A STUDY IMPACT OF MERGERS AND ACQUISIONS ON SHAREHOLDER WEALTH IN INDIAN COMPANIES

IRJMST Vol 8 Issue 8 [Year 2017] ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)
International Research Journal of Management Science & Technology
http://www.irjmst.com Page 319
A STUDY IMPACT OF MERGERS AND ACQUISIONS ON SHAREHOLDER WEALTH IN
INDIAN COMPANIES.
Anil Tiwari
Research Scholar asst. Professor IES College Bhopal
ABSTRACT
In today context Mergers and Acquisitions has become important part of corporate world. This is
mainly used for restructuring the business. In India it is first time started by government bodies then
some leading financial institutions also took the necessary initiative to restructure to corporate
sectors of emerging India by using the process of mergers and Acquisition.
In the study impact of M&As on shareholder wealth in Indian companies in short run
investment. For this I have assessed top 10 (Value wise) M&As of Indian Companies. For which I
have examined the market return and script return of the company and stock price pre and post
M&As by regression line.
Similarly the changes in closing price of the script and compare it with Indices value (BSE
500). I have considered x as an Independent variable i.e BSE500 and Y as depended variable as
Script price of the Indian companies.
By these two variables it is found that in Pre & Post M&As how show its impact on
shareholders wealth. ANNOVA and paired of t-test also have been used to measuring the
signification of returns
Key words:- Mergers and Acquisitions. Shareholders wealth, Top 10 M&A.
INTRODUCTION: -India has become one of the top countries with respect to Merger and
Acquisition deals. Indian corporate firms are getting actively involved in Merger and Acquisition,
domestically as well as internationally
The aim of this paper is to study the impact of mergers and acquisitions on the financial performance
of the acquiring firm during the pre-and post-merger period specifically in the areas of profitability,
leverage, liquidity and managerial efficiency of the company M&A‘s speedily growth in today
context When a M&A are announced, so its considerable impact shown on stock price. These
announcement leads for prospective good return in the future. These good returns around the
announcement indicate that investors‘ hope of M&A benefits. Movement of Stock market due to
M&A announcements help to assume the profitability on companies‘ short period. Event study‘s
methodology used for asses wealth of shareholders in short run its the impact on stock prices due to
M&As announcements it may considered as a additional profits. Earlier different authors (Asquith,
1983; Dennis & McConnell, 1986; Dodd, 1980; Mitchell, Pulvino, & Stafford, 2004; Pettway&
Yamada, 1986; Schipper& Smith, 1987; Sicherman&Pettway, 1987; Schipper& Thompson, 1983)
examined impact on shareholder wealth by event methodology. The payment method of firm, size
and form of the target firm acquired, territory of the target firm, etc. the study find the short term
performance of M&A provide synergy hypothesis for Indian corporate.

LITERATURE REVIEW
The performance of acquiring firms in the short term has been extensively studied empirically. The
purpose of this article is predominantly to assess the impact on shareholders of the acquiring
companies. Accordingly, literature review is primarily focused on studies measuring the implications
of M&A on acquirer share-holders‘ wealth. A number of studies suggest that the value of the
acquiring firms may increase or decrease after an M&A .
Sr.
No
Topic Name Author/ Authors
Name
Outline of the Paper
1 Cross Border Mergers &
Acquisitions and Its Effect on
Shareholders Wealth in India
JayantKalghagi&Dr.
Ravindranath V. Bad
Use of the Research Tools: AAR,
CAAR, T test
2. Shareholders wealth effects of
Mergers & Acquisitions in
different deal activity periods in
India.
SmitaKashiramka&
N.V.MuralidharRao
Last ten years ITeS Sector
Knowledge gain for shareholders
wealth
3. Mergers and Acquisitions in
Banking Sector.
Prof. Anil K. Saini,
Dr.
Sambhavna,
Dr.Mohender Kumar
Gupta, Dr
ShivakumarDeene
Through this paper we will try to
find out reasons of merger and
acquisition from the experience of
Indian banking sector but they
shows some futuristic prediction
of India Banking Industry and its
outcome.
4. Impact of Merger & Acquisition
Announcement on Share Price –
A Case of Selected Indian Listed
Companies.
Dr.S.Poornima and
V.Chitra
Selected the scripts from Jan.
2012 to Dec. 2012 and see the
impact in Impact has been
analyzed between +7 days from
the date of merger and acquisition
announceme
5 Effectiveness of Banks after M & A Brajesh Kumar Tiwari Author had compare the defend
banks India and gives his opinion
statement regarding
effectiveness of Banks after M&A
shows in merger of Bank of Karad
Ltd. (BOK) with Bank of India
(BOI) was more effective in
it.
6 Impact of Mergers & Acquisitions on
Firms‘ Long Term Performance: A
Pre & Post Analysis of the Indian
Telecom Industry.
NehaVerma&Dr.
Rahul
Sharma
The Paper gives health idea about
the financial tools to be chosen at
the time of pre and post-merger
analysis apart from telecom
industry as a whole.
7 Effect of Mergers and Acquisitions
on Financial Performance: A study of
selected Tata group companies
in India
Dr. B M Kanahalli&
SiddalingyaJayaram
The financial data has been
collected for six years from
2004-10. Pre-merger and post-
merger financial ratios
have been examined using paired
sample‘t‘ test. The
results of the analysis reveal that
there is no significant
difference between the financial
performance of the

companies before and after the
merger
8. Recent Development in
Takeover Process in India
AmbikaSangwan Author talked about different Act
affected to takeover deal in India
such as Industrial Development
and Regulation Act 1951, MRTP
Act, FERA Act etc. made hostile
takeover almost impossible. There
have been consistent new legal
developments such as- The
Competition Act 2002 and New
Companies Act 2013
9 Impact of Mergers and
Acquisitions Across Industries
in India.
Dr. (Mrs.) S.
Poornima& S.
Subhashini
The aim of this paper is to study
the impact of mergers and
acquisitions on the financial
performance of the acquiring firm
during the pre-and post-merger
period specifically in the areas of
profitability, leverage, liquidity
and managerial efficiency of the
company
10 A Study on Pre-Merger and Post
Merger/Acquisition selected
financial Parameters for Selected
Cement Companies in India
Dr.BindiyaKunalSoni Authors gives good idea regarding
the effect of pre and post merger
from 2003 to 2013 in Cement
Industry.
11 Analysing the long run financial
performance of cross border
acquisitions of Indian acquiring
companies and determinants
there of
ReenaKohli As per the findings of the author
128 cross borders had happen in
last 10 years and the trend shows
increase from 1997 to 2007. In
1997 and 1998, 1 each compare
to, 17, 26 and 28 in 2005, 2006,
2007 respectively
12 Analysis of Merger and
Acquisition in India Indian
Competition Law
Namita Rajput,
Monika
Gupta and Harish
Handa
Most important in M&A with
respect to the legal part is
Competition Law, 2002 they had
explained it here in
this paper
13 Wealth creation through
acquisitions
N. M. Leepsa Chandra
Sekhar Mishra
In this paper author had keep in
the mind EVA and done their
analysis and their most interesting
finding says
ending is that related deals were
more unsuccessful than unrelated
deals.
A part from this many other studies also indicate that the value of the acquiring firms may increase
or decrease after an M&A.(Andrade et al., 2001; Berkovitch& Narayanan, 1993; Bradley, Desai, &
Kim, 1983; Dennis & McConnell, 1986). Several studies have documented positive returns (Beitel,
Schiereck, &Wahrenburg, 2004; Cakici, Hessel, &Tandon, 1996; Doukas, Holmen, &Travlos, 2002;
Eckbo&Thorburn, 2000; Fee & Thomas, 2004; Firth, 1980; Kiymaz, 2003; Kohers&Kohers, 2000;

after the studies it is found that significant positive AR,s for acquirer firms for different window
near the announcement.as well as other studies report significant negative returns mainly prior to the
announcement to shareholders of the acquiring firms 2001; Doukas et al., 2002;
Goergen&Renneboog, 2004; Houston, James, &Ryngaert, 2001; mentioned that the shareholders of
acquiring firms gain from announcement period.
Most of author indicates implication of M&A, the analytical proof on returns to shareholder of the
acquirer firm is not conclusive, so it is indicate that there is not depth research in India as it‘s done in
developed economy like United States, Canada, Japan, and European nations. Studies of M&A in
India are very few. The number of studies on share price performance on the announcement of M&A
is limited and is industry specific in the Indian context. Moreover, the studies based on Indian
security markets have focused either on specific industries (Anand& Singh, 2008 (banking sector);
Chakraborty, 2010 (financial); Rani, Yadav, & Jain, 2011 (pharmaceutical)) or have analysed a very
small sample size (Mann &Kohli, 2009). Recently, Kohli and Mann (2012), Gubbi, Aulakh, Ray,
Sarkar, and Chittoor (2010), and Barai and Mohanty (2010) have analysed ARs to the
announcements of M&A by conducting an event study on a large sample but have not tested the
robustness of returns by any non-parametric test. In this context, Ahern (2009) provides evidence
that biases are introduced in event study when sample is small and the sample selection is based on
some common criterion.
 Need for the selection of the topic and its explanation:The purpose of this study is to help
bridge the gap by bringing new evidence on the wealth effects associated with status of the
M&As.
 The research differs from previous short-run merger and acquisition studies in two important
respects. Firstly, the study includes Indian mergers and acquisitions, and secondly, the impact
of method (cash, stock) employed in financing acquisition.
 There is no study which covers the period from 2010 to till date and this proposed study will
contribute to the existing literature for most recent period and based on different alternative
measures.
OBJECTIVES OF THE STUDY:
Primary Objective
1. To analyse the impact of mergers and acquisitions announcement on the stock returns in the
short run for the acquirer and target companies.
2. To examining the returns in short run pre and Post M&As
Secondary Objectives
1. To study the difference between Market return & Script return.
Hypothesis:To achieve the above stated objectives, the following hypotheses have been formulated:
Hypothesis 1
H0: The script return is not affected due to the market return in both i.e. Pre and Post Merger
H1: The script return is affected due to the market return in both i.e. Pre and Post Merger
Hypothesis 2
H0: There is no significance between Markets Return and Script Return and no abnormality
between them

H1: There is significance between Market Return and Script Return and there is abnormality
between them
Research Methodology:
Research Design:
Causal research
 Population:
The population have been taken from Indian Listed Companies Mergers and Acquisitions from 1
April 2004 to 31 March 2014.
 Sampling Frame:
Indian companies who are registeredin the Stock exchanges are considered as sampling frame.
 Sample Size:
Top 10 M&A (Value wise) in India adopted as Sample size.
Table:-1 Value wise Top 10 M&A Deals Indian Company is the one which is Acquirer of other
company as follows:-
S.no Name of the Acquirer
Company
Target
Company
Deal size Announcement
date
Industry
1. Tata Steel Corus $12.2
billion
26-Jan-07 Iron Industry
2. Hindalco Novelis $6 billion Feb 12, 2007 Iron Industry
3. ONGC Imperial
Energy
$2.8 billion On 26 August
2008,
Petroleum,&
Oil
4. HDFC Bank Centurion
Bank of
Punjab
$2.4 billion Oct 17, 2013 Banking
Industry
5. Tata Motors Jaguar Land
Rover
$2.3 billion Mar-08 Automobile
Industry
6. Sterlite Asarco $1.8 billion Jun 1, 2008 Telecom
industry
7. Suzlon RePower $1.7 billion Jun 6, 2008 Power &
Energy
Industry
8. RIL RPL 1.69 billion Mar 3, 2009 Petroleum
Industry
9. Videocon Daewoo $731
million
11-Feb-07 Telecom
Industry
10. Ranbaxy Betapharm $630
million
Oct 21, 2008 Medical
Industry

Source:http://asiancorrespondent.com/573/top-10-ma-deals-in-india-so-far/
TABLE 2: Overall Finding of Top Ten Mergers and Acquisitions by Indian Companies:
S.No Name of
Company
Pre –Merger Post- Merger
R Square Paired T Test R Square Paired T Test
1. Tata Steel 0.2769 0.0017 0.33865 0.0071
2. Hindalco 0.21889 0.037499511 0.33034 .00803037
3. ONGC 0.51 0.000394352 0.47 0.000771212
4. HDFC Bank 0.51 0.00676546 0.61 0.000047144
5. Tata Motors 0.39 0.00339788 0.34 0.00683
6. Sterlite 0.58 0.0000870 0.55 0.00017
7. Suzlon 0.21 0.04386 0.45 0.00118
8. RIL 0.87 0.0000000021 0.76 0.00000053
9. Videocon 0.074 0.24741 0.033 0.44011
10 Ranbaxy .085 0.21229 0.087 0.206681449
Interpretation
Analysis of Regression Line and ANOVA Table:
1.Tata Steel-Corus: $12.2 billion
R square:
Pre Merger Analysis
 Value at R square = 0.2769
 It shows that value of the script return affected due to the market return only 0.2769
and remaining 0.7231 due to its own.
Post Merger Analysis
Paired T Test:
Pre Merger Analysis
 T test = 0.0017
 T test = 0.0071
 Both the value is less than 0.05 which means there is a significance between Markets
Return and Script Return and abnormality between them

2. Hindalco-Novelis: $6 billion
R square:
Pre Merger Analysis
 It shows that value of the script return affected due to the market return only 0.22 and
remaining 0.78 due to its own.
remaining 0.67 due toits own.
Paired T Test:
Pre Merger Analysis
 T test = 0.037499511
 T test = 0.00803037
 Both the value is less than 0.05 which means there is significance between Markets
Return and Script Return and abnormality between them
3. ONGC-Imperial Energy: $2.8 billion:
R square:
Pre Merger Analysis
Paired T Test:
Pre Merger Analysis
 T test = 0.000394352
 T test = 0.000771212
 Both the value is less than 0.05 which means there is a significance between Markets
Return and Script Return and abnormality between them.

4. HDFC Bank-Centurion Bank of Punjab: $2.4 billion
R square
Pre Merger Analysis
Paired T Test:
Pre Merger Analysis
 T test = 0.00676546
 T test = 0.000771212
 Both the value is less than 0.05 which means there is significance between Markets Return
and Script Return and abnormality between them.
5. Tata Motors-Jaguar Land Rover: $2.3 billion
R square
Pre Merger Analysis
 Value at R square = 0.39.
Paired T Test:
Pre Merger Analysis
 T test = 0.00339788
 T test = 0.00683

6. Sterlite-Asarco: $1.8 billion
R square
Pre Merger Analysis
Paired T Test:
Pre Merger Analysis
 T test = 8.7042E-05
 T test = 0.00017
7. Suzlon-RePower: $1.7 billion
R square
Pre Merger Analysis
Paired T Test:
Pre Merger Analysis
 T test = 0.04386
 T test = 0.00017

8. RIL-RPL: 1.69 billion
R square
Pre Merger Analysis
 o It shows that value of the script return affected due to the market return by 0.87 and
 It shows that value of the script return affected due to the market return by 0.76 and
Paired T Test:
Pre Merger Analysis
 T test = 2.1E-09
 T test = 5.3E-07
and Script Return and abnormality between them
9. Videocon-Daewoo: $731 million:
R square
Pre Merger Analysis
remaining 0.26 due to own.
Paired T Test:
Pre Merger Analysis
 T test = 0.24741
 T test = 0.44011

 Both the value is more than 0.05 which means there is no significance between Markets
Return and Script Return and no abnormality between them.
10. Ranbaxy-Betapharm: $630 million
R square
Pre Merger Analysis
remaining 0.26 due to own.
Paired T Test:
Pre Merger Analysis
 T test = 0.21229
 T test = 0.206681449
 Both the value is more than0.05 which means there is no significance between Markets
Return and Script Return and no abnormality between them.
Hypothesis Analysis:
Hypothesis 1: (R square)
H0:The script return is not affected due to the market return in both i.e. Pre and Post Merger
H1: The script return is affected due to the market return in both i.e. Pre and Post Merger
At least .51 means there is an influence of market return on script in both pre and post merger.
From the above table we can say that, pre merger script return compare to market return out of 10
there are 7 times shows that the value of the script return affected due to its own rather than market
return. So, H0 is accepted in majority of the cases.
Hypothesis 2: (Paired T test)
H0: There is no significance between Markets Return and Script Return and no abnormality between
them.
H1: There is significance between Market Return and Script Return and there is abnormality
between them.
Here, 0.05 value of t test consider as parameter for the test. If a value of t test is less than 0.05 than
there is no significance between Markets Return and Script Return and no abnormality between them
and if a value of t test is more than 0.05 than there is significance between Market Return and Script
Return and there is abnormality between them in both the cases pre and post merger. From the above
table we can say that out of 10 there are 08 companies show the value less that 0.05 which means H0

is rejected and hence there is a significance between market return and script return and there is
abnormality between them.
CONCLUSION
To conclude, I can say that there the trend shows upward movement in the deals of M&A in India
and the investors have to keep in mind this corporate structure decision while they are investing in
the companies.To the short term investors I would like to suggest from the first hypothesis analysis
70% companies‘ shows that the value of the script return affected due to its own rather than market
return. So, H0 is accepted in majority of the cases. And from the second hypothesis analysis 80%
companies‘ shows significance between market return and script return and there is abnormality
between them. In both the hypothesis there is no significance difference between pre and post
merger analysis of the company but it differ from the market return. So, as an investor for short
term they have to look in thisstrategic alliance and then develop their short term investment
strategies.
FURTHER SCOPE FOR RESEARCH
From the research it clearly shows that the short term we get the clarity regarding the effect of
market return with the script return but we have to now check for the long term to see the financial
stability of the companies.With that we can come to more precise conclusion.
REFERENCES
Sources of Research Papers:
[1]. JayantKalghagi&Dr.Ravindranath V. Bad (2013), ―Cross Border Mergers & Acquisitions and Its Effect
on Shareholders Wealth in India‖ Published in: IJRCM, Volume No. 4, Issue No. 06 (June) ISSN 0976 -2183
[2]. SmitaKashiramka&N.V.MuralidharRao (2013), Research Paper on: ―Shareholders wealth effects of
Mergers & Acquisitions in different deal activity periods in India‖ Published in: European Journal of Business
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