MERGERS

AND ACQUISITIONS

-AN ANALYSIS-

SUBMITTED BY

KASVI TANEJA

FOR THE DEGREE OF

BACHELOR OF COMMERCE (HONS.)

ACADEMIC YEAR 2013-2014

UNIVERSITY OF DELHI

UNDER THE GUIDANCE OF

Mr V.P. Jain

MS.JOYTI SINDU

SRI VENKATESWARA COLLEGE

ACKNOWLEDGEMENTS

This project has come to fruition though the guidance of esteemed

guidance of my mentors Mr. V.P. Jain and Ms. Jyoti Sindhu. I express my special

thanks to them for their support in selection of the topic and their insightful

comments and suggestions on earlier drafts that were revised and improved under

their guidance.

I take this opportunity to thank my teachers who shared with me their valuable

knowledge.

This is an outcome of unparalleled infrastructural support that I have received from

the Sri Venkateswara College library staff and ICT Lab staff.

I deeply value your guidance.

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CONTENTS

ACKNOWLEDGEMENTS...................................................................2

CONTENTS............................................................................................2

INTRODUCTION..................................................................................5

OBJECTIVE...........................................................................................7

CONCEPTUAL FRAMEWORK..........................................................7

MOTIVES BEHIND MERGER AND ACQUISITIONS..............11

IMPACT OF M&AS............................................................................14

CASE STUDY.......................................................................................21

CONCLUSION.....................................................................................26

REFERENCES.....................................................................................27

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INTRODUCTION

An entrepreneur may grow its business either by internal expansion or by

external expansion. In case of internal expansion a firm grows gradually over time,

through acquisition of new assets, replacement of the technologically obsolete

equipments etc. But in external expansion, a firm acquires a running business and

grows overnight through corporate combinations. These combinations are often in

the form mergers, acquisitions, amalgamations and takeovers. Mergers and

Acquisitions are now a critical part of the fabric of doing business and are deeply

ingrained in the business strategy world over.

The global financial services industry has also experienced merger waves

mainly due to severe competition which puts focus on economies of scale, cost

efficiency, and profitability and the “too big to fail” principle followed by the

authorities. This project aims to study the impact of M&As on the Indian banking

industry.

During the last two decades, the Indian banking sector has undergone a

metamorphic change following the economic reform process initiated by the

Government of India. The forces of globalization, deregulation and liberalization

unleashed by the economic reforms, set in motion in 1991, have transformed the

face of the Indian financial services sector landscape , including that of the Indian

banking sector in a big way. There has been a paradigm shift from a regulated to a

deregulated environment. The economic liberalization and deregulation measures

initiated in the 1990s have opened up the doors to foreign competition and made the

markets more efficient and competitive. Continuous innovation and keeping pace

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with technological change have become a must for survival of the firms in the

financial services industry including the banking sector. The developments in the

Indian banking sector have witnessed quite a few mergers and acquisitions (M&A

s).

The Narsimham Committee report in August 1991 highlighted the need for

financial sector reforms and fostering competitive spirit in the Indian banking

sector. In 1997, a second committee was set (under M. Narsimham) to specifically

suggested mergers among strong banks both in the public and private sectors. Since

the onset of reforms in 1990, according to RBI report, 22 bank amalgamations, have

taken place in India (up to 2007). While, the amalgamations of Indian banks were

mostly driven by weak financials, in the post 1999 period there have been mergers

between healthy banks prompted by business and commercial considerations.

OBJECTIVE

The main objective of the project is to

1. Provide a clear understanding of the concepts of mergers and acquisitions

2. Analyze their impact on

Performance of business

Shareholders

Employees

Customers

3. Analyze the impact of bank mergers through a case study

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CONCEPTUAL FRAMEWORK

Concept and Definition

MERGER

A merger can be defined as the fusion or the absorption of one company by

another. It may also be understood as an arrangement; thereby the assets of two or

more companies get transferred to or come under the control of one company.

In common practice, in merger one of the two existing companies merges its

identity into another existing company or one or more existing companies may form

a new company and merge their identities into a new company by transferring their

business and undertakings including all assets and liabilities to the new company.

The shareholders of the company whose identity has been merged are then issued as

the shares in the capital of the company merged.

Amalgamation legal process by which two or more companies are joined

together to form a new entity or one or more companies are to be absorbed or

blended with another and as a consequence the amalgamating company loses its

existence and its shareholders become the shareholders of the new company or the

amalgamated company. The word amalgamation or merger is not defined anywhere

under the companies act 1956. However, [Section 2(1A)] of the Income Tax Act,

1961 defines amalgamation as follows:

“Amalgamation”, in relation to companies, means the merger of one or more

companies with another company or the merger of two or more companies to form

one company (the company or companies which so merge being referred to as the

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amalgamating company or companies and the company with which they merge or

which is formed as a result of the merger, as the amalgamated company) in such a

manner that-

i. all the property of the amalgamating company or companies immediately

before the amalgamation becomes the property of the amalgamated company

by virtue of the amalgamation;

ii. all the liabilities of the amalgamating company or companies immediately

before the amalgamation become the liabilities of the amalgamated company

by virtue of the amalgamation;

iii. shareholders holding not less than three fourths in value of the shares in the

amalgamating company or companies(other than shares already held therein

immediately before the amalgamation by, or by a nominee for, the

amalgamated company or its subsidiary ) become shareholders of the

amalgamated company by virtue of the amalgamation, otherwise than as a

result of the acquisition of the property of one company by another company

pursuant to the purchase of such property by the other company or as a

result of the distribution of such property to the other company after the

winding up of the first mention company;

Otherwise, then as a result of acquisition of a property of one company by another

company pursuant to the purchase of property by another company or as a result of

distribution of such property to the other company after the winding up of the first

mentioned company.

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ACQUISITION

An acquisition usually refers to a purchase of a smaller firm by a larger one.

Acquisition, also known as a takeover or a buyout, is the buying of one company by

another. Acquisitions or takeovers occur between the bidding company and the

target company. There may be either hostile or friendly takeovers. Acquisition in

general sense is acquiring the ownership in the property. In the context of business

combinations, an acquisition is the purchase by one company of a controlling

interest in the share capital, or the all or substantially all of the assets and/or

liabilities, of another company. A takeover may be friendly or hostile, depending on

the offeror company’s approach, and may be affected through agreements between

the offeror and the majority shareholders, purchase of shares from the open market,

or by making an offer for acquisition of the offeree shares to the entire body of

shareholders.

DIFFERENCE BETWEEN MERGER AND ACQUISITION

The difference between Merger and Acquisitions is subtle. In case of a

merger, two firms, together, form a new company. After merger, the separately

owned companies become jointly owned and get a new single identity. When two

firms get merged, stocks of both the concerns are surrendered and new stocks in the

name of new merged company are issued. Generally, Mergers take place between

two companies of more or less of the same size. In these cases, the process is called

Merger of Equals.

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But, in case of Acquisition, one firm takes over another and establishes

its power as the single owner. Here, generally, the firm which takes over is the

bigger and stronger one. The relatively less powerful smaller firm loses its existence

after Acquisition and the firm which takes over, runs the whole business by its’ own

identity, unlike Merger, in case of Acquisition, the stocks of the acquired firm are

not surrendered. The stocks of the firm that are bought by the public earlier

continue to be traded in the stock market. But, often mergers and Acquisitions

become synonymous, because in many cases, the big firm may buy out a relatively

less powerful one and thus compels the acquired firm to announce the process as a

Merger. Although, in reality an Acquisition takes place, the firms declare it as a

merger to avoid any negative impression.

Another difference between merger and Acquisition is that, when a deal

is made between two companies in friendly terms, it is proclaimed as Merger, even

in case of a buyout. But if it is an unfriendly deal, where the stronger firm swallows

the target firm, even when the target company is not willing to be purchased then it

is called an Acquisition.

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MOTIVES BEHIND MERGER AND ACQUISITIONS

Accelerating a company’s growth particularly when its internal growth is

constrained due to paucity of resources, internal growth requires that a company

should develop its operating facilities- manufacturing, research, marketing, etc. But

lack or inadequacy of resources and time needed for internal development may

constrain a company's pace of growth. Hence, a company can acquire production

facilities as well as other resources from outside through mergers and acquisitions

to acquire requisite infrastructure and skills and grow quickly.

This may happen because of –

1. ECONOMIES OF SCALE

Arise when increase in the volume of production leads to a reduction in cost

of production per unit. This is because, with merger, fixed costs are distributed over

a large volume of production causing the unit cost of production to decline.

Economies of scale may also arise from other indivisibilities such as production

facilities, management functions and management resources and systems. This is

because a given function, facility or resource is utilized for a large scale of

operations by the combined firm.

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2. OPERATING ECONOMIES

Arise because, a combination of two or more firms may result in cost

reduction due to operating economies. In other words, a combined firm may avoid

or reduce overlapping functions and consolidate its management functions such as

manufacturing, marketing, R&D and thus reduce operating costs. For example, a

combined firm may eliminate duplicate channels of distribution etc.

3. SYNERGY

Implies a situation where the combined firm is more valuable than the sum

of the individual combining firms. It refers to benefits other than those related to

economies of scale. Operating economies are one form of synergy benefits. But

apart from operating economies, synergy may also arise from enhanced managerial

capabilities, creativity, innovativeness, R&D and market coverage capacity due to

the complementary resources and skills and a widened horizon of opportunities.

4. TAX SAVINGS:

A profitable company can buy a loss making unit to use the targets tax write

offs.

5. GREATER VALUE GENERATION :

Companies go for Merger and Acquisitions from the idea that, the joint

company will be able to generate more value than the separate firms. When a

company buys out another, it expects that the newly generated shareholder value

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will be higher than the value of the sum of the share s of the two separate

companies.

6. GAIN IN MARKET SHARE

Merger and Acquisition can prove to be really beneficial to the companies

when they are weathering through the tough times. If the company which is

suffering from various problems in the market and is not able to overcome the

difficulties, it can go for an acquisition deal. If a company, which has strong market

presence, buys out the weak firm, then a more competitive and cost efficient

company can be generated.

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IMPACT OF M&AsLiterature Review

The following literature review covers both the global and domestic scenarios.

It highlights the impact of Mergers and Acquisitions on various aspects of the

banking business.

On the Performance of the firm

As stated earlier there are several reasons for the banks to merge their

operations, including realization of synergies: Financial, Operational (Porter, 1985)

and Managerial (Porter, 1987). The second reason is increased earnings and market

share. Merged banks may be in a stronger position to compete globally. They may

be able to provide a more diversified product mix to their clients at competitive

prices because of economies of scale and scope. They may access information and

proprietary technologies, achieve greater diversification and earnings stability, tax-

benefits and even satisfy management’s goals (Hubris) (Hawawini and Swary,

1990).Mergers may also result in reduced operating costs (Standard and Poors,

1997). Cybo-Ottone and Murgia (1996) analyzed 26 mergers of European

Financial Services firms (not just banks) taking place between the years 1988 and

1995 in thirteen European banking markets. Average abnormal returns of targets

were significantly positive and those of acquirers were essentially zero. Cybo-

Ottone and Murgia’s (2000) event study analysis of 54 mergers and acquisitions

covering 13 European banking markets of the EU and the Swiss market for the

period 1988 to 1997 found significant increase in value for the shareholders of

bidder and target banks at the time the deals were announced. .” Manoj Anand and

Jagandeep Singh (2008) observed that the merger announcements in the Indian

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banking industry had positive and significant shareholder wealth effect both for

bidder and target banks.

Bhattacharyya, Lovell & Sahay (1997) examined the productive efficiency of 70

Indian commercial banks between 1986 and 1991 and found that public sector

banks were the most efficient when compared to foreign-owned and privately-

owned Indian banks.

Contradicting the above literature, Berger and Humphrey (1992)

examined the mergers occurring in 1980s involving banks with a minimum asset

size of $1billion. They observed using frontier methodology that bank mergers led

to no significant gains in X-efficiency. They also analyzed return on assets (ROA)

and total costs to assets and reached similar conclusions. Akhavein, Berger and

Humphrey (1997) analyzed changes in profitability using the same data set based

on ROA and ROE measures and found no significant change in these ratios

following consolidation. Srinivasan and Wall (1992) investigated all commercial

and bank holding company mergers that occurred during the time period from 1982

to 1986.Their finding revealed that non-interest expenses had not come down in the

post-merger scenario. Stephen A Rhoades’ findings of the operating performance

studies (a sample of 19 bank mergers) were generally consistent. Almost all of these

studies found no improvement in efficiency or profitability following bank mergers,

the findings being robust both within and across studies and over time. Jagdish R.

Raiyani (2010) in her study investigated the extent to which mergers lead to

efficiency. The financial performance of the bank has been examined by analyzing

data relevant to the select indicators for five years before the merger and five years

after the merger. It is found that the private sector merged banks are dominating

over the public sector merged banks in profitability and liquidity but in case of

capital adequacy, the results are contrary. Further, it was observed that the private

sector merged banks performed well as compared to the public sector merged

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banks. Rehana Kouser and Irum Saba (2011) explored the effects of merger on

profitability of the bank by using six different financial ratios. They have selected

10 commercial banks that faced M&A during the period from 1999 to 2010. The

lists of banks were selected from the Karachi Stock Exchange (KSE). Quantitative

data analysis techniques are used for inference. Analysis was done by using paired

t-test. The results recommend that operating financial performance of all

commercial bank’s M&A included in the sample from banking industry had

declined later. The results shows that there is a decline in all 6 ratios: profitability

ratios, return on net worth ratios, invested capital, and debt to equity ratios. Dr.

Neena Sinha et al (2010) in their study described the impact of mergers and

acquisitions on the financial efficiency of the selected financial institutions in India.

The analysis consists of two stages. Firstly, by using the ratio analysis approach,

they calculated the change in the position of the companies during the period 2000-

2008. Secondly, they examined the changes in the efficiency of the companies

during the pre and post merger periods.The result revealed a significant change in

the earnings of the shareholders, however there was no significant change in

liquidity position of firms. The result of the study indicate that M&A cases in India

show a significant correlation between financial performance and the M&A deal, in

the long run, and the acquiring firms were able to generate value. Nisarg A. Joshi

and Jay M Desai in their study measured the operating performance and

shareholder value of acquiring companies and comparing their performance before

and after the merger. They used Operating Profit Margin, Gross Operating Margin,

Net Profit Margin, Return on Capital Employed, Return on Net Worth, Debt-Equity

Ratio, and EPS P/E for studying the impact. They concluded that as in previous

studies, mergers do not improve performance at least in the immediate short term.

Pramod Mantravadi, A.Vidyadhar Reddy (2007) in their research paper, focused

on the impact of mergers on the relative size and operating performance of

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acquiring corporate by examining some pre- and post-merger financial ratios with a

sample of firms chosen from all mergers involving public limited and traded

companies in India between 1991 and 2003. The study used the following financial

ratios: operating profit margin, gross profit margin, net profit margin, return on net

worth return on capital employed and debt-equity ratio .The results suggest that

there are minor variations in terms of the impact on operating performance

following mergers, when the acquiring and acquired firms are of different relative

sizes, as measured by market value of equity.

On Shareholders

It is often believed that the shareholders of the acquired company benefit the

most. The reason being, it is seen in the majority of the cases that the acquiring

company usually pays a little excess than it should or what is prevailing in the

market so as to compensate the shareholders who forgo their shares. Shareholders

of the acquiring firm, on the other hand are believed to be affected the most.

Literature, however has following conclusions. Dr. P. Natarajan and k.

Kalaichelvan (2011) used the share price data and financial statements of eight

select public and private sector banks, during the period between 1995 and 2004,

this study examined M&A as a business strategy and to identify the relative

importance of mergers on business performance and increased Shareholders wealth.

The study showed that mergers enhance performance and wealth for both the

businesses and shareholders. Manoj Anand and Jagandeep Singh (2008)

observed that the merger announcements in the Indian banking industry had

positive and significant shareholder wealth effect both for bidder and target banks.

On the contrary T T Ram Mohan (2005) observed, “Mergers also do not

seem to result in improvements in cost efficiency; Not least mergers do not in

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general enhance shareholder value : the target firm benefits but not the acquiring

firm, resulting in a zero or negative sum game. Often mergers result in gains not

because of enhanced size but because of diversification benefits. As PSBs are for

the most part have diversified portfolios additional gains from merger may not be

significant.” Deo and Shah (2011), indicate that merger announcements in have no

significant impact on the bidder portfolio. M&A create significant positive

abnormal returns for target shareholders only. Selvam. M (2007) has analyzed the

implications of stock price reactions to mergers and acquisitions and concluded that

the share prices are market sensitive and not dependent on mergers.

On Employees

In the process of consolidation of corporate sector human resource is also

considered to be vital and sensitive issue. The UNI Europe estimated that around

13000 jobs have been lost in 10 years as a result of merger and acquisition

process. It is well known fact that whenever there is a merger or an acquisition,

there are bound to be lay- offs. In the event when a new resulting company is

efficient business wise, it would require less number of people to perform the

same task. Under such circumstances, the company would attempt to downsize

the labor force. Even though this may not lead to drastic unemployment levels,

but create mild undulations in the local economy causing the workers to

compromise with lesser pay packages. Literature in this regard is of the view

that if there is any change recognized in the organization that affects the

individuals (Wilson, 2004). (Tehrani 2007) changes from merger have seen

negative impact on well-being in context to accept that change and can also add

the stress on workplace level. As (Vaananen, 2004) measured “change solely

through employees’ perceptions of whether or not their standing at work had

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changed during the period of a merger”. The effect of merger and acquisition on

employee moral can have significant impact if the reorganization of the merged

firm is not handled successfully. Change from the result of merger can be

difficult and leads to the stress that has a negative impact on employee morale

(Richards, 2009), and the factor which lead to the stress is lack of

communication passes from top level to lower level management during merger

times (Pophal, 2009).

ON CUSTOMERS

Generally speaking, impact of merger and acquisitions brings a win- win

situation for the customers; this is because the customers are left with a high range

of products with a low range of price. From the banking perspective, mergers can

result in customers receiving more services which generally include larger loan

limits, more branches and more Automated Teller Machines(ATMs)(Turillo and

Sullivan, 1987).The American Economic Review (Dario Focarelli and Fabio

Panetta,2003) has reported that there is strong evidence that although consolidation

generates adverse price changes, these are of a temporary nature and in the long

run, efficiency gains dominate over the market power effect, leading to more

customer friendly pricing of bank services. The merger of Bank of Madura with that

of ICICI Bank in 2001 is an excellent example of a very successful merger in an

altogether diverse community benefiting a large number of consumers. ICICI Bank

branches have expanded from around 7 in 2000-01 to around 270 in 2005-06, the

largest number of ICICI Bank branches in any state, thus penetrating the southern

markets (Ravi Kumar, 2007).

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However contradicting the above, service levels greatly declined after

Wells Fargo’s acquisition of Norwest in 2000, and also during a series of

aquistions by fleet bank (Knut Meyer , Everest Group,2004).In traditional bank

mergers, customer attrition of 5 to 10 percent is common , driven by consumer

dissatisfaction with the acquiring bank and branch consolidation or changes in

service levels. However, this loss is usually offset by cost reduction

(K.Unnikrishnan, 2006). This is usually due to customer skittishness about the

solvency of the merging “troubled” banks and the security of their deposits. High-

value customers are the most likely to leave as they seek low-risk, top-quality

institutions in which to place their significant assets. They can and will depart at the

slightest hint of instability, and they are being aggressively courted by stronger

banks. Even relatively minor customer-facing operational problems such as a glitch

in the ATM network or delays in posting deposits could result in significant attrition

of customers (Booz&Co, 2008). A study of thousands of U.S. bank mergers by

Stephen Rhoades, concluded that service to customers did not improve as a

consequence of any of the mergers. Other studies have found that mergers led to

increased fees, branch closures and low level customer service (Canadian

Community Reinvestment Coalition, 2006). According to Reichheld, a

perception of exorbitant fees for services, inadequate employee service; gaps in the

menu of services and products, delays on account of bank mistakes and low deposit

interest rates may cause customers to leave.

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CASE STUDY

MERGER OF ICICI WITH BANK OF RAJASTHAN IN

2010

Transferee:

Industrial Credit & Investment Corporation of India (ICICI) was

incorporated on January 5, 1994 under the Companies Act, 1956 .The Transferee

Bank, as of May 21, 2010, has a network of 2,000 branches and extension counters

and has over 5,300 automated teller machines (ATMs). At present the bank has

79,978 employees with strong financial like total assets of Rs. 3634 billion, total

deposits of Rs. 2020.16 billion, advances of Rs. 1812.06 billion and net profit of Rs.

42.25 billion as on March 2010. The amalgamation of the Transferor Bank with the

Transferee Bank was in accordance with the provisions of the Scheme formulated

pursuant to Section 44A of the Banking Regulation Act, 1949, Reserve Bank of

India’s guidelines for merger/amalgamation of private sector banks dated May 11,

2005, and in accordance with the applicable provisions of the Companies Act, 1956,

and the Memorandum and Articles of Association of the Transferor Bank and the

Transferee Bank and other applicable provisions of laws. The objectives and

benefits of this merger are clearly mentioned in the scheme of this merger by

Transferor:

The Bank of Rajasthan Ltd. was incorporated on May 7, 1943 as a Company.

The Bank of Rajasthan had a network of 463 branches and 111 automated teller

machines (ATMs) as of March 31, 2009. Its presence had been in 24 states with 463

branches as a profitable and well-capitalized Bank with men power strength of

more than 4300. The balance sheet of the Bank shows that it had total assets of Rs.

173 billion, deposits of Rs. 150.62 billion, and advances of Rs. 83.29 billion as on

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March 2010. The profit and loss account of the bank shows the net profit as Rs. -

1.02 billion as on March 2010, which shows that bank, was not in good financial

condition.

Scheme of Merger:

The amalgamation of the Transferor Bank with the Transferee Bank was in

accordance with the provisions of the Scheme formulated pursuant to Section 44A

of the Banking Regulation Act, 1949, Reserve Bank of India’s guidelines for

merger/amalgamation of private sector banks dated May 11, 2005, and in

accordance with the applicable provisions of the Companies Act, 1956, and the

Memorandum and Articles of Association of the Transferor Bank and the

Transferee Bank and other applicable provisions of laws.

Objectives and Benefits

BoR had deep penetration with huge brand value in the State of Rajasthan

where it had 294 branches with a market share of 9.3% in total deposits of

scheduled commercial banks. It was presumed that the merger Transferee Bank

among the top three banks in Rajasthan in terms of total deposits and significantly

augment the Transferee Bank’s presence and customer base in Rajasthan and it

would significantly add 463 branches in branch network of ICICI Bank along with

increase in retail deposit base. Consequently, ICICI Bank would get sustainable

competitive advantage over its competitors in Indian Banking.

Merger

ICICI bank approved merging of Bank of Rajasthan (BoR) with itself on 18

May 2010. The share swap ratio was announced at 25:118 (25 shares of ICICI Bank

for 118 shares of BoR). The Reserve Bank of India on 13th August 2010 gave its

nod to the merger.

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Deal Structure

The amalgamation of Bank of Rajasthan by ICICI was a no-cash deal. The

deal was valued at Rs.3041 crores. Each share of BoR was valued at Rs.189/-

giving a premium of around Rs.90 per share. On price per branch basis, ICICI paid

Rs.65.7 million per branch.

Post Merger Performance

The following table shows the post merger profitability, solvency and

liquidity ratios of the merged entity.

2009 2010 2011

Current Ratio 0.13 0.14 0.11

Quick Ratio 5.94 14.70 15.86

Total Debt/Equity Ratio 4.42 3.91 4.10

Net Profit Margin 9.74 12.17 15.91

Return on Long Term

Funds

56.72 44.72 42.97

Return on Net Worth 7.58 7.79 9.35

EPS 33.76 36.10 44.73

Table: Post Merger Analysis

Post merger results were satisfactory. The liquidity position i.e the quick ratio had

increased after merger. Debt equity ratio also improved, Net Profit margin is

increasing year by year. Return on net worth had increased after merger and the

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EPS has taken a good move after merger. Hence, the merger is good for both the

banks.

Benefits to Shareholders

Post merger the EPS was Rs. 36.10 while the P.E ratio was 22.97. The

dividends rose by 120% while the return on average equity was 7.58. So the merger

was beneficial from the shareholders point of view.

Effect on Employees

When the information about this merger was communicated to the

employees, they did not accept this merger. All the employees were against this

merger. All the three major employee unions i.e. All India Bank of Rajasthan

Employees Federation, All India Bank of Rajasthan Officers' Association and Akhil

Bhartiya Bank of Rajasthan Karmchari Sangh, called the strike demanding the

immediate termination of the ICICI-BoR merger proposal. It is a very strong

phenomenon of the behaviour of employees in the growth strategy like mergers and

acquisitions.. At this juncture, the biggest challenge for ICICI Bank Ltd. was to

encounter the agitation from the 4300 BoR employees.

Benefits to Customers

All customers were extended seamless services as per the Bank of Rajasthan

procedures. All BoR products continued with current features and charges.

Customers continued to transact using their current BoR cheque books, ATM cards,

lockers etc. The minimum balance requirements and service charges on all type of

accounts will remained unchanged.

Post the system integration customers benefited from ICICI Bank's enhanced

branch network of over 2500 branches and over 5600 ATMs spread across 1400

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locations in the country. The Bank now has a presence in 18 international

locations. ICICI Bank's extensive product suite caters to all banking requirements,

both corporate and retail, backed by a world class technology platform.

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CONCLUSION

This paper attempted to provide an analysis of impact of M&As on the

operating performance, shareholders, human resource and customer service of the

Indian banking business. the literature review suggests that bank mergers have the

potential to improve performance of the firm through increased profitability by

enhancing efficiency levels post-merger. There is however no consistent evidence

about increased efficiency levels post-merger, in the banking sector across the

globe. Most of the studies relate to bank mergers in US, Europe and Australia and

have found no convincing evidence on the increase in efficiency gains resulting

from bank mergers. Studies have also found improvements in technical efficiency

in bank mergers. Empirical results reveal that M&As can have significant impact if

the reorganization of the merged firm is not handled successfully. Change from the

result of merger can be difficult and leads to the stress that has a negative impact on

employee morale. M&As result in customers receiving more services which

generally include larger loan limits, more branches and more Automated Teller

Machines(ATMs).These results are further reiterated by the case study of merger of

ICICI Bank with the Bank of Rajasthan. The amalgamation of ICICI bank with

Bank of Rajasthan came in to effect on August 13, 2010 when RBI approved the

deal. Post merger results are satisfactory. Merger has increased the liquidity and

profitability position of ICICI bank. HR ISSUES have always being a major

concern for the merging firms because the major impact of this merger is on the

employment position of employees of BOR. The merger has increased no. of

branches and no. of ATM’s. Hence, the merger is beneficial for both the banks.

Hence we conclude that mergers and acquisitions are beneficial for the Indian banks

and shall enable the Indian banking industry to combat the global competition.

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REFERENCES

BOOKS

1. Hawawini, G. and Swary, I. (1990), Mergers and Acquisitions in the US

Banking industry, Evidence from the Capital Markets, Amsterdam (North

Holland Publishing Company).

2. Kaplan, S. N, Hietala, P. and David T. R., (2002), What is the Price of

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JOURNAL PAPERS

1. Akhavein, J.D., Berger, A.N. and Humphrey, D. B. (1997), The effects of

Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function,

Review of Industrial Organization, Vo.12, pp.95-139.

2. Berger, A.N. and Mester, L.J. (2003), Explaining the dramatic changes in

performance of US banks: technological change, deregulation, and dynamic

changes in competition," Journal of Financial Intermediation, Vol. 12, No.1,

pp.57-

3. Berger, A.N. and Humphrey, D. B. (1997), Efficiency of Financial Institutions:

International Survey and Directions for Future Research, European Journal of

Operational Research, Elsevier, Vol.98, No.2, pp.175-212.

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4. Berger, A.N. and Humphrey, D.B. (1991), The dominance of inefficiencies

over scale and product mix economies in banking, Journal of Monetary

Economics, Vol.28, pp.117-148.

5. Berger, A.N. and Humphrey, D.B. (1997), Efficiency of financial institutions:

International survey and directions for future research, European Journal of

Operational Research, Vo.98, pp.172-212.

6. Berger, A.N., Demsetz, R.S. and Strahan, P. E. (1999), The consolidation of

the financial services industry: Causes, consequences and implications for the

future, Journal of Banking and Finance, Vol.23, Nos.2-4, pp.135-194.

7. Berger, A.N., Demsetz. R.S. and Strahan. P.E. (1999), The consolidation of

financial services industry: Causes, consequences and implications for the

future, Journal of Banking and Finance, Vol.23, Nos.2-4, pp. 135-194.

8. Berger, A.N, Hancock,D, Humphrey.D.B. (1993a), Bank efficiency derived

from the profit function, Journal of Banking and Finance, 17, Nos.2-3, pp.317-

347.

9. Berger.A.N. Hunter.W.C. and Timme.S.G. (1993), The efficiency of financial

institutions: A review and preview of research past, 266

10.Bharadwaj, S.G., Varadarajan, P. R. and Fahy, J.(1993), A Sustainable

competitive advantage in service industries, Journal of Marketing. Chicago:

Oct 1993. Vol. 57, No.4, pp.83 – 100.

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11.Bhattacharyya, A., Lovell, C.A.K. and Sahay,P. (1997), The impact of

liberalization on the productive efficiency of Indian commercial banks.

European Journal of Operational Research, Vol.98, pp.332-345.

12.Cornett, M. M. and Tehranian, H. (1992),Changes in Corporate performance

associated with bank acquisitions, Journal of Financial Economics,

Vol.31,No.2,pp.211-234.

13.Cornett, M.M., McNutt, J.J. and Tehranian, H. (2006) Performance changes

around mergers: revenue enhancements versus cost reductions, Journal of

Money, Credit and Banking, Vol.38 (4), pp.1013-1050.

14.Cybo-Ottone, A. and Murgia, M. (2000), Mergers and Shareholder Wealth in

European Banking, Journal of Banking & Finance, Vol.24, No.6, pp. 831-859.

15.Ghosh, A. (2001), Does operating performance really improves following

corporate acquisitions? Journal of Corporate Finance, Vo.7, pp.151-178.

16.Healey, P. M., Palepu, K. G. and Rubeck, R. S. (1992), Does corporate

performance improve after mergers? , Journal of Financial Economics, Vol.31,

pp.135-175.

17.Hughes, J.P. and Mester, L.J. (1993), A quality and risk-adjusted cost function

for banks: evidence on the “too-big-to-fail” doctrine. Journal of Productivity

Analysis, Vol.4, pp.293-315

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18.Kaplan, S.N. (2006), Mergers and Acquisitions: A Financial Economics

Perspective, Prepared for the Antitrust Modernization Commission

Economist’s Roundtable on Merger Enforcement on January, 19, 2006.

19.68. Kaplan, S. and Weisbach, M. (1992), The Success of Acquisitions:

Evidence from Divestitures, Journal of Finance, Vol.47, No.1, pp. 107-138.

20.93. Pilloff , S.J.(1996),Performance Changes and Shareholder Wealth Creation

Associated with Mergers of Publicly Traded Banking

21.Rhoades, S.A. (1993), The Efficiency effects of Horizontal Bank Mergers,

Journal of Banking and Finance, Vol.17, pp.411-422.

22.Rhoades, S.A. (1998), The efficiency effects of bank mergers: An overview of

case studies of nine mergers, Journal of Banking and Finance, Vol.22, pp.273-

291.

23.Rhodes, S.A. (1993), The efficiency effects of horizontal bank mergers,

Journal of Banking and Finance, 17, 411-22.

24.Sharma, D. and Ho, J. (2002), “The impact of acquisitions on operating

performance: some Australian evidence” Journal of Business Finance and

Accounting, Vol.29, pp.155-200.

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25. Mohan, T. T. R. (2005), Bank Consolidation: Issues and Evidence, Economic

and Political Weekly, March 19, 2005

CONFERENCE PAPERS, WORING PAPERS, REPORTS AND

OTHERS

1. Berger, A.N. (1998), The efficiency effects of bank mergers and acquisition:

A preliminary look at the 1990s data (Conference paper presented in the

NYU Conference on Mergers and Financial Institutions)

2. Berger, A.N. and Humphrey,D.B. (1992), Megamergers in banking and the

use of cost efficiency as an anti-trust defense. Antitrust Bulletin 37,541-600.

3. Coelli, T. (1996), A guide to DEAP Version 2.1, A Data Envelopment

Analysis (Computer)Program, CEPA Working Paper 96/08.

4. Cybo-Ottone, A. and Murgia, M. (1996), Mergers and Acquisitions in the

European Banking Market, Working Paper, University of Pavia, Italy, 1996.

5. Narasimham, M. (1991), Committee report on Financial System, Reserve

Bank of India (Chairman: M. Narasimham).

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WEBSITES

1. www.iba.org.in IBA (Indian Banks Association)

2. www.rbi.org.in

3. http://www.icici.com

4. http://www.moneycontrol.com

5. http://articles.economictimes.indiatimes.com

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