFC BANK is extraordinary. The growth rate of
MVA is 590% in five years. This growth may be because of the growth rate of MPS
of the HDFC BANK and now a days Indian market it booming like any thing. It has
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recorder all time high record in sensex in has crossed 10,000 points by this we can
conclude that share value of the bank has increased.
EVA
Economic value added of HDFE BANK is showing continuous increase from

2002 to 2005 i.e from 354.08 to 768.08 which is post merger period. Any companies’
payable capacity can be expected by seeing EVA of that company. As NOPAT
increased definitely there will be increase in EVA.
Because NOPAT is one of the determinant to calculate EVA. HDFC BANK has
performed well in this regard. It has created value to third share holders after
merging with times bank also comparing one other parameter HDFC Bank has
performed extraordinary. The trends of all the parameters are more one less equal but
with slight changes in their respective growth rates.
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ANALYSIS OF OBC & GTB MERGER

EPS
An overview of EPS of the OBC from the past 4 years is showing
increasing order. In 2002 it is 16.65 and it has grown up to 37.29 in 2005 an there
four years are pre merger period. In 2005 only this merger has taken place. In 2006
the EPS has decreased to 21.61. The EPS of the GTB from 1999 to 2003 is coming
down constantly and in 2003 its EPS has become nil and also in negative’s. This is
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not at all good to the company. The share holders of the company will definitely
loose trust on company performance in this situation. This may be one of the
reasons. That GTB has taken decision to merge with OBC.
RONW
The RONW of the GTB bank is showing fall down position. i.e from 0.2008
in 2000 to -111.76 in 2003. Which is not good for the company If the same situation
continuous we can say that company is in insolvency position. And the shareholders
will try to with draw their share holding from the company.
The RONW of the OBC has shown increase from 2002 to 2005 i.e from 0.1979 to
0.2158. this is per merger period. In 2006 it has decreased to 0.1046. but we can’t
say that it is not good position because the merger have taken place just 1 year back.
In one year it is not possible to decide on merger performance.
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ROCE
The ROCE of the OBC is showing increasing form 2002 to 2003 i.e form
10.35 to 19.58 for these three years the position of the ROCE was satisfactory. But
in 2005 it has decreased to 10.43 and again in 2006 it has increased to 10.71. this is
because of the combination of both the companies.
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The GTB bank is shoeing same like EPS and RNOW that is its position has come
down from 13.99 to -22.46 from 2000 to 2003 ears. By this we can say that the
position of the OBC bank is much better than the position of the GTB as far as
ROCE concerned. This can be one of the reasons for merger.
CEPS
Same like EPS, RONW and ROCE the CEPS position of the GTB is having
continuous decreasing order i.e., from 12.19 to -18.79 from 2000 to 2003. by all
these calculated analysis we can conform that GTB is in insolvency position and it
has no future.
Same like EPS, RONW and ROCE the CEPS position of the OBC is showing
continuous increasing order that is from 18.68 to 42.11 which is more than double.
And after merger it has slightly came down to 24.62 but still it is in good position.
Companies GTB and OBC . OBC position is much better than GTB in all the ways.
In one year decrease can’t be taken as decrease we should take average.
MVA
This is not same as all the above calculated analysis it is showing fluctuating
situation that is in 2002 it is showing -2725 and in 2003 It is showing -1434.8 and in
2004 it has recovered and has MVA of 2035.06 for the first three years it is showing
increasing order though the results are in negative figures. But after merger it is
showing decrease in MVA in 2005 it is -1867.1 and in 2006 it has shown slight
increased result i.e 2.4359. by seeing all these figure. We can conclude that all over
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MVA is not that much better but also not in risky position it is in creating year by
year
EVA
As it is like that the merger of OBC and GTB has taken place in 2005 and we
are calculating the analysis up to 2006 only so we cant exactly analyses whether
company has added value economically are not but still if we look at the EVA of the
OBC from 2002 to 2005 it has increased its EVA from 262.24 to 767.71 which is
good to the company and helpful to retain the customers and share holders. The
growth rate of EVA is from 02 to o5 is 192% which shows the bust performance of
the bank as far as concluding that bank has added value to their share holders.
 The mergers have definitely created value to the shareholders.

 The shareholders of the target company have benefited the most. As far as the
acquiring comp any shareholders are concerned they have not benefited as
much as the target company shareholders but definitely their has been value
addition.
 The value created to the Bank of Madura shareholders is evident from the fact
that they have become the shareholders of a company with 2500 crore-market
capitalization form the owners of company with just 100 core-market
capitalization.
 The same is the case with the shareholders of Times bank shareholders. The
market price has increased form Rs 24 to Rs 241.
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 They market price has increased enormously during the merger period. For
instance the market price has increased form Rs. 69 to Rs.177 during the
merger period in case of ICICI Bank and Bank of Madura merge. Well this
might be because of the success of the HDFC Bank and Times bank merger in
1999. The investors might have attached positive hopes with this merger also.
 There is constant increase in the market price of HDFC in the post merger
period whereas in case of ICICI Bank the market price has decreased in the
post merger period. In of the reasons might be that the expectations attached
with the ICICI Bank and Bank of Madura merger were high owing to the
success of the former merger that is merger of HDFC Bank and Times bank
meager. But according to the law of averages, after a huge unnecessary
increase into he market price the market is bound to correct ad s result of
which there is a fill in the market price both shares after that. The same was
the case with ICICI Bank an bank of Maadura merge. The market over
estimated the value of the firm which it was bond the correct, the result of
which is the fall in market prices.
 In a nutshell if we take into consideration all the parameter including the
market price of the shares, we can see that in the post merger period all have
shown a positive result that means to say all have increases in absolute terms.
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SUMMARY
Merger is a combination of two or more companies into one company. The acquiring
company, (also referred to as the amalgamated company or the merged company)
acquires the assets and the liabilities of the target company (or amalgamating
company). Typically, shareholders of the amalgating company get shares of the
amalgamated company in exchange for their shares in the Target Company.
There are two ways which company can grow; one is internal growth and the other
one is external growth. The internal growth suffers from drawbacks like the problem
of raising adequate finances, longer implementation time of the projects, uncertain
etc. in order to overcome these problems a company can grow externally by
acquiring the already existing business firms. This is the route of mergers and
acquisition.
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consolidation.
FINDINGS
70
 Shareholders of the target company has benefited more than the acquired
company.
 The post merger analysis is showing the increasing trend in MVA&EVA.
 The market price has increased during merger period of target companies.
 EPS of the acquired companies has increased more than 100% in post merger
period.
CONCLUSION
My final and ultimate conclusion is , yes, merger of all these companies
have created value to the shareholders of the target company and acquired company.
Mergers and acquisitions in India
Mergers and acquisitions aim towards Business Restructuring and increasing

competitiveness and shareholder value Via increased efficiency. In the market place
it is the survival of the fittest.
India has witnessed a storm of mergers in recent years. The Finance Act,1999
clarified many issues relating to Business Reorganizations there by facilitating and
71
making business-restructuring tax neutral. As per Finance Minister this has been
done to accelerate internal liberalization and to release productive energies and
creativity of Indian businesses.
The year 1999-2000 has notched-up deals over Rs.21000 crore which is over 1% of
India’s GDP. This level of activity was never seen in Indian corporate sector.
InfoTech, Banking , media , pharma, cement , power are the sectors, which are more
active in mergers and acquisitions.
Consolidation of banking industry-an overview
HDFC Bank and Times Bank tied the merger knot in year 1999. The coming
together of two likeminded private banks for mutual benefit was a land mark event
in the history of Indian banking.
Many analysis viewed this action as opening of the floodgate of a spate of mergers
and consolidations among the banks, but this was not to be, it took nearly a year for
another merger. The process of consolidation is a slow and painful process. But the
wait and watch game played by the banks seems to have come to an end. With
competition setting in and tightening of the prudential norms by the apex bank the
players in the industry seems to be taking turns to merge.
It was the turn Bank Of Madura to integrate with ICICI Bank. This merger is
remarkable different from the earlier ones. It is a merger between banks of two
different generations. It marks the beginning of the acceptance of merger with old
generation banks, which seemed to be out of place with numerous embedded
problems..
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The markets seem to be in favor of bank consolidation. As in the case of HDFC
Bank and Times Bank, this time also market welcomed the merger of ICICI Bank
and Bank of Madura. Each time a merger is announced it seems to set out a signal in
the industry of further consolidation. The shares of the bank reached new heights.
This time it was not only the turn of the new private sector banks, but also the shares
of old generation private banks and even public sector banks experienced an buying
interest. Are these merger moves a culmination of the consolidation in the industry?
Will any bank be untouched and which will be left out?
To answer this question let us first glance through the industry and see where the
different players are placed. The Indian banking industry is consists of four
categories-public sector banks, new private sector banks and foreign banks. The
public sector banks control a major share of the banking operations. These include
some of the biggest names in the industry like Stare Bank of India and its associate
banks, Bank of Baroda, Corporation bank etc. their strength lies in their reach and
distribution network. Their problems rage from high NPA’s to over employment. The
government controls these banks. Most of these banks are trying to change the
perception. The government controls these banks. Most of these banks are trying to
change the perception. The recent thrust on reduction of government stake, VRS and
NPA settlement are steps in this direction. However, real consolidation can happen if
government reduces its stake and changes its perception on the need of merger. The
government’s stand has always been that consolidation should happen to save a bank
from collapsing. The old private sector banks are the banks, which were established
prior the Banking
Nationalization Act, but could not be nationalized because of their small size. This
segment includes the Bank Of Madura, United Western Bank, Jammu and Kashmir
73
bank; etc. who banks are facing competition from private banks and foreign banks.
They are trying to improve their margins. Though some of the banks in this category
are doing extremely well, the investors and the markets seem not to reward them
adequately. These banks are unable to detach themselves effectively from the older
tag. The new private banks came into existence with the amendment of Banking
Regulation Act in 1993, Which permitted the entry of new private sector banks..
Of the above the spotlight is on the old generation private banks. The OGPBs can
become easy takeover targets . The sizable portfolios of advances and deposits act as
an incentive. Added to this these banks have a diversified shareholder base, which
inhibits them from launching an effective battle against the potential acquirers. The
effective shield against takeovers for these banks could be to get into strategic
alliances like the Vysya bank model, which has bank Brussels Lambert of the Dutch
ING Group as a strategic investor. United Western Bank and Lord Krishna Bank are
already on a lookout for strategic partners. But the problems go beyond the
shareholding pattern and are far rooted . The prudential norms like the increasing
CAR and the minimum net worth requirements are making the very existence of
these banks difficult. They are finding it difficult. They are finding difficult to raise
capital and keep up with the ever-tightening norms .one of the survival routes fore
these banks is to merge with another bank.
Mergers: Making sense of it all

In the process of merger banks will have to give due importance to synergies and
complimentary adhesions. The merger must make sound business sense and reflect
in increasing the shareholder value. It should help increase the bank’s net worth and
its capital adequacy. A merger should expand business opportunity for both banks.
The other critical and competitive edge for survival is the cost of funds, which
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means stable deposits and risk diversification. Network size is very important in this
perspective because one cannot grow staying in one place because the asset market
in every place is limited. Unless one prepares the building blocks for growth by
looking outside one’s area he either sells out or gets acquired. The features, which a
bank looks in its target seems to be the distribution network (number of branches
and geographical distribution), number of clients and financial parameters like cost
of funds, capital adequacy ratio, NPA and provision cover.
The merger of strong entities should be encouraged. The reason for the merger
should not be to save a bank from extinction rather the motive must be to go join for
the distant advantages of both combining banks towards a mutual benefit. PS
Shenoy, chairman and managing director, Bank of Baroda said,” today public sector
bank can merge with another bank only through moratorium route.” That means you
can takeover only a dead and you die yourself and allow to be merged with a strong
bank. Unfortunately this is not the spirit behind the merger and acquisition.
Time for strategic alliance
It is not only important for banks to merge with banks but also entities in the other
business activities. Strategic partnership could become the inthing. Strategic mergers
between banks for using each other’s infrastructure enabling remittance of funds to
various centers among the strategic partner banks can give the account holder the
flexibility of purchasing a draft payable at centers where the strategic tie-up exists.
The strategic tie-up could also include a
bank with another specialized investment bank to provide value-added services. Tie-
ups
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Could also be between a bank and technology firm to provide advanced services. It
is these
Strategic tie-ups that are set to increase in future. These along with providing vale-
added benefits, also help in building positive perceptions in the market.
In a macro perspective mergers and acquisition can prove effective on strengthening

the Indian financial sector . Today, while Indian banks have made tremendous strides
in extending the reach domestically , internationally the Indian system is
conspicuous by its absence . The are very few catering mostly to India related
business . As a result India does not have a presence in international financial
markets. If India has to emerge as an international banking center the presence of
large banks with foreign presence is essential. With globalization and strategic
alliances Indian banks would grow originally. The would be large banks with
international presence .Globally the banking industry is consolidating through cross-
border mergers. India seems to be far behind. The law does not allow the foreign
banks with branch network to acquire Indian banks. But who knows with pressures
of globalization the law of the land could be amended paving way for a cross border
deal.
PSB”s are pumping huge amounts to update their it. But still, it looks like, public
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The appetite for mergers is making a come back among the public sector banking
last minute rush to acquire the remaining banks, which will hasten the process of
consolidation.
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Recommendations of Narasimham Committee on Banking Sector Reforms
The Narasimham Committee on banking sector reforms suggested that ‘merger
should not be viewed as a means of bailing out weak banks. They could be a solution
to the problem of weak banks but only after cleaning up their balance sheet.’ The
government has tried to find a solution on similar lines, and passed an ordinance on
September 4, 1993, and took the initiative to merger New Bank of India (NBI) with
Punjab National Bank (PNB). Ultimately, this turned out to be an unhappy event.
Following this, there was a long silence in the market till HDFC Bank successfully
took over Times Bank. Market gained confidence, and subsequently, there were two
more mega mergers. The merger on Bank Of Madura with ICICI Bank, and of
Global Trust Bank with UTI Bank, emerging as a new bank, UTI Bank, emerging as
a new bank, UTI-Global Bank
The following are the recommendations of the committee
 Globally, the banking and financial systems have adopted information and
communications technology. This phenomenon has largely bypassed the
Indian banking system, and the committee feels that requisite success needs to
be achieved in the following areas:
5. Bank automation
6. Planning, standardization of electronic payment systems
7. Telecom infrastructure
78
8. Data warehousing network
 Mergers between banks and DFIs and NBFCs need to be based on synergies
and should make a sound commercial sense. Committee also opines that
mergers between strong banks/FIs would make for grater economic and
commercial sense and would be a case where the whole is greater than the
sum of its parts and have a “force multiplier effect”. It is also opined that
mergers 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 to a weak bank, but the committee suggests it only after cleaning up
their balance sheets. It also says, if there is no voluntary response to a
takeover of there banks a restructuring, merger amalgamation, or if not
closure.
 The committee also opines that, licensing new private sector banks, the initial
capital requirements need to be reviewed. It also emphasized on a transparent
mechanism for deciding the ability of promoters to professionally manage the
banks. The committee also feels that a minimum threshold capital for old
private banks also deserves attention and mergers could be one of the options
available for reaching the required threshold capitals. The committee also
opined that a promoter group couldn’t hold more than 40% of the equity of a
bank.
79
The Indian banking and financial sector-a wealth creator or a wealth
destroyer?
The Indian banking and financial sector (BFS) destroyed 22 paise of market value
added (MVA) for every rupee invested in it, which is really poor compared to the
BFS sector in the U.S, which has created 92 cents of MVA per unit of invested
capital. The good news is that the performance of the wealth creating Indian banks
has been better than that of the wealthy creating US banks.
But the sad part is that the banks, which h destroy 59 paise of wealth for every rupee
invested, consume about 88% of total capital invested in out BFS sector. As a
benchmark, the US economy invests 83% of its capital in wealth creators.
In the banking and financial sector too. The winners on the MVA-scale are different
from those on traditional Size-based measures such as total assets, revenues, and
profit after tax and market value of equity. Indeed, the banks with most assets such
as State Bank Of India and Industrial Development Bank Of India are amongst the
biggest wealth destroyers. SBI tops on size-based measures like revenues, PAT, total
assets, market value of equity, but appears among the bottom ranks for wealth
creation. On the other hand, HDFC and HDFC Bank top the MVA rankings even
though they do not appear in the top 10 ranking based on total assets or revenues.
PROBLEM BACKGROUND
80
Profitable growth constitutes one of the prime objectives of the business firms. This
can be achieved ‘internally’ either through the process of introducing/developing
new products or by expanding/enlarging the capacity of existing product (s).
Alternatively, growth process can be facilitated ‘externally’ by acquisition of
existing firms. This acquisition may be in the form of mergers, acquisitions,
amalgamations, takeovers, absorption, consolidation, and so on. The internal growth
is also termed as organic growth while external growth is called inorganic growth
There are strengths and weaknesses of both the growth processes. Internal expansion
apart from enabling the firm to retain control with itself also provides flexibility in
terms of choosing equipment, mode of technology, location, and the like which are
compatible with its exaction operations. However internal expansion usually
involves a longer implementations period and also entails greater uncertainties
particularly associated with development of new products. Above all there might be
sometimes problem of raising adequate finances required for the implementation of
various capital budgeting projects involving expansion. Acquisitions and mergers
obviates, in most of the situations, financing problems as substantial/full payments
are normally made in the form of the shares of the acquiring company. Further it also
expedites the pace of growth as acquired firm already has the facilities or products
and therefore saves time otherwise requires in building up new facilities from
scratch as in the case of internal expansion.
PROBLEM DEFINITON
What is shareholder value?
Value is a very subjective term. There are many factors, which influence a person to
invest in a particular company. For some it may be capital appreciation, for some it
may be consistency in the earnings of the company, for some it may be the dividends
that the company pays or it may be the reputation of the company. But normally the
81
market price of the shares is prime motivation factor behind an investment by an
investor.
Hence we can say that a company has created wealth has created wealth when there
is an increase in the market price of the shares. Theoretically also, the financial goal
of a company is to maximize the owner’s economic welfare. Owner’s economic
welfare can be maximized when shareholders wealth is maximized which is
reflected in the increased market value of the shares.
RESEARCH TOOLS
Financial ratios, Economic Value added and Market Value Added.
The above tools which are used to evaluate whether mergers and acquisitions create
any shareholder value or not signify the following:
The financial ratios that are used in the study are:
6. Return on capital employed
7. Return on Net worth
8. Return on equity
9. Earnings per share
10.Cash earnings per share
Return on capital employed
82
ROCE = PBIT/ CAPITAL EMPLOYED
PBIT = PBDT + Non- RECURRING EXPENSES – Non recurring income
CAPITAL EMPLOYED = Net fixed assets + Net Current Assets – fictitious

assets
Return on net worth
RONW = PAT / NETWORTH
PAT = profit after tax
NETWORTH = equity share capital +reserves and surplus – fictitious assets

11
Earnings per share
EPS = PAT / number of shares
Cash earnings per share
CEPS = ( PAT + DEPRICIATION ) / number of shares
Economic Value Added
Economic value added ( EVA ) is the after-tax cash flow generated by business
minus the cost of capital it has deployed to generate that cash flow. Representing
real profit versus paper profit , EVA underlies shareholder value, increasingly the
main target of leading company’s strategies. Share holders are the players who
the firm with its capital; they invest to gain a return on that capital.
83
EVA can be defined as the net operating profit minus the charge of opportunity
cost of all the capital employed into the business. As such , EVA is an estimate of
true “ economic profit” that means to say the amount that the shareholders or
lenders would get by investing in the securities of comparable risk.
The capital charge is an important and distinctive aspect of EVA. Many a times
under traditional accounting system many companies report profits but it is not so
actually. According to Peter.F.Drucker “ unless a company is earning more than its
cost of capital, it is operating at loss” .
Thus EVA is the profit as shareholders define it. To illustrate it, suppose a person
invested Rs.100 in a company. The company is earning at the rate of 20% that
means to say the earnings of the company is Rs 20 while its cost of capital is 15%
that means to say that the company has to pay Rs. 15 to its shareholders . Thus
the amount of profit in excess of the cost of capital that is Rs. 5( 20-15) id the
EVA.
Mathematically,
EVA = NOPAT – (capital employed * weighted average cost of capital
But for Banking and Financial sector,
EVA=NOPAT – (net worth * cost of equity)
Where,
NOPAT = net operating profit adjusted to taxes
Market value added (MVA)
84
MVA = market value added, is a measure of the value added by the company’s
management over and above the capital invested in the company bye its
investors. It is the value added in excess of economic capital employed.
MVA=market value of the firm-economic capital.
Where,
Market value of the firm-market price*number of shares.
Economic capital=capital employed.
LIMITATIONS
The major limitation of the project is the time frame. The post merger analysis is
just for one year and one year is too less period to judge the effect of a merger.
4. The analysis is based on various ratios hence all the limitations of the ratio
analysis become a part of the limitations of the study.
5. Whole of the analysis is based on the balance sheets and profit and loss
accounts, which is a secondary data. Hence it suffers from being very reliable.
6. The cost of equity has been calculated on the basis of DIVIDEND
APPROACH method. So all the limitations of that method have a place here.
Financial standings
HDFC Bank (Rs) Times Bank (Rs)

Business per employee 520,2000 500,000
Profit per employee 1,000,000 722,000
In the takeover of Times Bank ( spread 1.66% ) by HDFC Bank ( spread 3.38%),
the pre-deal HDFC Bank’s business – per – employee was Rs. 520, 000 while
85
profit- per-employee was Rs.1 million . The respective figures for Times Bank were
Rs .500, 000 and Rs . 722, 000. Times Bank had a retail base of 150 , 000 accounts ,
an added attraction. Post –deal , HDFC Bank’s strength rose to over 650, 000 retail
accounts, a network of 107 branches and deposits of Rs.70 billion and a turnover
of about Rs.100 billion , making it the top bank among the foreign and private
banks.
Growing organically at 30% or 15,000 to 17,000 new accounts a month , it would

have taken two years for HDFC to gain Times Bank’s 170, 000 customers . By
acquiring it has become possible in just six months along with a higher rate of
growth in the future.
RONW
RONW = PAT / NET WORTH
PAT = PROFIT AFTER TAX
ICICI BANK
2002 :- PAT = 258.30 – 4.50 = 253.8
NW = 962.55+5632.41 = 6594.96
RONW= 253.8 / 6594.96 = 00.385 //
86
2003 :-PAT = 1206.18-58.91 = 1147.27
NW = 962.66+6320.65+0= 7283.31
RONW= 1147.27 / 7283.31 = 0.1575 //
2004 :- PAT = 1637.11 - 69.71 = 1567.4
NW = 966.40 + 7394.16-0 = 8360.56
RONW= 1567.4 / 8360.56 = 0.1875//
2005 :- PAT = 2005.20 – 90.10 = 1915.1
NW = 1086.76 - 11813.1 – 0= 12899.96
RONW= 1915.1 / 12899.96 = 0.1484
2006 :- PAT = 2540.07 – 106.50 = 2433.57
NW = 1239.83 - 21316.16 = 22555.99
RONW= 2433.57 / 22555.99 = 0.1079 //
BANK OF MADURA
96 :- PAT = 11.13 - 0 = 11.13
NW = 11.61 + 90.41 = 102.02
RONW= 11.13 / 102.02 = 0.109 //
97 :- PAT = 25.77 - 0 = 25.77
87
NW = 11.61 + 112.13 = 123.74
RONW= 25.77 / 123.74 = 0.208 //
98 :- PAT = 34.19 - 0.59 = 33.6
NW = 11.77 + 141.42 +34.88= 188.07
RONW= 33.6 / 188.07 = 0.179 //
99 :- PAT = 30.13 - 0.59 = 29.54
NW = 11.77 + 199.56 = 211.33
RONW= 29.54 / 211.33 = 0.139 //
2000 :- PAT = 15.58 - 1.43 = 44.15
NW = 11.77 - 203.94 +32.13= 247.84
RONW= 44.15 - 247.84 = 0.178 //
HDFC
2002 :- PAT = 297.04 - 0 = 297.04
NW = 281.37 + 1660.9 = 1942.28
RONW= 297.04 / 194.28 = 0.153
2003 :- PAT = 38.76 - 10.88 = 376.72
88
NW = 282.05 + 1962.78 = 2244.83
RONW= 376.72 / 2244.83 = 0.168 //
2004 :- PAT = 509.50 - 12.82 = 496.68
NW = 284.79 + 2407.09 = 2691.88
RONW= 496.68 / 2691.88 = 0.184 //
2005 :- PAT = 665.56 - 19.64 = 645.92
NW = 309.88 + 4209.07 = 4518.95
RONW= 645.92 / 4518.95 = 0.143 //
2006 :- PAT = 870.78 - 24.16 = 846.62
NW = 313.14 + 4986.39 = 5299.53
RONW= 846.62 / 52.99.53 = 0.1597 //
TIMES BANK
95 :- PAT = 1.87 - 0 = 1.87
NW = 100 + 1.87 = 101.87
RONW= 1.87 / 101.87 = 0.0183 //
89
96 :- PAT = 7.61 - 0 = 7.61
NW = 100 + 9.48 = 109.48
RONW= 7.61 / 109.48 = 0.0693 //
98 :- PAT = 23.45 - 0 = 23.45
NW = 100 + 43.71 = 143.71
RONW= 23.45 / 143.71 = 0.1632 //
99 :- PAT = 27.06 - 0 = 27.06
NW = 100 + 70.79 = 170.79
RONW= 27.06 / 170.79 = 0.1584 //
OBC
2002 :- PAT = 320.55 - 0 = 320.55
NW = 192.54 + 1427.19 = 1619.73
RONW= 320.55 / 1619.73 = 0.1979 //
2003 :- PAT = 456.95 - 11.10 = 445.85
NW = 192.54 + 1916.8 = 2109.34
90
RONW= 445.85 / 2109.34 = 0.2113 //
2004 :- PAT = 686.07 - 12.34 = 673.73
NW = 192.54 + 2484.26 = 2676.8
RONW= 673.73 / 2676.8 = 0.2516 //
2005 :- PAT = 726.07 - 8.10 = 717.97
NW = 192.54 + 313.47 = 3327.01
RONW= 717.97 / 3327.01 = 0.2158 //
2006 :- PAT = 557.16 - 15.81 = 541.35
NW = 250.54 + 4920.24 = 5170.78
RONW= 541.35 / 5170.78 = 0.1046 //
GTB
2000 :- PAT = 108.62 - 2.52 = 106.1
NW = 121.36 + 406.78 = 528.14
RONW= 106.1 / 528.14 = 0.2008 //
2001 :- PAT = 80.33 - 1.86 = 78.47
NW = 121.36 + 467.05 = 588.41
91
RONW= 78.47 / 588.41 = 0.1333 //
2002 :- PAT = 40.26 - 0 = 40.26
NW = 121.36 + 272.96 = 394.32
RONW= 40.26 / 394.32 = 0.1020 //
2003 :- PAT = 272.70 - 0 = 272.70
NW = 121.3 + ( - 118.92 ) = 2.44
RONW= -272.70 / 2.44 = -111.76 //
CEPS= ( PAT + DEPRECIATION ) / NO. OF

SHARES
ICICI
2002 :- CEPS = 253.8 + 64.10 / 22.036
= 14.43 //
2003 :- CEPS = 1147.2 + 505.94 / 61.266
92
= 26.98 //
2004 :- CEPS = 156.74 + 539.44 / 61.64
= 34.18 //
2005 :- CEPS = 1915.1 + 590.36 / 73.676
= 34.01 //
2006 :- CEPS = 2433.57 + 623.79 / 88.893
= 34.39 //
BANK OF MADURA
96 :- CEPS = 11.13 + 14 / 1.161

= 21.64 //
97 :- CEPS = 25.77 + 20.67 / 1.161
= 40 //
93
98 :- CEPS = 33.6 + 25.22 / 1.177
= 49.97 //
99 :- CEPS = 29.54 + 30.60 / 1.177
= 51.09 //
00 :- CEPS = 44.15 + 17.80 / 1.177
= 52.63 //
HDFC
2002 :- CEPS = 297.04 + 69.02 / 28.137
= 13.01 //
2003 :- CEPS = 376.72 + 106.14 / 28.205
= 17.12 //
94
2004 :- CEPS = 496.68 + 125.72 / 28.479
= 21.85 //
2005 :- CEPS = 645.92 + 144.07 / 30.988
= 25.49 //
2006 :- CEPS = 846.62 + 178.59 / 31.314
= 32.74 //
TIMES
95 :- CEPS = 1.87 + 0.07 / 10
= 0.194 //
96 :- CEPS = 7.61 + 0.77 / 10
= 0.838 //
98 :- CEPS = 23.45 + 5.23 / 10
= 2.868 //
95
99 :- CEPS = 27.06 + 6.61 / 10
= 3.367 //
OBC
2002 :- CEPS = 320.55 + 39.11 / 19.254
= 18.68 //
2003 :- CEPS = 445.85 + 41.6 / 19.254
= 25.32 //
2004 :- CEPS = 673.73 + 50.42 / 19.254
= 37.61 //
2005 :- CEPS = 717.97 + 92.79 / 19.254
= 42.11 //
2006 :- CEPS = 541.35 + 75.52 / 25.054
= 24.62 //
GTB
96
2000 :- CEPS = 106.1 + 41.89 / 12.136
= 12.19 //
]
2001 :- CEPS = 78.47 + 46.03 / 12.136
= 10.26 //
2002 :- CEPS = 40.26 + 51.24 / 12.136
= 7.54 //
2003 :- CEPS = -272.70 + 44.62 / 12.136
= -18.79 //
ICICI
ROCE = PBIT / CAPITAL EMPLOYED
PBIT = PBDT + NON REC EXP - NON REC INCOME
C.E = NET. FA + NET C.A - FICTITIOUS ASSETS.
2002 :- PBIT = 258.3 + 64.1 + 0 - 0 = 322.4
C.E = 4239.34 + 12786.35
97
= 17025.69
ROCE = 322.4 / 17025.69
= 0.0789 * 100 = 1.89 //
2003 :- PBIT = 1206.18 + 505.94 + 0 - 0 = 1712.12
C.E = 4060.73 + 6489 = 10549.73
ROCE = 1712.12 / 10549.73 = 0.1622
* 100 = 16.22 //
2004 :- PBIT = 1637.11 + 539.44 + 0 - 0 = 2176.55
C.E = 4056.41 + 847.064 = 12527.05
ROCE = 2176.55 / 12527.05 = 0.1737
= 17.37 //
2005 :- PBIT = 2005.20 + 590.36 = 16967.04
C.E = 4.038.04 + 12929 = 16967.04
`ROCE = 2595.56 / 16967.04= 0.1529 = 15.29 //
2006 :- PBIT = 2540.07 + 623.79 = 3163.86
C.E = 3980.71 + 17040.22= 21020.9
ROCE = 3163.86 / 21020.9 = 0.1505
= 15.05 //
98
BANK OF MADURA
96 :- PBIT = 11.13 + 14 + 0 - 0 = 25.13
CE = 81.11 + 345.05 = 426.16
ROCE = 25.13 / 426.16 = 0.0589 = 5.89 //
97 :- PBIT = 25.77 + 20.67 + 0 – 0= 46.44
CE = 122.88 + 398.66 = 521.54
ROCE = 46.44 / 521.54 = 8.90 //
98 :- PBIT = 34.19 + 25.22 + 0 – 0= 59.41
CE = 198.99 + 877.19 = 1076.18
ROCE = 59.41 / 1076.18 = 5052 //
99 :- PBIT = 30.13 + 30.60 = 60.73
CE = 179.20 + 813.93 = 993.13
ROCE = 60.73 / 993.13 = 6.11 //
00 :- PBIT = 45.58 + 17.80+ 0 – 0= 63.38
CE = 174.68 + 763.32 = 938
ROCE = 63.38 / 938 = 6.7
99
HDFC
2002 :- PBIT = 297.04 + 69.02 + 0 – 0=366.06
CE = 371.1 + 3458.19 = 3829.29
ROCE = 366.06 / 3829.29 = 9.55 //
2003 :- PBIT = 387.6 + 106.14 + 0 – 0= 493.74
CE = 528.58 + 3169.22 = 3697.8
ROCE = 493.74 / 3697.8 = 13.35 //
2004 :- PBIT = 509.5 + 125.72+ 0-0 = 635.21
CE = 616.91 + 3550.9 = 4167.8
ROCE = 635.21 / 4167.8 = 15.24 //
2005 :- PBIT = 665.56 + 144.07 + 0-0= 809.63
CE = 708.32 + 4474 = 5182.32
ROCE = 809.63 / 5182.32 = 15.62 //
2006 : PBIT = 870.78 + 178.59 +0-0 = 1049.37
CE = 855.08 + 6919 = 7774.08
ROCE = 1049.37 / 7774.08 = 13.49
100
TIMES
99 :- PBIT = 1.87 + 0.07 = 1.94
CE = 11.39 + 5.47 = 16.86
ROCE = 1.94 / 16.86 = 11.51 //
ICICI
Parti 2002 2003 2004 2005 2006

culars
EPS 11.52 18.73 25.43 25.99 27.35
RONW 0.0385 0.1575 0.1875 0.1484 0.1079
ROCE 1.89 16.22 17.37 15.29 15.05
CEPS 14.43 26.98 34.18 34.01 34.39
MVA - - 5712.2 11987.5 31412.3
14293.2 2343.23
EVA 467.89 1396.98 2971.13 3567.58 ----
BOM
Particulars 1996 1997 1998 1999 2000

101
EPS 9.59 22.2 28.55 25.1 37.5
RONW 0.109 0.208 0.179 0.139 0.178
ROCE 5.89 8.9 5.52 6.11 6.75
CEPS 21.64 40 49997 51.09 52.63
MVA ---- ---- ---- ---- ----
EVA ---- ---- ---- ---- ----
24
HDFC
Particulars 2002 2003 2004 2005 2006

EPS 10.56 13.36 17.44 20.84 27.04
102
RONW 0.153 0.168 0.184 0.143 0.1597
ROCE 9.55 13.35 15.24 15.62 13.49
CEPS 13.01 17.12 21.85 25.49 32.74
MVA 2787.12 2895.11 66007.22 11682.89 16447.3
EVA 354.08 422.03 521.47 768.08 ----
33
TIMES
Particulars 1995 1996 1998 1999

EPS 0.19 0.76 2.35 2.71
RONW 0.0183 0.0695 0.1632 0.1584
ROCE 11.51 6.09 5.81 4.22
CEPS 0.194 0.838 2.868 3.367
MVA ---- ---- ---- ----
EVA ---- ---- ---- ----
103
OBC
Particulars 2002 2003 2004 2005 2006

EPS 16.65 23.16 34.99 37.29 21.61
RONW 0.1979 0.2113 0.2516 0.2158 0.1046
ROCE 10.35 18.69 19.58 10.43 10.71
CEPS 18.68 25.32 37.61 42.11 24.62
MVA -2725 -14348 2035.06 -1867.1 2.4359
EVA -262.24 453.31 579.53 767.71 ----
GTB
104
Particulars 1999 2000 2001 2002 2003
EPS 6.61 8.74 6.47 3.32 0.00
RONW ---- 0.2008 0.1333 0.1020 -111.76
ROCE ---- 13.99 12.73 10.98 -22.46
CEPS ---- 12.19 10.26 7.54 -18.79
MVA ---- ---- ---- ---- ----
EVA 55.72 27.41 -99.22 -354.06 ----
FINDINGS
 Shareholders of the target company has benefited more than the

acquired company.
 The post-merger analysis is showing the increasing trend in
MVA&EVA.
 The market price has increased during merger period of target
companies.
 EPS of the acquired companies has increased more than 100% in
post-merger period.
105
CONCLUSION
My final and ultimate conclusion is , yes, merger of all these
companies have created value to the shareholders of the target company
and acquired company. In real terms, the rationale behind mergers and
acquisitions is that the two companies are more valuable, profitable than
individual companies and that the shareholder value is also over and
above that of the sum of the two companies. Despite negative studies and
resistance from the economists, MandA's continue to be an important tool
behind growth of a company. Reason being, the expansion is not limited
by internal resources, no drain on working capital - can use exchange of
stocks, is attractive as tax benefit and above all can consolidate industry -
increase firm's market power.
With the FDI policies becoming more liberalized, Mergers, Acquisitions

and alliance talks are heating up in India and are growing with an ever
increasing cadence. They are no more limited to one particular type of
106
business. The list of past and anticipated mergers covers every size and
variety of business -- mergers are on the increase over the whole
marketplace, providing platforms for the small companies being acquired
by bigger ones.
The basic reason behind mergers and acquisitions is that organizations

merge and form a single entity to achieve economies of scale, widen their
reach, acquire strategic skills, and gain competitive advantage. In simple
terminology, mergers are considered as an important tool by companies
for purpose of expanding their operation and increasing their profits,
which in façade depends on the kind of companies being merged. Indian
markets have witnessed burgeoning trend in mergers which may be due to
business consolidation by large industrial houses, consolidation of
business by multinationals operating in India, increasing competition
against imports and acquisition activities. Therefore, it is ripe time for
business houses and corporate to watch the Indian market, and grab the
opportunity.
107

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PROJECT REPORT ON

MERGERS AND ACQUISITIONS IN

MASTERS IN BUSINESS ADMINISTRATION

hereby declare that the Project Report entitled is an

other Institute/University for the award of any other

Date: Signature of the Student

I am very thankful to the faculty of ISBM UNIVERSITY for providing all

I, gratefully acknowledge the valuable guidance and support of faculty

I extend my sincere thanks to all who have either directly or indirectly

I ABOUT THE PROJECT

II ABOUT THE TOPIC

III COMPANY ANALYSIS

1. ANALYSIS OF ICICI&BANK OF MADURA

Financial ratios, Economic Value added and market Value Added.

Mergers and acquisitions aim towards Business Restructuring and increasing

Consolidation of banking industry-an overview

The markets seem to be in favor of bank consolidation. As in the case of HDFC

Mergers: Making sense of it all

Time for strategic alliance

In a macro perspective mergers and acquisition can prove effective on strengthening

The taxation practice of Mumbai-based RSM Ambit was acquired by

Mergers or amalgamation, result in the combination of two or more companies into

# Acquisition: Taking possession of another business. Also called a takeover or

In simple terms, A merger involves the mutual decision of two companies to

# Joint Venture: Two or more businesses joining together under a contractual

# Strategic Alliance: A partnership with another business in which you combine

# Partnership: A business in which two or more individuals who carry on a

# Conglomerate merger- generally a merger between companies which do not have

Motives behind M and A

Recommendations of Narasimham Committee on Banking Sector Reforms

The following are the recommendations of the committee

The Indian banking and financial sector-a wealth creator or a wealth

The taxation practice of Mumbai-based RSM Ambit was acquired by

Mergers or amalgamation, result in the combination of two or more companies into

# Acquisition: Taking possession of another business. Also called a takeover or

In simple terms, A merger involves the mutual decision of two companies to

# Joint Venture: Two or more businesses joining together under a contractual

# Strategic Alliance: A partnership with another business in which you combine

# Partnership: A business in which two or more individuals who carry on a

# Conglomerate merger- generally a merger between companies which do not have

Legal Procedures for Merger, Amalgamations and Take-over

Motives behind M and A

Financial ratios, Economic Value added and Market Value Added.

1. Return on capital employed

2. Return on Net worth

4. Earnings per share

5. Cash earnings per share

Return on capital employed

ROCE = PBIT/ CAPITAL EMPLOYED

PBIT = PBDT + Non- RECURRING EXPENSES – Non recurring income

CAPITAL EMPLOYED = Net fixed assets + Net Current Assets – fictitious

Return on net worth

RONW = PAT / NETWORTH

PAT = profit after tax

NETWORTH = equity share capital +reserves and surplus – fictitious assets

Earnings per share

EPS = PAT / number of shares

CEPS = ( PAT + DEPRICIATION ) / number of shares

Economic Value Added

Market value added (MVA)

Merger is a combination of two or more companies into one company. In India, we

Takeover can be defined as the acquisition of controlling interest in a company by