A DISSERTATION STUDY ON “ANALYSIS OF MERGERS AND

ACQUISITIONS OF BANKING SECTOR”

Research Report submitted to Entrepreneurship Development Institute of

India in partial fulfillment of the requirement for the award of

Post Graduate Diploma in Business Management

Submitted by

RANJEET KUMAR
Register No.: 09JEPG1108

Under the guidance of

Prof. A.S.velpanur

Profaser. Of
SBM Jain College
Bangalore

Entrepreneurship Development Institute of India,

Ahmadabad
2010
 DECLARATION

I hereby declare that the research entitled “ANALYSIS OF MERGERS

AND ACQUISITIONS OF BANKING SECTOR” submitted to

Entrepreneurship Development Institute of India in partial fulfillment of the

requirements for the award of PGDBM, is a record of independent research

work carried out by me under the supervision and guidance of Prof

A.S.VELPANUR Prof. of SBM Jain College, Bangalore. This work has not

formed the basis for the award of any Degree and has not been submitted

previously to any other College/University.

Bangalore

July 24, 2010 RANJEET KUMAR

Prof. A.S.VELPANUR

SBM Jain College

Bangalore

CERTIFICATE

I certify that this research entitled “ANALYSIS OF MERGERS AND

ACQUISITIONS OF BANKING SECTOR” submitted to Entrepreneurship
Development Institute of India in partial fulfillment of the requirements for
the award of PGDBM, is a record of independent research work carried out
by Mr.Ranjeet kumar under my supervision and guidance. This work has
not formed the basis for the award of any Degree and has not been
submitted previously to any other College/University.

Bangalore Prof.A.S.VELPANUR

July 24th, 2010 Research Mentor

 ACKNOWLEGEMENT

This study of mine has taken the co-operation and assistance of some
respectable people. I express my sincere gratitude through this simple
acknowledgment to all the persons who have helped me directly or
indirectly.
I wish to place on record my sincere and heartiest gratitude to
Dr.EASWARAN LAYER DEAN OF SBM JAIN COLLEGE BANGLORE
who encouraged and permitted me to do this dissertation.

Also, I would like to record my sincere thanks and gratitude to DR.

DHIMANT SBM JAIN COLLEGE Head of the Department, Department
of Management studies, Bangalore, who provided me an opportunity to
undertake this dissertation.
I also express my heartiest gratitude to my beloved guide prof. A.S.
velpanur in Department of Management Studies,sbm jains Management
College for his inspiring guidance.

I also take this opportunity to thank my parents and friends who were
source of inspiration in completing this dissertation successfully and
also I would like to thank the Almighty who endowed his blessing in
carrying out my dissertation.
 EXECUTIVE SUMMARY:
The deregulation and globalization of the economy has exposed the
corporate to severe competition from domestic and foreign firms. This has
resulted in a massive restructuring by the corporate to enable them to face
emerging challenges. Further, the notification of the Takeover Code by SEBI has
opened up a big market for corporate control. All these developments have
resulted in an exponential growth of business for investment bankers. Valuation
of firms for the purpose of acquisition / sale has emerged as a lucrative niche for
the investment bankers. The other services rendered by investment bankers
include acquisition search, managing the tender offers for Takeovers,
identification of buyer for divestitures, negotiations etc.
The title of the project is “ANALYSIS OF MERGERS AND
ACQUISITIONS OF BANKING SECTOR”.
The objective of the study is to understand the various
objectives that companies have while deciding to merge and probing whether the
companies under study managed to achieve the objectives they had in mind, and
to understand the legal and procedural frame work involved in a amalgamation.
For the purpose of the study the entire process of merger was studied with
the help of secondary data about the companies. Contacting stock exchange
collected primary data regarding financial statements swap ratios, a pre-merger
and post-merger balance sheet.
After the analysis, it was inferred that the companies benefited from the
merger in terms of greater stability in their business cycle, tax savings and
improved debt-raising capacity. The cash related problems were solved on
account of the merger and the additional liquidity was successfully deployed to
meet the capital requirements.
However, to conclude we can rightly say that merger are no doubt carried out
with an intention of corporate growth, but they have succeeded in achieving only
part of their goals. But in the long run it can be achieved.

STATEMENT OF THE PROBLEM

 “Of late, there appears to be an increasing tendency among new private
sector banks to combine their businesses apparently for synergic advantage. This
might in due course lead to a problem of Oligopoly over banking products
available for the users”

Background of the study

A new merger and acquisition wave across India’s corporate land scale
tends to show that companies want to avoid stiff and unequal competition .new
business combinations are re-shaping India’s largest industries, with
consequences for all. It is likely to affect dividend rates, job prospects, business
strategy, but also the prices of daily necessities as competitors become of fewer
and more powerful.

RATIONALE OF THE STUDY

Since market shares accompany mergers and acquisitions, brand power

and synergies, companies are finding this the easiest and perhaps the quickest
way to expand. However the M&A activity has it’s advantageous and
disadvantageous. More over the elements missing in today’s market are the
takeover artistes with invest able funds to finance their acquisition. This study
intends to analyze the pros and cons of corporate mergers as strategy growth.

Objectives of this project are two folds.

 To understand the various objectives that companies have while deciding to

merge and probing whether the companies under study managed to achieve
the

 Objectives they had in mind.

 To understand the legal and procedural framework involved in an

amalgamation

 To find out whether merger results are beneficial to banks.

Literate review

The Indian business environment has altered radically since 1991 with the
changes in the economic policies and introduction of new institutional
mechanisms. The Indian corporate world, while benefiting from decontrol and
deregulation’s has now began to feel the effect of these changes. Those most
affected are the promoters who are today threatened by the possibility of hostile
takeovers. At the same time, financial institutions, which have a significant stake
in many companies, have started demanding better corporate governance thus
while the Indian scenario continues to witness promoter-controlled companies,
corporate governance is shifting from the hands of the promoter entrepreneur to
the professional executive to the financiers.

Mergers and acquisition can bring about change in the mode of

governance of a company. Pharmaceuticals and ad agencies would be the front-
runners as well as primary targets of the M & A activity. Indian companies and
the latter multinationals. On the other hand dominate the former; family
businesses and single units are consolidating their positions to avoid possible
hostile takeovers.

David R. King, Rebecca J. Slotegraaf, Idalene Kesner (2010)

Mergers can be described from a legal perspective and an economic

perspective. This distinction is relevant to discussions concerning deal
structuring, regulatory issues, and strategic planning. The purpose of this article
is to help clarify some of the terms commonly involved in discussing M&As and
other types of corporate restructuring.

Ruth J. Maddiga ,Janis K. Zaima

(2010)

We explore the role of resource interactions in explaining firm performance in the

context of acquisitions. Although we confirm that acquisitions do not lead to
higher performance on average, we do find that complementary resource profiles
in target and acquiring firms are associated with abnormal returns. Specifically,
we find that acquiring firm marketing resources and target firm technology
resources positively reinforce (complement) each other; meanwhile, acquiring
and target firm technology resources negatively reinforce (substitute) one
another. Implications for management theory and practice are identified.

Walt Shill, a managing director at Accenture, is co-author of the study.

(2002)

The study, "The Big Exit: Executive Churn in the Wake of M&As," demonstrates
that mergers and acquisitions do not result in instability among management at
target companies solely in the short-term, as is often assumed, but result in
abnormally high turnover that lasts much longer. Target companies lose 21
percent of their executives each year for at least 10 years following an acquisition
" more than double the turnover experienced in non-merged firms.

"These findings are especially important in light of the correlation between the
loss of top executives and a company's poor performance," said Jeffrey Krug,
associate professor of strategic management in the VCU School of Business and
lead author of the study. "Companies involved in these deals need to understand
the long-term effect on their executive ranks and they need to find ways to keep
key executives on board."

Krug studied the turnover patterns at more than 1,000 firms and examined the
employment of more than 23,000 executives. Krug said recent mergers and
acquisitions have created even greater instability within executive teams as
globalization and technology trends continue to increase the intensity of
competition and generate industry turbulence.

TANVEER;RASHMI (2003) Privatization, liberalization of foreign investment

norms and globally consolidation activity are some of the reasons that have seen
the Mergers and Acquisitions companies thrive even in a bad business
environment. The need for consolidation by local companies to become globally
competitive is another reason for this trend.
The lure of gaining exceptional advantage may make the prospect of a
merger seem very attractive to companies but there are many glitches to beware
of. The merger even it is done for seemingly value adding purpose may threaten
the company’s objectives of maximizing value of the firm to the shareholders.
There are several reasons for the failure of the mergers: