Mergers and Acqusitions

8/9/2019 Mergers and Acqusitions

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A SELF AUDIT STUDY ON

MERGERS & ACQUSITIONS-STRATEGIC ALLIANCE

Submitted in the partial fulfillment for the award of

Master of Business Administration

Submitted by: SAMEERA TAMVADA

Submitted to: SUMIT BARA!DA

A"ademi" #o$ordinator

%a"ulty of Mana&ement Studies

Sri Sri Uni'ersity

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INDEX

S.L.NO TOPIC PAGE NO

( I!TR)DU#TI)!

* )B+E#TIVES, IM)RTA!#E, S#)E )% T-E

STUD.

/ T-E)RETI#A0 ASE#TS )% T-E T)I#

1 MER2ERS A!D A#3UISITI)!S 4 A! A!A0.SIS

5

67 -IST)R. )% M 6 A

8 I!DIA! #)MA!IES A!D 20)BA0

A#3UISITI)!S9 M 6 A: #)MM)! IT%A00S A!D REMEDIES

10 MER2ERS 6 A#3UISITI)!S I! T-E BA!7I!2

I!DUSTR.11 #)!#0USI)!S 6 SU22ESTI)!S

INTRODUCTION

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The wa'e of liberali8ation and &lobali8ation has resulted in blurrin& of the !ational

boundaries, elimination of barriers to mar9etpla"es and as a "onseuen"e there has been free

flow of te"hnolo&y; #apital and mar9et for"es a"ross borders; In simpler terms it implies a

more &lobally 4 ali&ned, 'olatile and responsi'e E"onomy; The momentum of "han&e has

been stron& enou&h for many domesti" layers;


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SCOPE OF THE STUDY

The s"ope of the study is restri"ted to only ban9in& se"tor; A fo"us on mer&ers of I#I#I with

I#I#I BA!7 and a re'iew on the "ompulsions and other rationale behind the mer&er is

presented;

STATEMENTS OF THE PROBLEM

It is "ommon 9nowled&e that dramati" e'ents li9e mer&ers, ta9eo'ers and restru"turin& of

"orporate se"tors o""upy the pa&es of business newspapers almost daily; %urther they ha'e

be"ome the fo"us of publi" and "orporate poli"y issues; This is an area of potential &ood and

proposed e'aluations study on mer&ers and a"uisitions; This study attempts to assess the

su""essfulness of M 6 A strate&y in ban9in& industry; It analyses the impli"ation from the

finan"ial point of 'iew;

DATA COLLECTION OF THE STUDY

The present study mainly depends on the se"ondary data; The se"ondary data were "olle"ted

from internet and referen"e boo9s;

ORGANIZATION OF THE STUDY

The present study has been classifed into our chapters as per convenience and

availability o data. They are as ollows

1. !ntroduction

2. "rofle o the or#ani$ation3. %er#ers and &c'uisitions ( &nalysis

4. )onclusions and *u##estions

LIMITATIONS OF THE STUDY

The study is "onfined to only ban9in& industry;

The present study depends mainly on the se"ondary data;

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THE BASICS OF MERGERS AND ACQUISITION

)ne plus one ma9es three: this euation is the spe"ial al"hemy of a mer&er or A"uisition;

The 9ey prin"iple behind buyin& a "ompany is to "reate shareholder Value o'er and abo'e

that of the sum of the two "ompanies; Two "ompanies to&ether are more 'aluable than two

separate "ompanies 4 at least, that?s the reasonin& behind Mer&ers and A"uisitions;

This rationale is parti"ularly allurin& to "ompanies when times are tou&h; Stron&

"ompanies will a"t to buy other "ompanies to "reate a more "ompetiti'e, "ost$Effi"ient

"ompany; The "ompanies will "ome to&ether hopin& to &ain a &reater mar9et Share or

a"hie'e &reater effi"ien"y; Be"ause of these potential benefits, tar&et #ompanies will often

a&ree to be pur"hased when they 9now "annot sur'i'e alone;

DEFINING MERGERS AND ACQUISITIONS

The phraseMergers and Acquisitions or M & A refers to the aspe"t of "orporate %inan"e

strate&y and mana&ement dealin& with the mer&in& and a"uirin& of different #ompanies as

well as other assets; Usually mer&ers o""ur in a friendly settin& where E=e"uti'es from the

respe"ti'e "ompanies parti"ipate in a due dili&en"e pro"ess to Ensure a su""essful

"ombination of all parts; )n other o""asions, a"uisitions "an happen throu&h hostile

ta9eo'er by pur"hasin& the ma>ority of outstandin& shares of a "ompany in the open sto"9

mar9et;

Merger"an be defined as a pro"ess; This in'ol'es a transa"tion that "ombines two

%irms into one new firm; An Acquisitionis the pur"hase of one firm by another firm; 2rowth

is an essential in&redient to the su""ess; 2rowth "an be either internal or e=ternal; Internal

&rowth is when "ompany a"uires spe"ifi" assets and finan"es them by the retention of

earnin&; E=ternal &rowth in'ol'es the a"uisition of another #ompany; In prin"iple, &rowth

by a"uirin& another "ompany is little different from 2rowth by a"uirin& spe"ifi" assets;

A mer&er refers to a "ombination of two or more "ompanies into one "ompany; It may

in'ol'e absorption or "onsolidation; In absorption, one "ompany a"uires another "ompany;

E=ample: -industan #o; 0td and Indian Repro&raphi"s 0td; #ombined to form -#0 0imited;

In India, mer&ers "alled amal&amations in le&al importan"e are usually of the Absorption

'ariety; The a"uirin& "ompany @also referred to as the amal&amated #ompany or the

mer&ed "ompany a"uires the assets and liabilities of the a"uired #ompany @also referred

to as the amal&amatin& "ompany or the mer&in& "ompany or the tar&et "ompany;

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Typi"ally, the shareholders of the amal&amatin& "ompany in E="han&e for their shares in the

amal&amatin& "ompany;

A ta9eo'er &enerally in'ol'es the a"uisitions of a "ertain blo"9 of euity "apital of a

"ompany whi"h enables the a"uirer to e=er"ise "ontrol o'er the affairs of the #ompany; In

theory, the a"uirer must buy more than 5 per"ent of the paid$up Euity of the a"uired

"ompany to en>oy "omplete "ontrol; In pra"ti"e, howe'er, Effe"ti'e "ontrol "an be e=er"ised

with a smaller holdin&, usually between * and 1 per"ent, be"ause the remainin&

shareholders, s"attered and ill$or&ani8ed; Are not li9ely to "hallen&e the "ontrol of the

a"uirer;

DISTINCTION BETWEEN MERGERS AND ACQUISITIONS

Althou&h they are often uttered in the same breathe and used as thou&h they were

synonymous, the terms Cmer&er and Ca"uisition mean sli&htly different thin&s;


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other words, the real differen"e lies in how the pur"hase is "ommuni"ated to and re"ei'ed by

the Tar&et #ompany?s board of dire"tors, employees and shareholders;

TYPES OF MERGERS AND ACQUISITIONS

Usually three different types of M 6 A are

i; Strate&i"

ii; %inan"ial

iii; #on&lomerate

Strt!"#$ %'()-(*+,

Most of the mer&ers durin& (F/$(F1 "ould be "lassified as strate&i" mer&ers; This was also

the "ase durin& the period leadin& up to the &reat depression; A Strate&i" a"uisition in'ol'es

operatin& syner&ies i;e; two firms are more rofitable "ombined than separate; A&ain in

(FF?s su"h a"uisition started Dominatin&;

F#$#

The bidder usually belie'es that the pri"e of the firm?s sto"9 is less than the Value of the

firm?s assets; Su"h a"uisitions de"lined sin"e the late (F?s 7ohl ber& 7ra'is and Robert?s

le'era&ed buyout of R+R !abis"o is a well$7nown e=ample;

C/"/0!rt! 1 D#2!r3#45#"

#on&lomerate in'ol'es firms with no apparent potential for operatin& syner&ies; A number of

lar&e 's; "orporation were built up in the (FGs throu&h "on&lomerate a"uisitions; rofit

had been sha9en by politi"al ris9; Su"h as the !ationali8ation of ITT?S @International

Telephone and Tele&raph telephone System in #uba, the #E), -arold 2eneon,

re"ommended in an internal Do"ument in (FG/ that ITT adopt a poli"y of a"uirin& U;S;

#ompany; The %irst ma>or pur"hase by ITT was A'is Renta"at, whi"h was followed by both

Bi& and small name; Most of the mer&ers in the United States durin& (F5s, (FGs and (FHs

were "on&lomerate;

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VARIETIES OF MERGERS

Fr/0 t6! 7!r37!$t#2! /4 893#!33 3tr9$t9r!3: t6!r! r! ;6/! 6/3t /4 Two "ompanies that are in dire"t "ompetition in the same

produ"t lines and mar9ets;

V!rt#$ M!r"!r> A "ustomer and "ompany or a suppliers and "ompany for E=ample

from a "one supplier to an i"e "ream mar9;

Mr?!t @ !t!3#/ M!r"!r> Two "ompanies that sell the same produ"ts in

Different mar9ets;

Pr/ Two "ompanies that ha'e no "ommon business area; %rom the

perspe"ti'e of how the mer&er and "onsolidation mer&ers; Ea"h has "ertain

impli"ation for the "ompanies in'ol'ed and for in'estors

P9r$63! M!r"!r3>

Asthe name su&&est, this 9ind of mer&er o""urs when one "ompany pur"hases another one;

The pur"hase is made by "ash or throu&h the issue of some 9ind of debt Instrument, and the

sale is ta=able;

A"uirin& "ompanies often prefer this type of mer&er be"ause it "an pro'ide them with a

ta= benefit; A"uire assets "an be Cwritten$up; To the a"tual pur"hase pri"e, and the assets

"an depre"iate annually, redu"in& ta=es payable by the a"uirin& #ompany;

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The a"uirer buys the shares of the listed "ompany in the sto"9 mar9et; 2enerally, hostile

ta9eo'ers are initiated in this manner;

N!"/t#t!< 1 4r#!

The a"uirer buys shares of the tar&et "ompany from one of more e=istin& Shareholders

who are li9ely to be promoter shareholders$ in a ne&otiated transa"tion;

Pr!4!r!t# /t0!t>

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The a"uirer buys shares of the tar&et "ompany, throu&h a preferential Allotment of sta9e in

the "ompany and also infuses funds into the "ompany;

B# @ /9t t?!/2!r3>

A profit earnin& "ompany ta9es o'er a finan"ially si"9 "ompany to bail it out;

REASONS FOR MERGERS

By mer&in&, the "ompanies hope to benefit from the followin&:

E$//0#!3 /4 3$!> The operatin& "ost ad'anta&e in terms of e"onomies of s"ale is

"onsidered to be the primary moti'e of mer&ers, in parti"ular, for hori8ontal and 'erti"al

mer&ers; They result in lower a'era&e "ost of produ"tion and sales due to hi&her le'el of

operations;

E$//0#!3 t/ 3$/7!> A "ompany may use a spe"ifi" set of s9ills or assets that it possesses to

use a Spe"ifi" set of s9ills or assets that it possesses to widen the s"ope of its a"ti'ities; %or

e=ample, ro"tor and 2amble "an en>oy e"onomies of s"ope of its a"ti'ities a #onsumer

produ"t "ompany that benefits from its hi&hly "onsumer mar9etin& S9ills;

S5!r"5>Syner&y is the ma&i" for"e that allows for enhan"ed "ost effi"ien"ies of the new

business; Syner&y ta9es the form of re'enue enhan"ement and "ost sa'in&s; Most of the

mer&ers see9 syner&isti" &ains to both the a"uirin& as well as the Tar&et firms;

S5!r"5 ;/9< 8! !7r!33!< 3 4//;3>

I !44!$t: 35!r"5 #3 $r!t!< < #3 7/3#t#2! /5 ;6! t6! 4//;#" !9t#/ 6/

V @AJBKV @A JV @B


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ositi'e $ If all or one of the abo'e three happen;

!eutral $ !o "han&e o'er the stand$alone position;

!e&ati'e $ All or one of the abo'e may happen in re'erse dire"tion;

F3t Gr/;t6> Mer&er often enables the amal&amatin& firm to &row at a rate fast than is

possible under internal e=pansion route 'ia its own "apital bud&etin& proposals Be"ause the

a"uirin& "ompany enter a new mar9et ui"9ly, a'oids the delay Asso"iated with buildin& a

new plant and establishin& the new line of produ"t;

T B!!4#t3>


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repla"ed by a more effe"ti'e mana&ement team; )ften a firm, pla&ued with Mana&erial

inadeua"ies, "an &ain immensely from the superior mana&ement that is 0i9ely to emer&e as a

seuel to the mer&er;

Another allied benefit of mer&er may be in the form of &reater "on&ruen"e between

the interest of the mer&ers and the shareholders;

ACCOUNTING FOR AMALGAMATIONS

A""ordin& to the a""ountin& standard (1@As$ (1 on a""ountin& for Amal&amations issued

by the institute of #hartered A""ountants of India, an Amal&amation "an be in the nature of

either unitin& of interest, whi"h is referred To as N amal&amation in the nature of mer&er? of N

a"uisition?;

The "onditions to be fulfilled for an amal&amation to be treated as an NAmal&amation in the

nature of mer&er? are as follows:

(; All assets and liabilities of the transferor "ompany before amal&amation should

be"ome the assets and liabilities of the transferee "ompany;

*; Shareholders holdin& not less than F per"ent of the fa"e 'alue of the Euity shares of

the transfer or "ompany @e="ludin& the proportion held by the transferee "ompanies

should be"ome shareholders to the transferee #ompany;

/; The "onsideration payable to the aforesaid shareholders should be Dis"har&er by the

transferee "ompany by issue of euity shares; #ash "an be paid in respe"t of

fra"tional shares;

1; The business "ompany intends to in"orporate is intended to be "arried on by the

transferee "ompany;

5; The transferee "ompany intends to in"orporate in its balan"e sheet the Boo9 'alues of

assets and liabilities of the transferor "ompany with any Ad>ustment e="ept to the

e=tent needed to ensure uniformity of a""ountin& oli"ies; An amal&amation, whi"h

is not in the nature of a mer&er, is treated as an a"uisition?;

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The a""ountin& treatment of an amal&amation in the boo9s of the transferee #ompany is

dependent on the nature of amal&amation as stated abo'e; %or a mer&er, The Noolin& of

Interest? method is to be used and for an a"uisition the Nur"hase? Method is to be used;

Under the Noolin& of Interest? method, the assets and liabilities of the mer&in&

#ompanies are a&&re&ated; 0i9ewise, the reser'es appearin& in the balan"e into the Balan"e

sheet of the transfer "ompany; The differen"e in "apital on a""ount of the Share swap ratio

@e="han&e ratio is ad>usted in the reser'es;

Under the Nur"hase? methods, the assets and outside liabilities of the transferor #ompany

are "arried into the boo9s of the transferee "onsideration and the net boo9 Value of assets

o'er liabilities is treated as N 2oodwill? that has to be amorti8ed o'er a period not e="eedin&

fi'e years; Should the pur"hase "onsideration be less than the net boo9 'alue of assets o'er

liabilities, the differen"e is shown as N#apital Reser'e?;

Sin"e there is often an asset write$up as some &oodwill, the reported profit under the

pur"hase method is lower be"ause of hi&her depre"iation "han&e as well as Amorti8ation of

&oodwill

VALUATION MATTERS

I2!3t/r3 # $/075 t6t #3 #0#" t/ t?! /2!r /t6!r /! 093t

t6! 79r$63! ;# 8! 8!!4#$# t/ t6!0. I /r

6/; 09$6 t6! $/075 8!#" $9#r!< #3 r!5 ;/rt6;

!aturally, both sides of an M 6 A deal will ha'e different ideas about the worth of a tar&et

"ompany, its seller will tend to 'alue the "ompany as hi&h as possible, while the buyer will

try to &et the lowest pri"e possible;

There are howe'er, many le&itimate ways to 'alue "ompanies; The most "ommon Method is

to loo9 at "omparable "ompanies in an industry, but deal ma9ers employ a 'ariety of other

methods and tools when assessin& a tar&et "ompany; -en"e are >ust few of them:

(; C/07rt#2! Rt#/3>The followin& are two e=amples of the many "omparati'e

metri"s on whi"h a"uirers may base their offers:

P1E %Pr#$!-t/-Er#"3, Rt#/>

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A 9ey 'aluation tool in M 6 A dis"ounted #ash flow

analysis determines a "ompany?s "urrent 'alues a""ordin& to its estimated future "ash flows;

%ore"asted free "ash flows @operatin& profit J Depre"iation J amorti8ation of &oodwill 4

"apital e=penditures 4 "ash ta=es $ #han&e in wor9in& "apital are dis"ounted to a present

'alue usin& the #ompany?s wei&hted a'era&e "osts of "apital @

Mer&ers and A"uisitions in the Indian Ban9in& se"tor are &oin& to be the order of the day;

India is slowly but surely mo'in& from a re&ime of Nlar&e number of small ban9s? to Nsmall of

lar&e ban9s?;

Re"ent spate of ban9 mer&ers has led to the Mer&ers and A"uisitions s"ene in the Indian

Ban9in& Industry warmin& up; Mer&ers and A"uisition route is pro'idin& a ui"9 step to

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a"uire "ompetiti'e si8e and offerin& ban9s on opportunity to share mar9ets and redu"e

"ost of produ"t de'elopment and deli'ery;

#onsideration in the ban9in& se"tor is ine'itable mer&ers of smaller, newer ban9s would be

mu"h easier than the SU ban9s; Due to le&al and so"ial "onstraints; India is now mo'in& in

the dire"tion of fe'er but lar&er me&a ban9s;

REASONS FOR MERGERS AND ACQUISITIONS IN BANING SECTOR>

The ban9in& industry is an important area in whi"h mer&ers and a"uisition do ma9e

enormous finan"ial &ains; The traditional "orporate "ustomers of a ban9er turn away ban9er

turn away in"reasin&ly from traditional loan; They are in fa'or of alternati'e sour"es of

finan"ial instruments li9e "ommer"ial papers et";;, As a result of "han&es in the e=pe"tationof the "orporate "ustomers, ban9s are now "onstrained to rethin9 their business and de'ise

new strate&ies;

)n the other hand "ompanies out from India are en"roa"hin& upon e'ery area of business in

the pre'ailin& poli"y of 02; Therefore, Indian ban9ers ha'e to stru&&le to sur'i'e in a

"ompetiti'e en'ironment; In the "han&ed en'ironment, ban9ers adopt different strate&ies;

They ha'e no other option e="ept to redu"e their "osts @both operational "osts and the "ost of

"redit;

The only way to mana&e "ompetiti'eness is "ost throu&h a"uisition, whi"h enables the

ban9ers to spread its o'erhead "ost o'er a lar&e "ustomer base; %rom the "urrent trend, it "an

be predi"ted that "onsolidation will also be one of the effe"ti'e strate&ies widely adopted by

ban9ers;

ANALYSIS

%or the purpose of this study analysis was made in terms of the followin& 'ariables:

@Basi" moti'es for understandin& mer&er 6 a"uisition

A; #han&es in 2rowth of Total Assets of Mer&ed Ban9s;

B; #han&es in 2rowth of rofits of Mer&ed Ban9s;

#; #han&es in 2rowth of Re'enue of Mer&ed Ban9s;

D; #han&es in 2rowth of In'estments of Mer&ed Ban9s;

E; #han&es in 2rowth of Deposits of Mer&ed Ban9s

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A. CHANGES IN GROWTH OF TOTAL ASSETS OF MERGED BANS>

Assets represent e"onomi" resour"es that are the 'aluable possessions owned by a firm;

Assets are mainly used to &enerate earnin&s; The total assets refer to net fi=ed assets and

"urrent assets; The &rowth of total assets indi"ates firm?s ability to produ"e lar&er re'enue;

)ne aim of business strate&y namely; Mer&er and a"uisition is the ma=imi8ation of total

assets of mer&ed ban9s i;e;, firm?s ability to produ"e lar&e 'olume of sales; It is e=pe"ted that

the ban9 units after mer&er would fun"tion effi"iently;

Table 4 / shows "han&es in a'era&e total assets and its 'ariability of sample mer&ed ban9s; It

is "lear that all sample 4 mer&ed ban9s @State Ban9 of India, )riental Ban9 of Baroda, -D%#

ban9, I#I#I Ban9 ha'e shown a tremendous upward &rowth in total assets after mer&er; The

result of standard de'iation "learly shows that mer&er was hi&h than of pre$mer&er period;

As stated earlier, the t$test was used to test the si&nifi"an"e of a'era&e "han&e in total assets

of mer&ed ban9 after mer&er; The appli"ation of t$test re'ealed that all mer&ed ban9s @State

Ban9 of India, )riental Ban9 of #ommer"e, #enturion Ban9, Ban9 of Baroda, Union Ban9 of

India, -D%# Ban9 and I#I#I Ban9 &ot si&nifi"ant 'alues in their assets &rowth;

The analysis of &rowth rate @mean 'alue of sample ban9s "learly should that I#I#I Ban9

a"hie'ed hi&h rate of &rowth @(/H;/, followed by #enturion Ban9 @HG(;*1, -D%# Ban9

@H(H;1F, )riental Ban9 of #ommer"e @(/G;(G, Union Ban9 of India @H1;5, Ban9 of

Baroda @G1;H and State Ban9 of India @5H;G*;

B. CHANGES IN GROWTH OF PROFITS OF MERGED BANS>

The profit is an indi"ation of the effi"ien"y with whi"h the business operations are "arried out

by "orporate se"tor; The poor operational performan"e may result in poor sales leadin& to

poor profits; The mer&er intends to boost profits throu&h elimination of o'erlappin& a"ti'ities

and to ensure sa'in&s throu&h e"onomies of s"ale; The amount of profits may be in"reased

throu&h redu"tion in o'erheads, optimum utili8ation of fa"ilities, raisin& funds at lower

"ost and e=pansion of business; The mer&ed ban9s are e=pe"ted to &row fast in all aspe"ts

and the e="eptions sta9eholders of both a"uirin& and mer&ed ban9s "ould be fulfilled; -ere

the profit refers to profit before ta=;

Table 4 1 Illustrates "han&es in a'era&e profit and its 'ariability in sele"t mer&ed ban9s;

A""ordin& to the table, the a'era&e profit earned by mer&ed ban9s ta9en for the study durin&the post$mer&er period was hi&her than the profit earned durin& the pre$mer&er period;

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The standard de'iation has shown that the 'ariation in the &rowth of profits durin& the post

mer&ed period was hi&her than that of pre$mer&ed period in the "ase of State Ban9 of India,

#enturion Ban9, Union Ban9 of India, -D%# Ban9 and I#I#I Ban9; In the "ase of the other

two ban9s @)riental Ban9 of #ommer"e and Ban9 of Baroda the 'ariation durin& pre mer&ed

period was hi&her than the post mer&ed period;

The Nt? test "learly showed that the #enturion Ban9, Ban9 of Baroda, -D%# Ban9, I#I#I

Ban9, State Ban9 of India and )riental Ban9 of #ommer"e ha'e si&nifi"ant profits earned by

them; This shows that &rowth of profits of Union Ban9 of India is statisti"ally si&nifi"ant

while the &rowth of profits of Union Ban9 of India is insi&nifi"ant;

It is understood from the &rowth rate @mean 'alue that I#I#I Ban9 a"hie'ed hi&hest &rowth

rate in respe"t of profits amon& sample ban9s; The low &rowth rate was seen in Union Ban9

of India;

C. CHANGES IN GROWTH OF REVENUE OF MERGED BANS>

The re'enue is earned from the main line of business; 2enerally, it e="ludes in"ome li9e non$

re"urrin& in"ome and e=traordinary in"ome; The e"onomi" a"ti'ity of a "ompany is

"onsidered to "lassify the in"ome; In "ase of finan"ial institutions in"ludin& ban9in& units,

Interest as main in"ome; %or the purpose of this study, re'enue in"ome refers to interest

re"ei'ed, di'idend earned, se"urity transa"tions, leasin& and hire ser'i"es, bill dis"ountin&,

e="han&e transa"tions, "ommission and others;

Table 4 5 presents "han&es in a'era&e &rowth of re'enue in"ome and its 'ariability of

sample mer&ed ban9s; It is "lear that the mer&ed ban9s li9e State Ban9 of India, )riental

Ban9 of #ommer"e, #enturion Ban9, Ban9 of Baroda and Union Ban9 of India, -D%# Ban9

and I#I#I Ban9 ha'e shown a tremendous &rowth in re'enue;

The mean &rowth rate re&ardin& re'enue in"ome "learly indi"ates the fa"t that the

I#I#I Ban9 a"hie'ed hi&h &rowth rate followed by #enturion Ban9 @(*F;/, -D%# Ban9

@5//;*H, )riental Ban9 of #ommer"e @(1;/*, Union Ban9 of India @GH;5*, State Ban9 of

India @5G;1G and Ban9 of Baroda @5;5(;

D. CHANGES IN GROWTH OF INVESTMENT OF MERGED BANS>

In'estment refers to the in'estment of funds in se"urities of another "ompany ban9; They are

lon& 4 term assets in'ested outside the business of firm; The main purpose of su"h in'estment

17


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is either to earn a return orL and to "ontrol another "ompany; It is usual that in'estments are

shown in the assets side of balan"e sheet of ban9s;

%urther they are shown at mar9et 'alue; The in'estments are made in &o'ernment se"urities,

appro'ed se"urities, assisted "ompanies, subsidiariesLasso"iates, mutual funds and others;

Table 4 G portrays "han&es in a'era&e &rowth of in'estments and its 'ariability of

sample mer&ed ban9s; It is si&nifi"ant to note that all mer&ed ban9s ta9en for this study ha'e

shown tremendous &rowth in in'estment made durin& pre$mer&ed period; The standard

de'iation brin&s out the fa"t that there is hi&her 'ariation in the &rowth of in'estment of all

mer&ed ban9s e="ept State Ban9 of India durin& post mer&ed than the pre$mer&ed period; In

the "ase of State Ban9 of India, the 'ariation in the &rowth of in'estment is hi&her durin& pre$

mer&ed period; The analysis of t$test showed that out of se'en mer&ed ban9s ta9en for this

study, all Ban9s ha'e si&nifi"antNt? 'alues;

It is "learly understood from the mean &rowth rate of in'estment that I#I#I Ban9 &ot

hi&h rate @(*FF;GG amon& sample boo9s; The flow rate was a"hie'ed by State Ban9 of India

@H5;//;

E. CHANGES IN GROWTH OF DEPOSITS OF MERGED BANS>

The important element of "on'entional ban9in& business is to a""ept deposits from the

"ustomers; !ow $a$days manufa"turin& "ompanies also started a""eptin& deposit for a short

period from their members, dire"tors and the &eneral publi"; This mode of raisin& funds is

popular a""ount of the fa"t that the ban9 "redit be"omes uite "ostlier; Deposits, sa'in&

ban9 deposits, demand deposit and mis"ellaneous deposits and deposits outside India;

Table 4 H e=hibits "han&es in a'era&e &rowth of deposits and its 'ariability of sample

mer&ed ban9s; It is "lear that all mer&ed ban9s ha'e shown a si&nifi"ant &rowth of deposits

durin& post 4 mer&ed period than the a'era&e deposits re"ei'ed durin& post$mer&er period; It

is true that the mer&er has led to the &rowth of deposits;

The appli"ation of standard de'iation pro'es that the 'ariations in the &rowth of

deposits of all ban9s durin& post mer&ed period is hi&her than that of pre mer&ed period;

The appli"ation of E 4 test showed that all mer&ed ban9s ha'e shown si&nifi"ant

"han&es in the a'era&e deposits after mer&er; The mean &rowth rate of deposits "learly shows

18


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the fa"t that -D%# Ban9 a"hie'ed @H5;( followed by I#I#I Ban9 @H*H;*, #enturion

Ban9 @55;G, )riental Ban9 of #ommer"e @(1F;1, Union Ban9 of India @H5;/F, State

Ban9 of India @G;15 and Ban9 of Baroda @G;(1;

IMPROVEMENT OF PERFORMANCE

TheNt? 'alue of different 'ariable is &i'en in Table 4 ; It is "learly understood that the

a'era&e profit of Union Ban9 of India alone is si&nifi"ant; All other t 4 'alues for testin& the

uality of mean 'alues with respe"t to total assets, re'enue, in'estment and deposits are

si&nifi"ant at 5O le'el; That is, the a'era&e of "ash 'ariable has in"reased after the mer&er;

This indi"ates that the &oal of M 6 A a"ti'ities is bein& a"hie'ed;

CONCLUSION

The present study analy8ed the &rowth of sample ban9 li9e State Ban9 of India; )riental

Ban9 of #ommer"e, #enturion Ban9, Ban9 of Baroda and Union Ban9 of India, -D%# Ban9

and I#I#I Ban9 durin& pre mer&er and post mer&er period; The abo'e analysis "learly

showed that the performan"e of mer&ed ban9s is respe"t of &rowth of total assets; Re'enue,

profits in'estments and deposits was not different from the e=pe"tations; -owe'er, I#I#I

Ban9 has a"hie'ed hi&her &rowth rate in all respe"ts @e="ept deposit amon& sample ban9s

ta9en for the study; It is hoped by the "orporate se"tors that impro'ed performan"e would

follow M and A a"ti'ities, they ha'e to pro"eed more "arefully so that they "an a'oid

"ommon mista9es asso"iated measures to &au&e the su""ess of the a"uisition a"ti'ities and

adopt suitable measure to impro'e their post mer&er performan"e in future also;

TABLE-1

L#3t /4 S07! B?3

S;!); !ame of the Ban9 .ear

(; State Ban9 of India (FF5

*; )riental Ban9 of #ommer"e (FFH

/; #enturion Ban9 (FF

1; Ban9 of Baroda (FFF

19


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5; Union Ban9 of India (FFF

G; -D%# Ban9 *

H; I#I#I Ban9 *(

TABLE @

L#3t /4 M!r"!< B?3 # I State Ban9 0td; Union Ban9 of India (F1

1; The -industan #ommer"ial

Ban9 0td;

un>ab !ational Ban9 (F5

5; Trader?s Ban9 0td Ban9 of Baroda (FH

G; United Industrial Ban9 0td Allahabad Ban9 (F$F

H; Ban9 of Tamilnadu Indian )'erseas Ban9 (F$F

; The Ban9 of Than>a'ur Indian Ban9 (F$F

F; arur #entral Ban9 0td Ban9 of India (F$F

(; urban"hal #entral Ban9 of India (FF

((; !ew Ban9 of India un>ab !ational Ban9 (FF/

(*; Ban9 of 7arad 0td Ban9 of India (FF1

(/; 7ashinath Seth Ban9 State Ban9 of India (FF5

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(1; Barl Doab Ban9 )riental Ban9 of #ommer"e (FFH

(5; un>ab #o$operati'e Ban9 )riental Ban9 of #ommer"e (FFH

(G; *?th #entury %inan"e #enturion Ban9 (FF

(H; Bareilly #orporation Ban9 Ban9 of Baroda (FFF

(; Si99im Ban9 Union Ban9 of India (FFF

(F; Times Ban9 -D%# Ban9 *

*; Ban9 of Madura I#I#I Ban9 *(

TABLE - 3 Changes in average growth of total assets and itsvariability in

Select erger Ban! "nit #Crores$

S;!); !ame of the

Ban9s

Mean

Before

Mean

After

t $ 'alue 2rowth Rate

PP

(; State Ban9 of

India

F55;15

@(5H5;1G11

(5G5*;F/

@*15(;HF/*

/;P 5H;G*

*; )riental Ban9

)f #ommer"e

H/H1;GF5

@*51F;((*

(H1(G;1H5

@55F1;*1(

/;*GHP (/G;(G

/; #enturion

Ban9

15;F5

@5HG;(/55

/F5*;(G5

@(FH;FFF(

/;/FP HG(;*1

1; Ban9 of

Baroda

/H*5H;*5/

@G/((;(1H(

G(/G(;G

@HF/1;*HH*

1;H55P G1;H

5; Union Ban9 )f

India

*(1/;H

@/G/*;/1/

/H/FG;1/

@5G(G;H511

1;HH1P H1;5

G; -D%# Ban9 *1FG;F55

@(11G;GF

*1(*;1

@/F/;5G(

1;*HP H(H;1F

21


22/26

H; I#I#I Ban9 G*;F5

@15/;H(*/

FG5(;1H5

@15H1;FG*

/;5(P (/H;/

- Signi%cant level at &' ((-ean growth rate.

TABLE - 4

Changes in average growth of )ro%t and its

variability in

Select erger Ban! "nits #Crores$

S;!); !ame of the

Ban9s

Mean

Before

Mean

After

t $ 'alue 2rowth

RatePP

(; State Ban9

)f India

(F*;*H5

@H;*5F5

((F;/5

@5*5;H51

/;H5FP 5(;51

*; )riental Ban9 of

#ommer"e

*;*1*5

@H;*1(

**1;H15

@1(;/5*

/;1H5P (H/;*H

/; #enturion Ban9 G;HH5

@H;G/11

*(;FH5

@((;55*

*;(FGP **1;/5

1; Ban9 of Baroda *GF;(/*5@(/;(H1G

1(G;/F@(*;HF/

(;GP 51;H(

5; Union Ban9 of

India

(G/;(*5

@*;//1

((;((H5

@F*;(H/

;*FP (;F

G; -D%# Ban9 5(;5*5

@*G;FF5

*5/;H

@((1;5/

/;1*GP /F(;/

H; I#I#I Ban9 G1;H5

@*;G5G*

(5;GH*5

@H**;515

*;HHP ((5F;H*

22


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( -Signi%cant level at *.*&' (( - ean growth rate

TABLE-&

Changes in average growth of reven+e inco,e andits variability in

Select erger Ban! "nits #Crores$

S;!); !ame of the

Ban9

Mean

Before

Mean

After

t $ 'alue 2rowth

RatePP

(; State Ban9 of

India

(/G;G1

@(5;/(*F

(G(*5;5FH

@*G*5;*/1

/;11P 5G;1G

*; )riental Ban9 of

#ommer"e

HF/;((5

@5(;5(

(FG;(

@5HF;*/*G

/;5HP (1;/

/; #enturion Ban9 /F;*/H5

@5(;5(

11/;(1*5

@(5;1/

1;(FP (*F;/

1; Ban9 of Baroda /FFG;5H5

@5/*;G5G5

G(5;1H*5

@GH1;1F*F

1;GFP 5;5(

5; Union Ban9 of

India

**15;H15

@1*;/1

G(5;1H*5

@GH1;1F*F

1;GFP 5//;*H

G; -D%# Ban9 *GH;*5 (GF;5*5

@H*G;/H1F

/;5(P 5//;*H

H; I#I#I Ban9 5G1;5

@/G5;F51F

GG(*;H5

@5*G/;H*

*;*F*P (H(;/(

23


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( -Signi%cant level at *.*&' (( - ean growth rate

TABLE

Changes in average growth of de)osits and its

variability in select erger Ban! "nits #Crores$

S;!o; !ame of the

Ban9s

Mean

Before

Mean

After

t $ 'alue 2rowth RatePP

(; State Ban9 of

India

G***;1(/

@((H*1;5G*H

(5*H;1G

@(F/;(1/

/;H/1P G;15

*; )riental Ban9 of

#ommer"e

G**5;/*5

@(F*H;H1(

(55/;1/

@5(F;1H

/;/5(P (1F;1

/; #enturion Ban9 11*;/H//

@5(1;G51

*H;F5

@(1*1;(/FG

*;HH/P 55;G

1; Ban9 of Baroda /(15;FH

@5G1(;F(G

5*F1(;(H

@H((G;/H1

1;H*5P H5;/F

5; Union Ban9 of India (F;H(

@/*15;/111

(5*;F*

@G*(/;(*H/

1;5P H5;(

G; -D%# Ban9 (HGH;F5

@F1;(*

(5*;F*

@G*(/;(*H/

1;(*GP H5;(

H; I#I#I Ban9 1FH;F*5

@/*;5(GH

1((5;/5

@**(1F;**5

/;***P H*H;*

- Signi%cant level at *.*&' (( - ean growth rate

2+


25/26

TABLE /

0T 2al+e of ierent 2ariables

S.N/. N0! /4 t6!

B?

T/t

A33!t3

Pr/4#t R!2!9! I2!3t0!t3 D!7/3#t3

(; State Ban9 of

India

S S S S S

*; )riental Ban9

)f #ommer"e

S S S S S

/; #enturion

Ban9

S S S S S

1; Ban9 of

Baroda

S S S S S

5; Union Ban9

)f India

S !;S S S S

G; -D%# Ban9 S S S S S

H; I#I#I Ban9 S S S S S

So+rce5 Co,)+ted fro, Table 3-/

S5 Signi%cant

6.S5 6ot Signi%cant

2,


26/26

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Mergers and Acqusitions