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1) Introduction------------------------------------------------ 03
a. Need for the Study------------------------------------- 05
b. Objective------------------------------------------------- 06
c. Need for Topic------------------------------------------ 08
d. Primary Data------------------------------------------- 09
e. Secondary Data------------------------------------------ 09
2) Merger and Acquisition and Overviews ------------ 12
a. Acquisition---------------------------------------------- 12
b. Distinction between merger and acquisition--- 16
c. Types of Merger--------------------------------------- 18
3) Valuation Procedure------------------------------------ 26
a. Valuation Methods------------------------------------ 28
i. Price to Value------------------------------------- 29
ii. Price to Total Assets---------------------------- 31
iii. Price to Earnings Per Share-------------------- 31
iv. Price to Total Deposit-------------------------- 31
v. Merger Value is created in two ways------ 31
4) Pre Merger Phase--------------------------------------- 33
a. Acquisition Phase------------------------------------ 33
b. Example of Market Extension Merger----------- 35
c. Indirect Acquisition of share or control--------- 36
d. Voluntary offer-------------------------------------- 36
5) Valuation concept-------------------------------------- 38
a. Steps in Valuation----------------------------------- 38
6) Merger and Acquisition in Banking Industry---- 39
a. Case study of ICICI Bank Ltd.--------------------- 39
7) Example of Merger and Acquisition--------------- 55
In todays globalised economy competitiveness and
competitive advantage have become thebuzzwords for
corporate around the world. Companies , for entering new
markets, asset growth,garnering greater market share/
additional manufacturing capacities, and gaining
complementarystrengths and competencies, and to
become more competitive in the market place,
areincreasingly using Mergers and Acquisition .
The Indian economy has undergone a major
transformation and structural change following
theeconomic reforms introduced by the Government of
India in 1991. Since then, the M&Amovement in India have
picked up momentum. In the liberalized economic and
businessenvironment , magnitude and competence have
become the focal points of every businessenterprise in
India , as companies have realized the need to grow and
expand in business that
They understand well to face the following competition.
Indian corporate has under takenrestructuring exercise to
sell off non core business and to create stronger presence
in their coreareas of business interest. M& A emerged as
one of the most effective methods of such
corporaterestructuring andhave, therefore become an
integral part of the long term business strategy
ofcorporate in India.
Three distinct trends can be seen in the M&A activity in
India after the reforms in 1991. Initially,there was intense
investment activity, a wave of consolidation within the
Indian industry, ascompanies tried to prepare for the
potentially aggressive competition in the domestic
andoverseas market, through M& A and achieve
economies of scale and scope. In the second significant
trend, visible since , 1995, there was increased activity in
consolidationof subsidiaries by multinational companies
in to the national market , through the acquisitionroute ,
with liberalized norms in place for foreign Direct
Investments( FDIs) . Indian companiesfocused on capital
and business restructuring, and cleaned up their balance
sheets. There wasconsolidation in the domestic industries
such as steel, cement and telecom.
The third wave of M& A in India, evident since 2002, is
that of Indian companies venturingabroad and making
acquisition in developed markets for gaining entry into the
internationalmarket. Indian companies have been actively
pursuing overseas acquisitions in recent years.
Theopening up of Indian economy and financial sector,
huge cash reserves following some years ofgreat profits,
and enhanced competiveness in the global markets have
given greater confidencefor big Indian companies to
venture abroad for market expansion. Surge in economic
growth andfall in interest rates have made the financing of
such deals cheaper.
It is seen that, most of the works have been done on
trends, policies & their framework, humanaspect which is
needed to be investigated, whereas profitability and
financial analysis of themergers have not give due
importance. The present study would go to investigate the
detail ofMerger and Acquisitions (M&As) with greater
focus on the Indian banking sector. The studywill also
discuss the pre and the post merger performance of banks.
An attempt is made topredict the future of the ongoing
Merger and Acquisitions (M&As) on the basis of
financialperformance of Indian banking sector.

The project was undertaken to analyze why merger and
acquisition is necessary from a companys or a banks
point of view, when two or more of them are agree to
combine their operations, then what will happen to the
merged co and to the surviving co.
Objectives are strategic decisions leading to the
maximization of a companys growth by enchancing its
production and marketing operations. The numbers of
reasons that are attributed for the occurrences of the
merger and acquisitions are:

e under-utilised market power
profitablility in ones own industry.

proportionately less investment.
excessive start-up cost to gain access to a foreign market.
-utilised resourceshuman, physical
and managerial skills.

issue or change P/E ratio.
opportunism, empire building and to amass vast economic
powers of the company.
mpanys growth,
particularly when the internal growth is constrained due
to paucity of resources.
resulting from economies of scale, operating efficiency and
ny, particularly when
it acquires those businesses whose income streams are
not correlated.
off accumulated losses and unabsorbed depreciation of
one company against the profits of another.
To limit the severity of competition by increasing the
companys market power.
As merger is a combination of two or more cos into an
existing co or a new co. Acquired co. transfer its assets,
liabilities and shares to the acquiring company for cash or
exchange of shares.Need for Merger and Acquisition arises
because in general, a merger can facilitate the ability of
two or more competitors to exercise market power
interdependently, through an explicit agreement or
arrangement, or through other forms of behavior that
permits firms implicitly to coordinate their conduct. It will
be found to be likely to prevent or lessen competition
substantially when the parties to the merger would like to
be in a position to exercise a materially greater degree of
market power in a substantial part of a market for two
years or more, than if the merger did not proceed in whole
or in part. In short, a company can achieve its growth
objective by:
Expanding its existing markets
Entering in new markets
A company can expand internally or externally. If
internally there is a problem due to lack of resources and
managerial skill it can to the same externally through
mergers and acquisitions. This helps a company to grow at
a faster pace in a convinent and inexpensive way.
Combination of companies may result in more than the
average profitability due to reduction in cost and effective
utilization of resources.
Primary Data
Secondary Data
The primary data collection system consisted of, collection
of annual report of the company, merger and acquisition
information, the business profile of the company and the
relevant literature one merger and acquisition.
The mechanism involved in secondary data collection,
mainly borrowing through adequate journal (related to
merger and acquisition), web portals, books, white papers.
The methodology adopted for the project was divided
into two types of analysis:

Qualitative and Quantitative
Qualitative analysis required studying the business profile
of the company, the performance of the company in last
few years and what policy they adopt and studying what
role merger and acquisition play.
Quantitative analysis required analyzing the current
assets and current liabilities of the company, the
statement of analysis, analyzing the operating cycle and
ratios to reveal the financial position and soundness of the
business and give a good basis for quantative analysis of
financial problems.
The information has been primarily sourced and
administered from company websites and/or the stock
exchanges. The questionnaire sought details on aspects
such as management, memberships, reach & access, size &
strength, products & services, technology platforms &
solution providers, growth & consolidation plans and
areas of focus and thrust in the future.
Besides, information has also been collected from
secondary sources such as annual reports of the
companies , banks and their respective websites. Every
effort was made to ensure that companies respond to the
At last after collecting all the essential data, I omitted the
incomplete/unnecessary data.

The phrase mergers and acquisitions (abbreviated
M&A) refers to the aspect of corporate strategy, corporate
finance and management dealing with the buying, selling
and combining of different companies that can aid,
finance, or help a growing company in a given industry
grow rapidly without having to create another business
An acquisition, also known as a takeover or a buyout or
"merger", is the buying of one company (the target) by
another. An acquisition, or a merger, may be private or
public, depending on whether the acquiree or merging
company is or isn't listed in public markets. An acquisition
may be friendly or hostile. Whether a purchase is
perceived as a friendly or hostile depends on how it is
communicated to and received by the target company's
board of directors, employees and shareholders. It is quite
normal though for M&A deal communications to take
place in a so called 'confidentiality bubble' whereby
information flows are restricted due to confidentiality
agreements (Harwood, 2005). In the case of a friendly
transaction, the companies cooperate in negotiations; in
the case of a hostile deal, the takeover target is unwilling
to be bought or the target's board has no prior knowledge
of the offer. Hostile acquisitions can, and often do, turn
friendly at the end, as the acquiror secures the
endorsement of the transaaction from the board of the
acquiree company. case of a friendly transaction, the
companies cooperate in negotiations; in the case of a
hostile deal, the takeover target is unwilling to be bought
or the target's board has no prior knowledge of the offer.
Hostile acquisitions can, and often do, turn friendly at the
end, as the acquiror secures the endorsement of the
transaaction from the board of the acquiree company. This
usually requires an improvement in the terms of the offer.
Acquisition usually refers to a purchase of a smaller firm
by a larger one. Sometimes, however, a smaller firm will
acquire management control of a larger or longer
established company and keep its name for the combined
entity. This is known as a reverse takeover. Another type
of acquisition is reverse merger, a deal that enables a
private company to get publicly listed in a short time
period. A reverse merger occurs when a private company
that has strong prospects and is eager to raise financing
buys a publicly listed shell company, usually one with no
business and limited assets. Achieving acquisition success
has proven to be very difficult, while various studies have
shown that 50% of acquisitions were unsuccessful] The
acquisition process is very complex, with many
dimensions influencing its outcome. There is also a variety
of structures used in securing control over the assets of a
company, which have different tax and regulatory
The buyer buys the shares, and therefore control, of the
target company being purchased. Ownership control of the
company in turn conveys effective control over the assets
of the company, but since the company is acquired intact
as a going concern, this form of transaction carries with it
all of the liabilities accrued by that business over its past
and all of the risks that company faces in its commercial
The buyer buys the assets of the target company. The cash
the target receives from the sell-off is paid back to its
shareholders by dividend or through liquidation. This type
of transaction leaves the target company as an empty
shell, if the buyer buys out the entire assets. A buyer often
structures the transaction as an asset purchase to "cherry-
pick" the assets that it wants and leave out the assets and
liabilities that it does not. This can be particularly
important where foreseeable liabilities may include future,
unquantified damage awards such as those that could
arise from litigation over defective products, employee
benefits or terminations, or environmental damage. A
disadvantage of this structure is the tax that many
jurisdictions, particularly outside the United States,
impose on transfers of the individual assets, whereas stock
transactions can frequently be structured as like-kind
exchanges or other arrangements that are tax-free or tax-
neutral, both to the buyer and to the seller's shareholders.
The terms "demerger", "spin-off" and "spin-out" are
sometimes used to indicate a situation where one
company splits into two, generating a second company
separately listed on a stock exchange.
Although often used synonymously, the terms merger and
acquisition mean slightly different things
[This paragraph does not make a clear distinction between
the legal concept of a merger (with the resulting corporate
mechanics - statutory merger or statutory consolidation,
which have nothing to do with the resulting power grab as
between the management of the target and the acquirer)
and the business point of view of a "merger", which can be
achieved independently of the corporate mechanics
through various means such as "triangular merger",
statutory merger, acquisition, etc.]
When one company takes over another and clearly
establishes itself as the new owner, the purchase is called
an acquisition. From a legal point of view, the target
company ceases to exist, the buyer "swallows" the
business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two
firms agree to go forward as a single new company rather
than remain separately owned and operated. This kind of
action is more precisely referred to as a "merger of
equals". The firms are often of about the same size. Both
companies' stocks are surrendered and new company
stock is issued in its place. For example, in the 1999
merger of GlaxoWellcome and SmithKline Beecham, both
firms ceased to exist when they merged, and a new
company, GlaxoSmithKline, was created.
In practice, however, actual mergers of equals don't
happen very often. Usually, one company will buy another
and, as part of the deal's terms, simply allow the acquired
firm to proclaim that the action is a merger of equals, even
if it is technically an acquisition. Being bought out often
carries negative connotations, therefore, by describing the
deal euphemistically as a merger, deal makers and top
managers try to make the takeover more palatable. An
example of this would be the takeover of Chrysler by
Daimler-Benz in 1999 which was widely referred to in the
A purchase deal will also be called a merger when both
CEOs agree that joining t

Types of Mergers & Acquisitions
Merger types can be broadly classified into the following
five subheads as described below. They are
Horizontal Merger
Vertical Merger,
Product-Extension Merger
Market-Extension Merger.
Horizontal Merge
Horizontal mergers are those mergers where the
companies manufacturing similar kinds of commodities or
running similar type of businesses merge with each other.
The principal objective behind this type of mergers is to
achieve economies of scale in the production procedure
through carrying off duplication of installations, services
and functions, widening the line of products, decrease in
working capital and fixed assets investment, getting rid of
competition, minimizing the advertising expenses,
enhancing the market capability and to get more
dominance on the market. Nevertheless, the horizontal
mergers do not have the capacity to ensure the market
about the product and steady or uninterrupted raw
material supply. Horizontal mergers can sometimes result
in monopoly and absorption of economic power in the
hands of a small number of commercial entities. According
to strategic management and microeconomics, the
expression horizontal merger delineates a form of
proprietorship and control. It is a plan, which is utilized by
a corporation or commercial enterprise for marketing a
form of commodity or service in a large number of
markets. In the context of marketing, horizontal merger is
more prevalent in comparison to horizontal merger in the
context of production or manufacturing.
Advantages of Horizontal Merger:
Horizontal merger provides the following advantages to
the companies which are merged:
1) Economies of scope
The notion of economies of scope resembles that of
economies of scale. Economies of scale principally denote
effectiveness related to alterations in the supply side, for
example, growing or reducing production scale of an
individual form of commodity. On the other hand,
economies of scope denote effectiveness principally
related to alterations in the demand side, for example
growing or reducing the range of marketing and supply of
various forms of products. Economies of scope are one of
the principal causes for marketing plans like product
lining, product bundling, as well as family branding.
2) Economies of scale
Economies of scale refer to the cost benefits received by a
company as the result of a horizontal merger. The merged
company is able to have bigger production volume in
comparison to the companies operating separately.
Therefore, the merged company can derive the benefits of
economies of scale. The maximum use of plant facilities
can be done by the merged company, which will lead to a
decrease in the average expenses of the production.
As per definition, a conglomerate merger is a type of
merger whereby the two companies that merge with each
other are involved in different sorts of businesses. The
importance of the conglomerate mergers lies in the fact
that they help the merging companies to be better than
Types of Conglomerate Mergers
There are two main types of conglomerate mergers the
pure conglomerate merger and the mixed conglomerate
merger. The pure conglomerate merger is one where the
merging companies are doing businesses that are totally
unrelated to each other. The mixed conglomerate mergers
are ones where the companies that are merging with each
other are doing so with the main purpose of gaining access
to a wider market and client base or for expanding the
range of products and services that are being provided by
them There are also some other subdivisions of
conglomerate mergers like the financial conglomerates,
the concentric companies, and the managerial
Reasons of Conglomerate Mergers
There are several reasons as to why a company may go for
a conglomerate merger. Among the more common reasons
are adding to the share of the market that is owned by the
company and indulging in cross selling. The companies
also look to add to their overall synergy and productivity
by adopting the method of conglomerate mergers.
Vertical Merger
Vertical mergers refer to a situation where a product
manufacturer merges with the supplier of inputs or raw
materials. In can also be a merger between a product
manufacturer and the product's distributor. Vertical
mergers may violate the competitive spirit of markets. It
can be used to block competitors from accessing the raw
material source or the distribution channel. Hence, it is
also known as "vertical foreclosure". It may create a sort of
bottleneck problem. As per research, vertical integration
can affect the pricing incentive of a downstream producer.
It may also affect a competitors incentive for selecting
input suppliers. Research studies single out several
factors, which point to the fact that vertical integration
facilitates collusion. Vertical mergers may promote
collusion through an outlets effect. A corollary of vertical
integration is that integrated business structures are able
to perform better in crisis phases. There are multiple
reasons, which promote the vertical integration by firms.
Some of them are discussed below.
regarding the availability of quality inputs as also the
uncertainty regarding the demand for its products.
points of economies of integration.
-efficient by
streamlining its distribution and production costs. It is
also meant for the reduction of transactions costs like
marketing expenses and sales taxes. It ensures that a
firm's resources are used optimally.
Product Extension Merger
Product-Product-Extension Merger is executed among
companies, which sell different products of a related
category. They also seek to serve a common market. This
type of merger enables the new company to go in for a
pooling in of their products so as to serve a common
market, which was earlier fragmented among them.
According to definition, product extension merger takes
place between two business organizations that deal in
products that are related to each other and operate in the
same market. The product extension merger allows the
merging companies to group together their products and
get access to a bigger set of consumers. This ensures that
they earn higher profits.
Example of Product Extension Merger
The acquisition of Mobil ink Telecom Inc. by Broadcom is a
proper example of product extension merger. Broadcom
deals in the manufacturing Bluetooth personal area
network hardware systems and chips for IEEE 802.11b
wireless LAN. Mobil ink Telecom Inc. deals in the
manufacturing of product designs meant for handsets that
are equipped with the Global System for Mobile
Communications technology. It is also in the process of
being certified to produce wireless networking
chips that have high speed and General Packet Radio
Service technology
Market Extension Merger
Market-Extension Merger occurs between two companies
that sell identical products in different markets. It
basically expands the market base of the product
As per definition, market extension merger takes place
between two companies that deal in the same products
but in separate markets. The main purpose of the market
extension merger is to make sure that the merging
companies can get access to a bigger market and that
ensures a bigger client base.
What makes a merger unattractive?
standard of performance is that a merger should not
produce any dilution in earnings per share (EPS) for the
acquiring bank greater than 5 percent.
EPS dilution is measIn financial terms, mergers are
problematic when the buyer does not earn the expected
return on investment in a reasonable period of time.
Any merger or acquisition should be treated as an
investment and evaluated accordingly
Thus, theoretically correct procedure for determining
value is to discount expected cash flows from the new
entity at the appropriate discount rate.
Because this approach involves estimating many key
components of the present value model, market
participants typically use a variety of less rigorous
techniques to obtain a range of fair price estimates.
Levels or types of value
there are actually several types or levels of value
Controlling interest value
the value of the enterprise as a whole assuming that the
stock is freely traded in a public market and includes a
control premium.
Control premium
reflects the risks and rewards of a majority or
controlling interest.
A controlling interest is assumed to have control power
over the minority interests.
Minority interest value
represents the value of a minority interest as if freely
tradable in a public market.
Minority interest discount
represents the reduction in value from an absence of
control of the enterprise.
Controlling interest value and minority interest value
assume that the interest is freely tradable in a public
If the entity were closely held with no (or little) active
market for the shares or interest in the company, then a
non marketability discount would be subtracted from the
Non marketability Discounts.
represents the reduction in value from a marketable
interest level of value to compensate an investor for
illiquidity of the security, all else equal.
The size of the discount varies base on:
relative liquidity (such as the size of the shareholder
the dividend yield, expected growth in value and holding
and firm specific issues such as imminent or pending
initial public offering (IPO) of stock to be freely traded on
a public market.
Valuation methods
several methods of valuation exist but generally fall into
two broad categories
Comparable analysis
often referred to as comps uses a direct comparison of
the target bank with similar banks engaged in the same or
similar lines of business.
Discounted cash flow analysis
often referred to as DCF, estimates value by summing
the present value of all future economic benefits (cash
earnings) that will come to the investors in the future.
Comparable analysis uses several value metrics
Price to Book Value
Many bankers and market analysts discuss merger prices
in terms of book values.
the book value of a share of stock equals the book value
of a firms stockholders equity divided by the number of
shares outstanding
The book value of stockholders equity equals the dollar
amount of assets minus the dollar amount of liabilities.
The premium to book value in a transaction compares the
per share price offered to target bank stockholders with
the book value of the targets stock:

MPt = per share market price offered for targets stock
BVt = per share book value of targets stock
Example: Premium to book value
If the target banks book value per share is $12.2 and an
acquirer offers $22.2 per share, the premium to book
value equals 81.97 percent.
($22.2 - $12.2) / $12.2 = 0.8197
Valuing a bank using price to book value
calculate the average premium offered for similar banks
and extrapolate an equivalent price for the target if the
same premium is applied.
Average premiums for minority interests are found by
using a comparable companies analysis in which
comparable companies are those in similar lines of
business with similar assets sizes and profitability
Average premiums for controlling interest value are
calculated using data from successful acquisitions of
similar type using a comparable acquisitions analysis.
If average premium on comparable transactions is 100
percent, the average purchase price to book value multiple
will equal 2.0x and the transactions price for the target
banks stock should equal $24.4:
(2.0 x $12.2) = 24.4

Price to Total Assets
a bank uses stockholders and depositors funds to invest in
the assets of the bank, theoretically, therefore, the assets
of the bank create value.
Price to Earnings per Share (EPS)
Many analysts prefer to focus on earnings rather than
balance sheet values when estimating a market price to
Price to Total Deposits
inexpensive core deposits are often seen as a banks
greatest asset.
The combined bank might be able to generate increased
earnings (or cash flow) compared to historical norms.
Increasing market share.
Even if earnings rates remain unchanged after a merger, a
bank can position itself as a future acquisition target by
capturing a greater share of its deposit market.
Source of potential gains
Economies of Scale, Cost Cutting
Increase Market Share
Enhanced Product lines
Entry into Attractive New Markets
Improved Managerial Capabilities, and Increased Financial
Financial and Operating Leverage
Economies of scale, cost cutting
Consolidation of data processing and backroom operations
Consolidation, diversification, and streamlining of
investment departments and the securities portfolio
Consolidation of the credit department, including loan
documentation and preparation
Consolidation of loan review and audit operations
Consolidation of branch delivery systems, including use of
the Internet
Other scale economies

stake holders view


integration phase
of the other
organization (Us vs. Them syndrome)

Allocation of responsibility

The above discussion convey a growth study of ICICI Bank
Ltd. through mergers and acquisitions but at the same
time the bank has to focus on manpower to get sustainable

Example of Market Extension Merger
A very good example of market extension merger is the
acquisition of Eagle Bancshares Inc by the RBC Centura.
Eagle Bancshares is headquartered at Atlanta, Georgia and
has 283 workers. It has almost 90,000 accounts and looks
after assets worth US $1.1 billion.
SEBI Takeover Regulations 2011
SEBI at their Board Meeting held on 28 July 2011, had
considered the report of Takeover Regulations Advisory
Committee [TRAC] and accepted most of the
recommendations made by TRAC. SEBI has, on 23
September 2011, notified SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011 [SAST 2011].
Indirect acquisition of shares or control

Acquisition of shares or voting rights in, or control over,
any company or other entity, that would enable any
person and PAC to exercise or direct the exercise of such
percentage of voting rights in, or control over a target
company, the acquisition of which would otherwise
trigger open offer obligation, shall be considered as an
indirect acquisition of shares or voting rights in, or control
over the target company necessitating an open offer.
Voluntary offer
An acquirer, who together with PAC, holds shares or
voting rights in a target company entitling them to
exercise 25% or more but less than the maximum
permissible non-public shareholding, shall be entitled to
voluntarily make a PA of an open offer for acquiring
shares. A voluntary offer is subject to certain conditions
which includes the following:
Minimum offer size is 10% of the total shares of the
target company;
The aggregate shareholding of the acquirer and PAC
after completion of the open offer cannot exceed the
maximum permissible non-public shareholding;
Voluntary offer cannot be made where an acquirer or
PAC has acquired shares of the target company in the
preceding 52 weeks without attracting the obligation to
make an open offer;
During voluntary offer period such acquirer shall not be
entitled to acquire any shares otherwise than under the
open offer;
An acquirer and PAC who have made a voluntary offer
shall not be entitled to acquire any shares of the target
company for a period of 6 months after completion of the
open offer except pursuant to another voluntary open
offer or making a competing offer upon any other person
making an open offer or bonus issue or stock splits.
Minimum open offer size
Any open offer shall be made to all shareholders of the
target company, other than the acquirer, PAC and the
parties to any underlying agreement including persons
deemed to be PAC with such parties, for the sale of shares
of the target company.
Subjective assessment

Steps in Valuation

plying Method

Topic 6.Merger and Acquisition in
Banking Industry:
A Case Study of ICICI Bank Ltd.
Dr. K.A. Goyal* and Vijay Joshi**
*Former Head of Management Department, BIT-WCAS,
Muscat, Oman. Faculty, ShriGovind Guru Government
College, Banswara., +91
**Doctoral Research Scholar, Department of Business
Administration, UCCMS, MLSU, Udaipur. Email-, +91 9460903956
To keep the head high in globalized economy one has to
follow the path of growth, which contains various
challenges and issues; one has to overpower these
challenges and issues to become a success story. We
consider a case of ICICI Bank Ltd., the largest private
sector bank in India, which has acquired nine financial
firms to make the steps of the ladder of success. Therefore,
the aim of this article is to study the growth of ICICI Bank
Ltd. through mergers, acquisitions, and amalgamation.
This article is divided into four parts. The first part
includes introduction and conceptual framework of
mergers and acquisition. The second part discusses the
historical background of ICICI Bank Ltd. and followed by
review of literature. The third part discusses all the
mergers, acquisitions, and amalgamations in detail.
Finally, the article concludes that a firm must devise a
strategy in three phases i.e. Pre-merger phase, acquisition
phase and post-merger phase. The article will be helpful
for policy makers, strategy makers, HR people, bankers,
researchers, and scholars. Key Words: Mergers,
Acquisitions, Amalgamation, Banks Strategy, and Human
1.1 Introduction:
2 The pressures on the employees of banks around the
world have been manifold across financial system
deregulation, entry of new players and products with
advanced technology, globalisation of financial
markets, changing demographics of customer
behaviour, consumer pressure for wider choice and
cheaper service, shareholder wealth demands,
shrinking margins. In this scenario, Mergers and
acquisitions (M&As) are most widely used strategy
by firms to strengthen and maintain their position in
the market place. M&As are considered as a
relatively fast and efficient way to expand into new
markets and incorporate new technologies. Still, we
can find many evidences that their success is by no
means assured. On the contrary, a majority of M&As
fall short of their stated aims and objectives. Some
failure can be explained and justified by financial and
market factors. On the contrary a considerable
number can be traced, which has neglected those
factors, which are related to human resources issues
and activities. There are numerous studies, which
confirm the need for firms to systematically address
a variety of human resource issues, activities, and
challenges in their merger and acquisition activities.
In the present article, a thought was provoked by a
press release (May 20, 2010) that the Bank of
Rajasthans employees launched an agitation to
protest against the then proposed merger with ICICI
Bank Ltd. It is a very serious matter as far as
employees and the bank is concerned. It is quite
natural phenomena that a dissatisfied employee
cannot bring efficiency and effectiveness in
rendering services.
3 Mergers and Acquisitions: Conceptual Framework
4 Consolidation of business entities is a world-wide
phenomenon. One of the tools for consolidation is
mergers and acquisitions. The quest for growth is a
major driving force behind mergers and
International Journal of Research in
acquisitions. The mergers and acquisitions in
financial sector of India appear to be driven by the
objective of leveraging the synergies arising out of
the consequences of M&A process. However, such
structural changes in the financial system can have
some public policy implications. It is evident from
various mergers and amalgamations done by the
ICICI Bank Ltd. after its inception in 1994. Still, it is
quite clear by their action that it is a path of growth
for them. With this statement in mind, we would like
to present the conceptual framework for mergers
and acquisitions in Indias context. Procedures for
merger, acquisition, and amalgamation of banking
companies are clearly defined in section 44(A) of the
Banking Regulation Act 1949. According to the Act, a
banking company will have to place a draft before its
shareholders and the draft will have to be approved
by a resolution passed by a majority in number,
representing two-thirds in value of the shareholders
of each of the said companies, present either in
person or by proxy at a meeting called for the
Historical Background of ICICI Bank:
The history of Industrial Credit & Investment
Corporation of India (ICICI) shows that it was formed
in 1955 by the initiative of the World Bank, the
Government of India and representatives of Indian
industry. The principal objective of ICICI was to
create a development financial institution for
providing medium-term and long-term project
financing to Indian businesses. In the 1990s, ICICI
transformed its business from a development
financial institution offering only project finance to a
diversified financial services group offering a wide
variety of products and services, both directly and
through a number of subsidiaries and affiliates like
ICICI Bank. In 1999, ICICI became the first Indian
company and the first bank or financial institution
from non-Japan Asia to be listed on the NYSE. Due to
the changing business environment and after the
adoption of liberalization, ICICI considered various
corporate restructuring alternatives in the context of
the emerging competitive scenario in the Indian
banking industry, and the move towards universal
banking. The managements of ICICI and ICICI Bank
formed the view that the merger of ICICI with ICICI
Bank would be the optimal strategic alternative for
both the entities, and would create the optimal legal
structure for the ICICI group's universal banking
strategy. Further, the merger would enhance value
for ICICI shareholders through the merged entity by
low-cost deposits, greater opportunities for earning
fee-based income and the ability to participate in the
payments system and provide transaction-banking
services. Consequently, ICICI Bank was promoted in
1994 by ICICI Limited, an Indian financial institution,
and was its wholly-owned subsidiary. In October
2001, the Board of Directors of ICICI and ICICI Bank
approved the merger of ICICI and two of its wholly-
owned retail finance subsidiaries, ICICI Personal
Financial Services Limited and ICICI Capital Services
Limited, with ICICI Bank. Shareholders of ICICI and
ICICI Bank approved the merger in January 2002, by
the High Court of Gujarat at Ahmadabad in March
2002, and by the High Court of Judicature at Mumbai
and the Reserve Bank of India in April 2002. The
below mentioned table gives details of all the
mergers and amalgamations done by ICICI Bank.
Mergers and Acquisitions by ICICI Bank Ltd.
1. Amalgamation of SCICI.
Effective April 1, 1996, ICICI acquired SCICI Limited, a
diversified financial institution in which ICICI had an
existing 19.9% equity interest. ICICI acquired SCICI
principally to benefit from the scale efficiencies of
being a larger entity. The assets of SCICI amounted to
Rs. 50.4 billion (US$ 1.0 billion), approximately 16.8%
of ICICIs total assets at year-end fiscal 1996. The
business combination was accounted for by the
purchase method. The business combination resulted
in negative goodwill of Rs. 3.1 billion (US$ 65 million)
as the purchase price was less than the fair value of
the net assets acquired. Of this amount, Rs. 600
million (US$ 13 million) was set-off against certain
property and equipment and an amount of Rs. 253
million (US$ 5 million) was accrued to income in each
of the years for fiscal 1997 to fiscal 2001. In addition,
in fiscal 1998, income of Rs. 242 million (US$ 5
million) was accrued from the sale of SCICI's
headquarters building in Mumbai.
2. Amalgamation of ITC Classic Finance Ltd.
It was one of the first-of-its-kind mergers in the country's
financial sector, ITC Classic Finance Ltd, the beleaguered
non-banking financial arm of ITC Ltd, and country's
premier development financial institution, Industrial
Credit Investment Corporation of India (ICICI) to merge
their operations and share swap ratio for ITC Classic-ICICI
merger was 15:1. Tobacco major, ITC was desperately
scouting a buyer for ITC Classic, which had accumulated
losses of over Rs. 300 crore.
ITC Classic Finance Ltd was named after ITCs premium
cigarette brand Classic. It was incorporated in 1986. ITC
Classic was a non-banking finance company (NBFC).
Largely, it was engaged in hire, purchase, and leasing
operations. In addition, the company undertook
investment operations on a substantial scale. The
company did very well in the initial years and developed a
strong network to mobilize retail deposits. Its fund-based
activities such as corporate leasing, bill discounting, and
equities trading also grew substantially over the years. Ata
compounded annual growth rate of 78% during 1991-96,
ITC Classics annual turnover increased from Rs. 17.3
croretoover Rs. 310 crore and net profits from Rs. 2.3
crore to Rs. 31 crore in the same period. By the June 1996,
the company had a deposit portfolio of Rs. 800 crore
consisting mainly of retail deposits. The capital market
boom of the early 1990s was responsible largely for ITC
Classics impressive financials growth. Around 50% of ITC
Classics assets had to be kept in financing and a further
25% was to be held in liquid funds or cash to handle cash
outflows. However, Classic was free to invest the
remaining 25%, which happened to be in the boom
stocks. When the markets crashed in 1992, ITC Classic
had to face heavy losses. As far as ICICI was concerned, it
was totally a win proposition. The biggest benefit and
opportunity for ICICI was ITC Classics retail network,
which comprised 8 offices, 26 outlets, 700 brokers, and a
depositor-base of 7 lakhs investors. ICICI planned to use
this to strengthen the operations of ICICI Credit (I- Credit),
a consumer finance subsidiary that ICICI had floated in
April 1997. It was rightly stated by the then ICICI
managing director and CEO, K. V. Kamath said that the
merger wouldgive them a fantastic retail base as ITC
Classic had an investor base of over seven lakhs. Besides,
there would be asynergy in business profile as on the asset
side the ITC outfit is into leasing, hire, purchase, and bill
discounting as they had a common corporate clientele.
3. Amalgamation of Anagram Finance
Anagram was primarily engaged in retail financing of cars
and trucks. Between 1992 and 1998, Anagram has built a
strong retail franchise, a distribution network of more
than 50 branches, which were located in the prosperous
states of Gujarat, Rajasthan, and Maharashtra, and it has a
depositor base of 250,000 customers. Anagram Finance
was adversely affected by the problems faced by the
banking sector because of diverse factors including
accounting and financial issues such as non-performing
assets and high cost of funding etc. Anagram Finance
conducted a detailed examination and review of the
operations and financial condition of the company. It
included a conservative estimation of provisions required
for no performing or potential nonperforming assets had
resulted in the net worth of the company becoming
negative, necessitating infusion of further funds into the
company. In order to protect the interests of the creditors
including depositors and public shareholders, the
investment companies had decided to infuse long term
resources of Rs 125 crores convertible into nominal equity
capital of the company upon the merger becoming
effective in pursuance of the Articles of Agreement signed
with ICICI on May 20, 1998. Share swap set for ICICI,
Anagram Finance merger 1:15. Listing the reasons for the
merger, ICICI said it has over the years consolidated its
premier position as a wholesale provider of finance.
4. Amalgamation of Bank of Madura
For over 57 years, Bank of Madura (MoM) operated as
a profitable entity in Indian Banking Industry. It had a
significant coverage in the southern states of India. It
had extensive network of 263 branches across India.
According to Murthy (2007), the bank had total assets
of Rs. 39.88 billion and deposits of Rs. 33.95 billion as
on September 30, 2000. It had a capital adequacy
ratio of 15.8% as on March 31, 2000. With a view to
expanding its assets, client base and geographical
coverage, ICICI Bank was scouting for private banks
for merger. In addition to that, its technological up
gradation was inching upwards at snails pace. In
contrast, BoM had an attractive business per
employee figure of Rs. 202 lakh, a better technological
edge, and a vast base in southern India as compared
to Federal Bank. While all these factors sound good, a
tough and challenging task in terms of cultural
integration and human resources issues lay ahead for
ICICI Bank. With these considerations, ICICI Bank
announced amalgamation with the 57 year BoM, with
263 branches, out of which 82 were operating in rural
areas; the majority of them were located in southern
India. As on December 9, 2000, on the day of
announcement of the merger, the Kotak Mahindra
group was holding about 12% stake on BoM, the
Chairman of BoM, Mr. K. M. Thaigarajan, along with
his associated, was holding about 26% stake, Spic
group had about 4.7%, while LIC and UTI were having
marginal holdings. This merger was supposed to
increase ICICI banks hold on the South Indian
market. The swap ratio was approved to be at 1:2.
5. Merger of ICICI Personal Financial Services Ltd.
and ICICI Capital Services Ltd.
Following the approval of shareholders, the High Court of
Gujarat at Ahmedabad and the High Court of Judicature at
Bombay, the Reserve Bank of India approved the
amalgamation of ICICI, ICICI Personal Financial Services,
and ICICI Capital Services with and into ICICI Bank on
April 26, 2002.
6. Takeover of Standard Chartered Grindlays Banks
Two Branches
ICICI Bank acquires Shimla and Darjeeling Branches from
Standard Chartered Grindlays Bank Ltd. in these two most
sought after tourist destinations in the Himalayas. In a
telephonic conversation, ICICI Bank ED ChandaKochhar
told to Economic Times from Mumbai that the bank has
been planning to grow its network countrywide, and "this
acquisition is one step in that direction and a continuation
of our strategy to expand our brand of technology
banking". ICICI Bank senior vice-president and regional
head, Chandigarh, Anand Kumar revealed that the Shimla
branch had more than 3,000 retail accounts and a deposit
base of Rs 41 crore.
7. Amalgamation of Sangli Bank
Sangli Bank Ltd. was an unlisted private sector bank
headquartered at Sangli in the state of Maharashtra, India.
As on March 31, 2006, Sangli Bank had deposits of Rs.
20.04 billion, advances of Rs. 8.88 billion, net NPA ratio of
2.3% and capital adequacy of 1.6%. In the year ended
March 31, 2006, it incurred a loss of Rs. 29 crore. Sangli
Bank had 198 branches and extension counters, including
158 branches in Maharashtra and 31 branches in
Karnataka. Approximately 50% of the total branches were
located in rural and semi-urban areas and 50% in
metropolitan and urban centres. The bank had
approximately 1,850 employees. The Board of Directors of
ICICI Bank Ltd. and the Board of Directors of The Sangli
Bank Ltd. at their respective meetings approved an all-
stock amalgamation of Sangli Bank with ICICI Bank on
December 09, 2006. The amalgamation was subject to the
approval of the shareholders of ICICI Bank and Sangli
Bank, Reserve Bank of India and such other approvals
required. The deal was in the ratio of one share of ICICI
Bank for 9.25 shares of the privately-owned, non-listed
Sangli Bank. The Bhatefamily of Sangli almost hold 30% of
Sangli Bank. The proposed amalgamation was expected to
be beneficial to the shareholders of both entities. ICICI
Bank would seek to leverage Sangli Banks network of
over 190 branches and existing customer and employee
base across urban and rural centres in the rollout of its
rural and small enterprise bankingoperations, which were
key focus areas for the Bank. The amalgamation would
also supplement ICICI Banks urban distribution network.
The amalgamation would enable shareholders of Sangli
Bank to participate in the growth of ICICI Banks strong
domestic and international franchise. The amalgamation
also provided new opportunities to Sangli Banks
employees, and gives its customers access to ICICI Banks
multi-channel network and wide range of products and
services. The provisions of Section 44(A) of the Banking
Regulation Act, 1949, governed the proposed
amalgamation. The proposed amalgamation had the
approval of the respective Boards of ICICI Bank and Sangli
Bank and to become effective, required the consent of a
majority in number representing two-thirds in value of the
shareholders of ICICI Bank and Sangli Bank, present in
person or by proxy, at their respective meetings called for
this purpose, the sanction of Reserve Bank of India by an
order in writing and sanction or approval, if required,
under any law or regulation, of the Government of India,
or any other authority, agency, department or persons

8. Amalgamation of the Bank of Rajasthan Ltd.
The The Bank of Rajasthan Ltd. was incorporated on May
7, 1943 as a Company defined under the Companies Act,
1956 and has its Registered Office at Raj Bank Bhawan,
Clock Tower, Udaipur, Rajasthan. The Bank of Rajasthan
had a network of 463 branches and 111 automated teller
machines (ATMs) as of March 31, 2009. The primary
object of the Transferor Bank was banking business as set
out in its Memorandum of Association. For over 67 years,
the Bank of Rajasthan had served the nations 24 states
with 463 branches as a profitable and well-capitalized
Bank. It had a strong presence in Rajasthan with branch
network of 294 that is 63 percent of the total branches of
BoR 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 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.
A merger can be distinguished in the following phases:
The above discussion convey a growth study of ICICI Bank
Ltd. through mergers and acquisitions but at the same
time the bank has to focus on manpower to get sustainable
HDFC Bank Acquires Centurion Bank Of Punjab
For HDFC Bank, this merger provided an opportunity to
add scale, geography (northern and southern states) and
management bandwidth. In addition, there was a potential
of business synergy and cultural fit between the two
Standard Chartered Acquires ANZ Grindlays Bank
Standard Chartered wanted to capitalise on the high
growth forecast for the Indian economy. It aimed at
becoming the world's leading emerging markets bank and
it thought that acquiring Grindlays would give it a well-
established foothold in India and add strength to its
management resources. For ANZ, the deal provided
immediate returns to its shareholders and allowed it to
focus on the Australian market. Grindlays had been a poor
performer and the Securities Scam involvement had made
ANZ willing to wind up.
Bank of Baroda Acquires South Gujarat Local Area
Bank Ltd
According to the RBI, South Gujarat Local Area Bank had
suffered net losses in consecutive years and witnessed a
significant decline in its capital and reserves5. To tackle
this, RBI first passed a moratorium under Section 45 of the
Banking Regulation Act 1949 and then, after extending the
moratorium for the maximum permissible limit of six
months6, decided that all seven branches of SGLAB
function as branches of Bank of Baroda.
ICICI Bank Ltd. Acquires Bank of Madura
ICICI Bank Ltd wanted to spread its network, without
acquiring RBI's permission for branch expansion. BoM
was a plausible target since its cash management business
was among the top five in terms of volumes. In addition,
there was a possibility of reorienting its asset profile to
enable better spreads and create a more robust micro-
credit system post merger.
Oriental Bank of Commerce Acquires Global Trust
Bank Ltd
For Oriental Bank of Commerce there was an apparent
synergy post merger as the weakness of Global Trust Bank
had been bad assets and the strength of OBC lay in
Recent Scenario Of Mergers In India:In India, the mergers
in 60s had taken place under the direction of RBI and as a
result from 566 banks during 1951, the no. came down to
85 (14 non-scheduled) by 1969. During 90s, the merger of
NBI with PNB created personnel integration problems and
as a result, PSB mergers were not contemplated,
subsequently. However private bank mergers continued
with merger of Bank of Madura with ICICI, that of Times
Bank with HDFC, Benares State Bank with BoB in 2002,
Nedungadi Bank with PNB in 2003 and more recently that
of the Global Trust Bank with OBC in 2004. Reverse
merger of ICICI Ltd also took place with ICICI Bank, during
the year 2001. These mergers did help in strengthening
financially, helped to avoid the complex processes of
restructuring the weaker of the units and foster financial
stability and opened the possibility of actively promoting
universal banking. It is encouraging that these mergers
were facilitated to a large extent by banking sector
reforms. However, there is little published empirical
literature on the impact of mergers in banking in India.
Mergers and acquisitions continue to be a significant force
in the restructuring of the financial services industry
The number of banks has declined from 14,451 banks in
1982 to only 8,080 in 2001.
Total number of branch offices, however, grew from
34,791 to 64,087.
Fewer banks control a greater fraction of banking
The largest institutions continue to buy smaller
The largest banks (greater than $10 billion in assets) make
up less than 1% of the total number of banks but control
over 70% of bank assets.