Nirav Bhadra Govind Dhuri Kathireasan Anita Pansare Sachin Sangare Khushal Thakkar

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What Is Merger
Strategic tools in the hands of management to achieve

greater efficiency by exploiting synergies. Arrangement where by two or more existing companies combine in to one company. Shareholders of the transferor company receive shares in the merged company in exchange for the shares held by them in the transferor company as per the agreed exchange ratio.

Advantages of Merger
Does not require cash.

Accomplished tax-free for both parties.

Lets the target (in effect, the seller) realize the appreciation

potential of the merged entity, instead of being limited to sales proceeds. Allows shareholders of smaller entities to own a smaller piece of a larger pie, increasing their overall net worth. Merger of a privately held company into a publicly held company allows the target company shareholders to receive a public company's stock. Allows the acquirer to avoid many of the costly and timeconsuming aspects of asset purchases, such as the assignment of leases and bulk-sales notifications.

Disadvantages of Merger
Diseconomies of scale if business become too large, which

leads to higher unit costs. Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration. May need to make some workers redundant, especially at management levels - this may have an effect on motivation. May be a conflict of objectives between different businesses, meaning decisions are more difficult to make and causing disruption in the running of the business.

Procedure for Merger

Stage I Application to the court
Parties are for compromise and arrangement A Company and its creditors

A Company and its members

Application to the court can be made by the

Company/Liquidator/creditor/member The Application must be accompanied by a scheme of compromise/arrangement.

Procedure for Merger

Stage II - Direction by the court

contd.

The court shall give direction for holding the meeting only

if it is satisfied that the scheme of arrangement is workable and reasonable. Meeting shall be conducted in manner as directed by court. The court has no power to dispense with the holding of meeting even though the shareholders might have unanimously approved the scheme.

Procedure for Merger

contd.

Stage III Notice of compromise and arrangement

The notice shall be given by the court to CG. CG has right

to make a representation (i.e. objections, comments and suggestions) in respect of compromise and arrangement. Representation must be considered by the court but it is not bound by representation. Notice calling the meeting shall be sent to the members or creditors The Notice shall contain Terms and Effect of compromise or arrangement, material interest of directors or manager and interest of debenture trustees. Every director, manager and debenture trustee shall their interest in the scheme and how their interest will be effected by scheme.

Procedure for Merger

Stage IV Approval of the scheme by creditors/members- conditions

contd.

The scheme must be approved by a majority in number of

creditors or members (any class of them) who are present and voting. The creditors or members (or any class of them) approving the scheme must represent in value of creditors/members who are present and voting. The Scheme must be approved by equity shareholder as well as preference shareholders. Such approval may be received in a meeting of Equity and preference shareholders or in a separate meeting as per order of the court.

Procedure for Merger

contd.

Stage V Court to be satisfied that scheme is bonafide

Compliance of direction of the court in holding the meeting,

provision of the companies act. Arrangement is a real and was accepted by a competent authority. Disclosure of material facts including latest financial position, auditors report and other information. Members or creditors or any class of them are fairly represented by those who attended the meeting. The majority is not coercing minority There is no oblique motive of the scheme. Scheme is based on commercial consideration, workable, feasible, financially viable and in public interest Scheme is in interest of company, members or creditors. Majority is acting reasonably, prudently and bonafide.

Procedure for Merger

Stage VI Sanction of the Scheme

contd.

It is discretion of the court to sanction or reject the scheme.

Stage VII Filing of the order of the court with the Registrar
The Scheme becomes binding only on the filing of the

courts order with the Registrar.

Reason for Merger

Industry Consolidation Tactical move that enables a company to reposition itself

(with a merger partner) into a stronger operational and competitive industry position.
Improve Competitive Position Reduces competition, and allows the combined firm to use

its resources more effectively.

Defensive Move Attractive tactical move in any economic environment particularly in a cyclical down-turn where a merger can be a strong defensive move.

Reason for Merger

contd.

Synergies Allowing two companies to work more efficiently together than either would separately. Market / Business / Product Line Issues Whether the market is a new product, a business line, or a geographical region, market entry or expansion is a powerful reason for a merger.

Acquire Resources and Skills To obtain access to the resources of another company or to combine the resources of the two companies

Types Of Mergers
Horizontal Mergers Occurs when two companies sell similar products to the same markets. Vertical Mergers It joins two companies that may not compete with each other, but exist in the same supply chain. Market Extension Mergers To help two organizations that may provide similar products and services grow into markets where they are currently weak. Product Extension Mergers
May merge when they sell products into different niches of the same

markets.

Types Of Mergers

contd.

Conglomerate Mergers Occur when two organizations sell products in completely different markets. Diversity in business portfolio is one of the key benefits.

Case Study of HDFC Bank and Centurion Bank of

Punjab 2009
The largest merger and perhaps the

beginning of the

consolidation wave in the BFSI sector. Banks main task was to harmonize the accounting policies and, as a result, HDFC Bank took a hit of Rs. 70 Crs to streamline the policies of erstwhile CBOP itself. Of this 70% went toward the harmonization of accounting policies relating to loan- loss provisioning and depreciation of assets, And the balance 30% reserves write-offs were toward the merger- related restructuring costs like stamp duty, HR and IT integration expenses.

Case Study of HDFC Bank and Centurion Bank of Punjab Contd

The cost/income ratio of the merged entity has increased to

around 56% from 50% levels for standalone HDFC Bank HDFC Bank has retained almost all the employees of CBOP and expects to achieve full synergies and efficiencies, in terms of the restructured HR and IT processes, in the next 2-3 quarters This merger with CBOP would result in the combined entity having 1148 branches at present, which is the largest branch distribution network for a private bank in India This apart, HDFC Bank would gain dominance in states like Punjab, Haryana, Delhi, Maharashtra and Kerala.

Case Study of HDFC Bank and Centurion Bank of Punjab Contd

The merger will add close to 394 branches to HDFC Banks

network of 750 branches, almost 50% increase in the existing network, while adding close to 19% to its asset base On the product portfolio side, both the banks have a strong foothold in vehicle financing, which is a natural synergy CBOP has a strong and experienced management team. The management has demonstrated its capability to integrate diverse organizations by successfully reaping synergies of the merger with Bank of Punjab. CBOP team has strengthen HDFC Banks management bandwidth and consequently the latter added international banking to its services kitty.