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MERGERS AND ACQUISITONS OF BANKS

INDEX
SL.
NO
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

TOPIC
ACKNOWLEDGEMENT
INTRODUCTION.
OVERVIEW OF INDIAN BANKING INDUSTRY.

PG. NO
2
3
8
9
AND 10

TYPES OF MERGERS.
DIFFERENCE
BETWEEN
MERGERS
ACQUISITION.
POSSIBLE IMPACT OF MERGERS AND ACQUISITION.
ADVANTAGES OF MERGERS.
REGULATIONS OF MERGER AND ACQUISITION.
CHANGE IN SCENARIO OF BANKING SECTOR.
PROCEDURES OF MERGERS AND ACQUISITIONS.
WHY MERGERS FAIL?
FINANCIAL IMPLICATIONS OF BANKING.

11
12
15
17
18
20
21

REASONS FOR MERGERS AND ACQUSITIONS.

22
PROCEDURE FOR BANK MERGER.
22
RBI GUIDELINES ON MERGERS AND ACQUISITON OF 23
BANKS.
INFORMATION AND DOCUMENTS TO BE FURNISHED.
RECOMMENDATION OF NARISIMHAM COMMITTEE.
REASON BEHIND THE RECENT TREND OF MERGER
IN BANKING.
CASE STUDIES.

24
25
28

29
LATEST NEWS ABOUT MERGERS AND ACQUISITON 35
IN BANKING.
EXECUTIVE SUMMARY
CONCLUSION
BIBLIOGRAPHY

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38
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ACKNOWLEDGEMENT
I wish to express my sincere gratitude to PROF. MANJU NICHANI, Principal of
K.C. College and PROF.KAILASH CHANDAK, H.O.D of Management
Department of K.C. College for providing me an opportunity to do my project
work on "MERGERS AND ACQUISITIONS OF BANKS." This project bears on
imprint of many peoples. I sincerely thank to my project guide PROF. KAILASH
CHANDAK, Department of Management K.C College, for guidance and
encouragement in carrying out this project work.

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INTRODUCTION
The companies have been coming together to from another company and
companies taking over existing companies to expand their business.
All our daily newspapers are filled with cases of mergers, acquisitions, spinoffs, tender offers, and other forms of co-operate restructuring. Thus important
issues both for business decisions and public policy formulation have been
raised. No firm is regarded as safe from takeover possibility. On the more
positive side Mergers and Acquisitions may be critical for healthy expansion and
growth of the firm. Successful entry into new product and geographical market
may require Mergers and Acquisitions at some stage for the firms development.
Successful competition in international market depends on capabilities obtained
in a timely and efficient fashion through Mergers and Acquisitions.
To opt for a merger or not is a complex affair, especially in terms of
technicality involved. This project has discussed almost all factors that the
management may have to look into before going into merger. Considerable
amount of brainstorm would be required by the managements before reaching a
conclusion.
WHAT IS MERGER?
"Merger is absorption of one or more companies by a single existing
company." Before we understand, what is Merger? First, let's find out the simple
meaning of an acquiring company and acquired companies.
Acquiring company is a single existing company that purchases the majority of
equity shares of one or more companies.
Acquired companies are those companies that surrender the majority of their
equity shares to an acquiring company.
Merger is a technique of business growth. It is not treated as a business
combination. Merger is done on a permanent basis. Generally, it is done between
two companies. However, it can also be done among more than two companies.
During merger, an acquiring company and acquired companies come together to
decide and execute a merger agreement between them.
After merger, acquiring company survives whereas acquired companies do not

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survive anymore, and they cease to exist. Merger does not result in the formation
of a new company. The management of acquiring company continues to lead the
merger.
Merger is also defined as amalgamation. Merger is the fusion of two or more
existing companies.
All assets, liabilities and the stock of one company stand transferred to
Transferee Company in consideration of payment in the form of:
Equity shares in the transferee company,
Debentures in the transferee company,
Cash, or
A mix of the above modes
WHAT IS ACQUISITION?
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 of another existing
company.
Methods of Acquisition:
An acquisition may be affected by
a) Agreement with the persons holding majority interest in the company
management like members of the board or major shareholders commanding
majority of voting power;
b) Purchase of shares in open market;
c) To make takeover offer to the general body of shareholders;
d) Purchase of new shares by private treaty;
e) Acquisition of share capital through the following forms of considerations viz.
Means of cash, issuance of loan capital, or insurance of share capital.

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Takeover:
A takeover is acquisition and both the terms are used interchangeably. Takeover
differs from merger in approach to business combinations i.e. the process of takeover,
transaction involved in takeover, determination of share exchange or cash price and the
fulfillment of goals of combination all are different in takeovers than in mergers. For
example, process of takeover is unilateral and the offer or company decides about the
maximum price. Time taken in completion of transaction is less in takeover than in
mergers, top management of the offered company being more cooperative.
De-merger or corporate splits or division:
De-merger or split or divisions of a company are the synonymous terms signifying a
movement in the company.
The purpose for an offer or company for acquiring another company shall be reflected in
the corporate objectives. It has to decide the specific objectives to be achieved through
acquisition. The basic purpose of merger or business combination is to achieve faster
growth of the corporate business.
Faster growth may be had through product improvement and competitive position.
Other possible purposes for acquisition are short listed below: (1) Procurement of supplies:
1. To safeguard the source of supplies of raw materials or intermediary product;
2. To obtain economies of purchase in the form of discount, savings in transportation
costs, overhead costs in buying department, etc.
3. To share the benefits of suppliers economies by standardizing the materials.
(2) Revamping production facilities:
1. To achieve economies of scale by amalgamating production facilities through more
intensive utilization of plant and resources;
2. To standardize product specifications, improvement of quality of product, expanding
3. Market and aiming at consumers satisfaction through strengthening after sale
Services;
4. To obtain improved production technology and know-how from the offered company
5. To reduce cost, improve quality and produce competitive products to retain and
Improve market share.

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(3) Market expansion and strategy:

1. To eliminate competition and protect existing market;
2. To obtain a new market outlets in possession of the offered;
3. To obtain new product for diversification or substitution of existing products and to
enhance the product range;
4. Strengthening retain outlets and sale the goods to rationalize distribution;
5. To reduce advertising cost and improve public image of the offered company;
6. Strategic control of patents and copyrights.
(4) Financial strength:
1. To improve liquidity and have direct access to cash resource;
2. To dispose of surplus and outdated assets for cash out of combined enterprise;
3. To enhance gearing capacity, borrow on better strength and the greater assets
backing;
4. To avail tax benefits;
5. To improve EPS (Earning per Share).
(5) General gains:
1. To improve its own image and attract superior managerial talents to manage its
affairs;
2. To offer better satisfaction to consumers or users of the product.
(6) Own developmental plans:
The purpose of acquisition is backed by the offer or companys own developmental
plans. A company thinks in terms of acquiring the other company only when it has
arrived at its own development plan to expand its operation having examined its own
internal strength where it might not have any problem of taxation, accounting, valuation,
etc. But might feel resource constraints with limitations of funds and lack of skill
managerial personnels. It has to aim at suitable combination where it could have
opportunities to supplement its funds by issuance of securities; secure additional
financial facilities eliminate competition and strengthen its market position.

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(7) Strategic purpose:

The Acquirer Company view the merger to achieve strategic objectives through
alternative type of combinations which may be horizontal, vertical, product expansion,
market extensional or other specified unrelated objectives depending upon the
corporate strategies. Thus, various types of combinations distinct with each other in
nature are adopted to pursue this objective like vertical or horizontal combination.
(8) Corporate friendliness:
Although it is rare but it is true that business houses exhibit degrees of cooperative spirit
despite competitiveness in providing rescues to each other from hostile takeovers and
cultivate situations of collaborations sharing goodwill of each other to achieve
performance heights through business combinations. The combining corporate aim at
circular combinations by pursuing this objective.
(9) Desired level of integration:
Mergers and acquisition are pursued to obtain the desired level of integration between
the two combining business houses. Such integration could be operational or financial.
This gives birth to conglomerate combinations. The purpose and the requirements of
the offer or company go a long way in selecting a suitable partner for merger or
acquisition in business combinations.

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OVER VIEW OF INDIAN BANKING INDUSTRY

India has an extensive banking network, in both urban and rural areas. All large
Indian banks are nationalized, and all Indian financial institutions are in the public
sector. The Reserve Bank of India is the central banking institution. It is the sole
authority for issuing bank notes and the Supervisory body for banking operations in
India6. It supervises and administers exchange control and banking regulations, and
administers the government's monetary policy. It is also responsible for granting
licenses for new bank branches. 36 foreign banks operate in India with full banking
licenses.
Indian Banking System
The banking system has three tiers. These are the scheduled commercial banks; the
regional rural banks which operate in rural areas not covered by the scheduled banks;
and the cooperative and special purpose rural banks. Commercial banks are
categorized as scheduled and non-scheduled banks, but for the purpose of assessment
of performance of banks, the Reserve Bank of India categories them as public sector
banks, old private sector banks, new private sector banks and foreign banks.
Scheduled and non-Scheduled Banks
There are 93 scheduled commercial banks, Indian and foreign; 196 regional rural
banks. In Cooperative sector- nearly 2000 cooperative banks operate, which include
non-scheduled banks. In terms of business, the public sector banks, namely the State
Bank of India and the nationalized banks, dominate the banking sector.
Scheduled Commercial Banks (SCBs) in India are categorized in five different groups
according to their ownership and/or nature of operation. These bank groups are: (I)
State Bank of India and its associates, (ii) Nationalized Banks, (iii) Regional Rural
Banks, (IV) Foreign Banks and (v) Other Indian Scheduled Commercial Banks (in the
private sector). The site provides facility of aggregating data for various Bank-groups.

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TYPES OF MERGERS
Merger or acquisition depends upon the purpose of the offeror company it wants to
achieve. Based on the offerors objectives profile, combinations could be vertical,
horizontal, circular and conglomeratic as precisely described below with reference to the
purpose in view of the offeror company.
(A) Vertical combination:
A company would like to take over another company or seek its merger with that
company to expand espousing backward integration to assimilate the resources of
supply and forward integration towards market outlets. The acquiring company through
merger of another unit attempts on reduction of inventories of raw material and finished
goods, implements its production plans as per the objectives and economizes on
working capital investments. In other words, in vertical combinations, the merging
Undertaking would be either a supplier or a buyer using its product as intermediary
material for final production.
The following main benefits accrue from the vertical combination to the acquirer
company i.e.
1. It gains a strong position because of imperfect market of the intermediary products,
scarcity of resources and purchased products;
2. Has control over products specifications.
(B) Horizontal combination:
It is a merger of two competing firms which are at the same stage of industrial process.
The acquiring firm belongs to the same industry as the target company. The mail
purpose of such mergers is to obtain economies of scale in production by eliminating
duplication of facilities and the operations and broadening the product line, reduction in
investment in working capital, elimination in competition concentration in product,
reduction in advertising costs, increase in market segments and exercise better control
on market.
(C) Circular combination:
Companies producing distinct products seek amalgamation to share common
distribution and research facilities to obtain economies by elimination of cost on
duplication and promoting market enlargement. The acquiring company obtains benefits
in the form of economies of resource sharing and diversification.
(D) Conglomerate combination:
It is amalgamation of two companies engaged in unrelated industries like DCM and
Modi Industries. The basic purpose of such amalgamations remains utilization of
financial resources and enlarges debt capacity through re-organizing their financial
structure so as to service the shareholders by increased leveraging and EPS, lowering
average cost of capital and thereby raising present worth of the outstanding shares.

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DIFFERENCE BETWEEN MERGERS AND

ACQUISTION
Acquisition

Merger

The case when two companies (often of same The case when one company takes over
size) decide to move forward as a single new another and establishes itself as the new owner
company

instead

of

operating

business of the business.

separately.

The

stocks

of

both

the

companies

are The buyer company swallows the business of

surrendered, while new stocks are issued the target company, which ceases to exist.
afresh.

For example, Glaxo Wellcome and SmithKline Dr. Reddy's Labs acquired Beta pharm through
Beehcam ceased to exist and merged to an agreement amounting $597 million.
become a new company, known as Glaxo
SmithKline.

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POSSIBLE IMPACT OF MERGERS AND

ACQUISITIONS
Impacts on Employees
Mergers and acquisitions may have great economic impact on the employees of the
organization. In fact, mergers and acquisitions could be pretty difficult for the employees
as there could always be the possibility of layoffs after any merger or acquisition. If the
merged company is pretty sufficient in terms of business capabilities, it doesn't need the
same amount of employees that it previously had to do the same amount of business.
Due to the changes in the operating environment and business procedures, employees
may also suffer from emotional and physical problems.
Impact on Management
The percentage of job loss may be higher in the management level than the general
employees. The reason behind this is the corporate culture clash. Due to change in
corporate culture of the organization, many managerial level professionals, on behalf of
their superiors, need to implement the corporate policies that they might not agree with.
It involves high level of stress.
Impact on Shareholders
Impact of mergers and acquisitions also include some economic impact on the
shareholders. If it is a purchase, the shareholders of the acquired company get highly
benefited from the acquisition as the acquiring company pays a hefty amount for the
acquisition. On the other hand, the shareholders of the acquiring company suffer some
losses after the acquisition due to the acquisition premium and augmented debt load.
Impact on Competition
Mergers and acquisitions have different impact as far as market competitions are
concerned. Different industry has different level of competitions after the mergers and
acquisitions. For example, the competition in the financial services industry is relatively
constant. On the other hand, change of powers can also be observed among the market
players.

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ADVANTAGES OF MERGERS
Mergers and takeovers are permanent form of combinations which vest in
management complete control and provide centralized administration which are not
available in combinations of holding company and its partly owned subsidiary.
Shareholders in the selling company gain from the merger and takeovers as the
premium offered to induce acceptance of the merger or takeover offers much more
price than the book value of shares. Shareholders in the buying company gain in the
long run with the growth of the company not only due to synergy but also due to boots
trapping earnings.
Mergers and acquisitions are caused with the support of shareholders, managers
ad promoters of the combing companies. The factors, which motivate the shareholders
and managers to lend support to these combinations and the resultant consequences
they have to bear, are briefly noted below based on the research work by various
scholars globally.
(1) From the standpoint of shareholders
Investment made by shareholders in the companies subject to merger should enhance
in value. The sale of shares from one companys shareholders to another and holding
investment in shares should give rise to greater values i.e. the opportunity gains in
alternative investments. Shareholders may gain from merger in different ways viz. From
the gains and achievements of the company i.e. through
(a) Realization of monopoly profits;
(b) Economies of scales;
(c) Diversification of product line;
(d) Acquisition of human assets and other resources not available otherwise;
(e) Better investment opportunity in combinations.
One or more features would generally be available in each merger where shareholders
may have attraction and favor merger.

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(2) From the standpoint of managers

Managers are concerned with improving operations of the company, managing the
affairs of the company effectively for all round gains and growth of the company which
will provide them better deals in raising their status, perks and fringe benefits. Mergers
where all these things are the guaranteed outcome get support from the managers. At
the same time, where managers have fear of displacement at the hands of new
management in amalgamated company and also resultant depreciation from the merger
then support from them becomes difficult.
(3) Promoters gains
Mergers do offer to company promoters the advantage of increasing the size of their
company and the financial structure and strength. They can convert a closely held and
private limited company into a public company without contributing much wealth and
without losing control.
4) Benefits to general public
Impact of mergers on general public could be viewed as aspect of benefits and costs to:
(a) Consumer of the product or services;
(b) Workers of the companies under combination;
(c) General public affected in general having not been user or consumer or the worker
in the companies under merger plan.
(a) Consumers
The economic gains realized from mergers are passed on to consumers in the form of
lower prices and better quality of the product which directly raise their standard of living
and quality of life. The balance of benefits in favour of consumers will depend upon the
fact whether or not the mergers increase or decrease competitive economic and
productive activity which directly affects the degree of welfare of the consumers through
changes in price level, quality of products, after sales service, etc.
(b) Workers community
The merger or acquisition of a company by a conglomerate or other acquiring company
may have the effect on both the sides of increasing the welfare in the form of
purchasing power and other miseries of life. Two sides of the impact as discussed by
the researchers and academicians are:
firstly, mergers with cash payment to shareholders provide opportunities for them to
invest this money in other companies which will generate further employment and
growth to uplift of the economy in general.
Secondly, any restrictions placed on such mergers will decrease the growth and
investment activity with corresponding decrease in employment. Both workers and

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communities will suffer on lessening job opportunities, preventing the distribution of

benefits resulting from diversification of production activity.

(c) General public

Mergers result into centralized concentration of power. Economic power is to be

understood as the ability to control prices and industries output as monopolists. Such
monopolists affect social and political environment to tilt everything in their favour to
maintain their power ad expand their business empire. These advances result into
economic exploitation. But in a free economy a monopolist does not stay for a longer
period as other companies enter into the field to reap the benefits of higher prices set in
by the monopolist. Every merger of two or more companies has to be viewed from
different angles in the business practices which protects the interest of the shareholders
in the merging company and also serves the national purpose to add to the welfare of
the employees, consumers and does not create hindrance in administration of the
Government policies.

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REGULATIONS OF MERGER AND ACQUISTIONS

Mergers and acquisitions are regulated under various laws in India. The objective of
the laws is to make these deals transparent and protect the interest of all shareholders.
They are regulated through the provisions of:P The

Companies Act, 1956

The Act lays down the legal procedures for mergers or acquisitions:for merger: - Two or more companies can amalgamate only when the
amalgamation is permitted under their memorandum of association. Also, the acquiring
company should have the permission in its object clause to carry on the business of the
acquired company. In the absence of these provisions in the memorandum of
association, it is necessary to seek the permission of the shareholders, board of
directors and the Company Law Board before affecting the merger.
PPermission

PInformation to the stock exchange: - The acquiring and the acquired companies
should inform the stock exchanges (where they are listed) about the merger.

of board of directors: - The board of directors of the individual companies

should approve the draft proposal for amalgamation and authorize the managements of
the companies to further pursue the proposal.
PApproval

PApplication in the High Court: - An application for approving the draft amalgamation
proposal duly approved by the board of directors of the individual companies should be
made to the High Court.

and creators' meetings: - The individual companies should hold

separate meetings of their shareholders and creditors for approving the amalgamation
scheme. At least, 75 percent of shareholders and creditors in separate meeting, voting
in person or by proxy, must accord their approval to the scheme.
PShareholders'

by the High Court: - After the approval of the shareholders and creditors,
on the petitions of the companies, the High Court will pass an order, sanctioning the
amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The
date of the court's hearing will be published in two newspapers, and also, the regional
director of the Company Law Board will be intimated.
PSanction

PFiling of the Court order: After the Court order, its certified true copies will be filed
with the Registrar of Companies.

of assets and liabilities: - The assets and liabilities of the acquired

company will be transferred to the acquiring company in accordance with the approved
scheme, with effect from the specified date.
PTransfer

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by cash or securities: - As per the proposal, the acquiring company will

exchange shares and debentures and/or cash for the shares and debentures of the
acquired company. These securities will be listed on the stock exchange.
PPayment

P The

Competition Act, 2002

The Act regulates the various forms of business combinations through Competition.
Under the Act, no person or enterprise shall enter into a combination, in the form of an
acquisition, merger or amalgamation, which causes or is likely to cause an appreciable
adverse effect on competition in the relevant market and such a combination shall be
void. Enterprises intending to enter into a combination may give notice to the
Commission, but this notification is voluntary. But, all combinations do not call for
scrutiny unless the resulting combination exceeds the threshold limits in terms of assets
or turnover as specified by the Competition Commission of India. The Commission while
regulating a 'combination' shall consider the following factors:PActual and potential competition through imports;
PExtent of entry barriers into the market;
PLevel of combination in the market;
PDegree of countervailing power in the market;
PPossibility of the combination to significantly and substantially increase prices or
profits;
PExtent of effective competition likely to sustain in a market;
PAvailability of substitutes before and after the combination;
PMarket share of the parties to the combination individually and as a combination;
PPossibility of the combination to remove the vigorous and effective competitor or
competition in the market;
PNature and extent of vertical integration in the market;
PNature and extent of innovation;
PWhether the benefits of the combinations outweigh the adverse impact of the
combination.
Thus, the Competition Act does not seek to eliminate combinations and only aims to
eliminate their harmful effects.

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CHANGE IN SCENARIO OF BANKING SECTOR

1. The first mega merger in the Indian banking sector that of the HDFC Bank with Times
Bank, has created an entity which is the largest private sector bank in the country.
2. The merger of the city bank with Travelers Group and the merger of Bank of America
with Nation Bank have triggered the mergers and acquisition market in the banking
sector worldwide.
3. With the help of M & A in the banking sector, the banks can achieve significant
growth in their operations and minimize their expenses to a significant level Competition
is reduced because merger eliminates competitors from the banking industry.
4. In India mergers especially of the PSBS may be subject to technology and trade
union related problem. The strong trade union may prove to be big obstacle for the
PSBS mergers. Technology of the merging banks to should complement each other
NPA management. Management of efficiency, cost reduction, tough competition from
the market players and strengthens of the capital base of the banks are some of the
problem which can be faced by the merge entities. Mergers for private sector banks will
be much smoother and easier as again that of PSBS.

THE BANKING SCENARIO HAS BEEN CHANGING AT FAST PLACE.

Bank traditionally just borrower and lenders, has started providing complete corporate
and retail financial services to its customers
1. Technology drive has benefited the customers in terms of faster improve convenient
banking services and Varity of financial products to suit their requirement. ATM's, Phone
Banking, Net banking, anytime and anywhere banking are the services which bank have
started offering following the changing trend in sectors. In plastic money segment
customer have also got a new option of debits cards against the earlier popular credit
card. Earlier customers had to conduct their banking transaction within the restricted
time frame of banking hours. Now banking hours are extended.
2. ATMs ,Phone banking and Net banking had enable the customer to transact as per
their convince customer can now without money at any time and from any branch
across country as certain their account transaction, order statements of their account
and give instruction using the tally banking or on online banking services.
3. Bank traditionally involve working capital financing have started offering consumer
loans and housing loans. Some of the banks have started offering travel loans, as well
as many banks have started capitalizing on recent capital market boom by providing
IPO finance to the investors.

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PROCEDURE OF MERGERS & ACQUISITIONS

Public announcement:
To make a public announcement an acquirer shall follow the following procedure:
1. Appointment of merchant banker:
The acquirer shall appoint a merchant banker registered as category I with SEBI to
advise him on the acquisition and to make a public announcement of offer on his behalf.
2. Use of media for announcement:
Public announcement shall be made at least in one national English daily one Hindi
daily and one regional language daily newspaper of that place where the shares of that
company are listed and traded.
3. Timings of announcement:
Public announcement should be made within four days of finalization of negotiations or
entering into any agreement or memorandum of understanding to acquire the shares or
the voting rights.
4. Contents of announcement:
Public announcement of offer is mandatory as required under the SEBI Regulations.
(1) Paid up share capital of the target company, the number of fully paid up and partially
paid up shares.
(2) Total number and percentage of shares proposed to be acquired from public subject
to minimum as specified in the sub-regulation (1) of Regulation 21 that is:
a) The public offer of minimum 20% of voting capital of the company to the
shareholders;
b) The public offer by a raider shall not be less than 10% but more than 51% of
shares of voting rights. Additional shares can be had @ 2% of voting rights in
any year.
(3) The minimum offer price for each fully paid up or partly paid up share;
(4) Mode of payment of consideration;
(5) The identity of the acquirer and in case the acquirer is a company, the identity of the
promoters and, or the persons having control over such company and the group, if
any, to which the company belongs;
(6) The existing holding, if any, of the acquirer in the shares of the target company,
including holding of persons acting in concert with him;

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(7) Salient features of the agreement, if any, such as the date, the name of the seller,
the price at which the shares are being acquired, the manner of payment of the
consideration and the number and percentage of shares in respect of which the
acquirer has entered into the agreement to acquire the shares or the consideration,
monetary or otherwise, for the acquisition of control over the target company, as the
case may be;
(8) The highest and the average paid by the acquirer or persons acting in concert with
him for acquisition, if any, of shares of the target company made by him during the
twelve month period prior to the date of the public announcement;
(9) Objects and purpose of the acquisition of the shares and the future plans of the
acquirer for the target company, including disclosers whether the acquirer proposes
to dispose of or otherwise encumber any assets of the target company:
Provided that where the future plans are set out, the public announcement shall
also set out how the acquirers propose to implement such future plans;
(10) The specified date as mentioned in regulation 19;
(11) The date by which individual letters of offer would be posted to each of the
shareholders;
(12) The date of opening and closure of the offer and the manner in which and the date
by which the acceptance or rejection of the offer would be communicated to the share
holders;
(13) The date by which the payment of consideration would be made for the shares in
respect of which the offer has been accepted;
(14) Disclosure to the effect that firm arrangement for financial resources required to
implement the offer is already in place, including the details regarding the sources of
the funds whether domestic i.e. from banks, financial institutions, or otherwise or
foreign i.e. from Non-resident Indians or otherwise;
(15) Provision for acceptance of the offer by person who own the shares but are not the
registered holders of such shares;
(16) Statutory approvals required to obtain for the purpose of acquiring the shares under
the Companies Act, 1956, the Monopolies and Restrictive Trade Practices Act, 1973,
and/or any other applicable laws;
(17) Approvals of banks or financial institutions required, if any;
(18) Whether the offer is subject to a minimum level of acceptances from the
shareholders; and
(19) Such other information as is essential for the shareholders to make an informed
design in regard to the offer

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WHY MERGERS FAIL?

It's no secret that plenty of mergers don't work. Those who advocate mergers will
argue that the merger will cut costs or boost revenues by more than enough to justify
the price premium. It can sound so simple: just combine computer systems, merge a
few departments, use sheer size to force down the price of supplies and the merged
giant should be more profitable than its parts. In theory, 1+1 = 3 sounds great, but in
practice, things can go awry. Historical trends show that roughly two thirds of big
mergers will disappoint on their own terms, which means they will lose value on the
stock market. The motivations that drive mergers can be flawed and efficiencies from
economies of scale may prove elusive. In many cases, the problems associated with
trying to make merged companies work are all too concrete.
The Obstacles to Making it Work
Coping with a merger can make top managers spread their time too thinly and
neglect their core business, spelling doom. Too often, potential difficulties seem trivial to
managers caught up in the thrill of the big deal.
The chances for success are further hampered if the corporate cultures of the
companies are very different. When a company is acquired, the decision is typically
based on product or market synergies, but cultural differences are often ignored. It's a
mistake to assume that personnel issues are easily overcome. For example, employees
at a target company might be accustomed to easy access to top management, flexible
work schedules or even a relaxed dress code. These aspects of a working environment
may not seem significant, but if new management removes them, the result can be
resentment and shrinking productivity.
More insight into the failure of mergers is found in the highly acclaimed study from
McKinsey, a global consultancy. The study concludes that companies often focus too
intently on cutting costs following mergers, while revenues, and ultimately, profits,
suffer. Merging companies can focus on integration and cost-cutting so much that they
neglect day-to-day business, thereby prompting nervous customers to flee. This loss of
revenue momentum is one reason so many mergers fail to create value for
shareholders.

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FINANCIAL IMPLICATIONS OF BANKING M&A

These indicators include measures of financial performance:
P asset and liability composition
P capital structure
P liquidity
P risk exposure
P profitability
P financial innovation and efficiency
As dependent variable, we measure change of performance as the difference between
the merged banksP two-year average return on equity (ROE) after the acquisition and
the weighted average of the ROE of the merging banks two years before the
acquisition.
Table: Definition of the variables
Reno
1

Definition
Performance Change (ROE)

formula
Return on equity (After merger)

Liquidity (LIQ)

Liquid Asset/Total Deposit

Cost-income ratio (COST/INC)

Total cost/Total revenue

Capital to asset ratio (CA/TA)

Total capital/Total asset

Loans to total assets ratio (LOAN/TA))

Net Loans/Total asset

Credit Risk (BADL/INT_INC)

Loan loss provision/Net interest

revenues

Diversity Earning (OOR/TA)

Other operational revenues/Total

assets

Off balance sheet (OBS/TA)

Off balance sheet item/Total asset

Loans to deposit ratio (LOANS/DEP)

Customer loan to Customer

deposit

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REASONS FOR MERGERS AND ACQUISITIONS

P Capacity
P Economies of Scale
P Accessing technology or skills
P Tax reasons
P Growth with External Efforts
P Deregulation
P Technology
P New Products/Services
P Over Capacity
P Customer Base
PROCEDURE FOR BANK MERGER
P The procedure for merger either voluntary or otherwise is outlined in the respective
state statutes/ the Banking regulation Act. The Registrars, being the authorities vested
with the responsibility of administering the Acts, will be ensuring that the due process
prescribed in the Statutes has been complied with before they seek the approval of the
RBI. They would also be ensuring compliance with the statutory procedures for notifying
the amalgamation after obtaining the sanction of the RBI.
P Before deciding on the merger, the authorized officials of the acquiring bank and the
merging bank sit together and discuss the procedural modalities and financial terms.
After the conclusion of the discussions, a scheme is prepared incorporating therein the
all the details of both the banks and the area terms and conditions.
P Once the scheme is finalized; it is tabled in the meeting of Board of directors of
respective banks. The board discusses the scheme thread bare and accords its
approval if the proposal is found to be financially viable and beneficial in long run.
P After the Board approval of the merger proposal, an extra ordinary general meeting of
the shareholders of the respective banks is convened to discuss the proposal and seek
their approval.
P After the board approval of the merger proposal, a registered valuer is appointed to
valuate both the banks. The valuer valuates the banks on the basis of its share capital,
market capital, assets and liabilities, its reach and anticipated growth and sends its
report to the respective banks.
P Once the valuation is accepted by the respective banks , they send the proposal
along with all relevant documents such as Board approval, shareholders approval,
valuation report etc. to Reserve Bank of India and other regulatory bodies such Security
& exchange board of India SEBIfor their approval.
P After obtaining approvals from all the concerned institutions, authorized officials of
both the banks sit together and discuss and finalize share allocation proportion by the
acquiring bank to the shareholders of the merging bank SWAP ratio
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RBI GUIDELINES ON
MERGERS & ACQUISITIONS OF BANKS
- With a view to facilitating consolidation and emergence of strong entities and providing
an avenue for non-disruptive exit of weak/unviable entities in the banking sector, it has
been decided to frame guidelines to encourage merger/amalgamation in the sector.
P Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank
to formulate a scheme with regard to merger and amalgamation of banks, the State
Governments have incorporated in their respective Acts a provision for obtaining prior
sanction in writing, of RBI for an order, inter alia, for sanctioning a scheme of
amalgamation or reconstruction.
P The request for merger can emanate from banks registered under the same State Act
or from banks registered under the Multi State Co-operative Societies Act (Central Act)
for takeover of a bank/s registered under State Act. While the State Acts specifically
provide for merger of cooperative societies registered under them, the position with
regard to take over of a co-operative bank registered under the State Act by a cooperative bank registered under the CENTRAL
P Although there are no specific provisions in the State Acts or the Central Act for the
merger of a co-operative society under the State Acts with that under the Central Act, it
is felt that, if all concerned including administrators of the concerned Acts are agreeable
to order merger/ amalgamation, RBI may consider proposals on merits leaving the
question of compliance with relevant statutes to the administrators of the Acts. In other
words, Reserve Bank will confine its examination only to financial aspects and to the
interests of depositors as well as the stability of the financial system while considering
such proposals.

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INFORMATION & DOCUMENTS TO BE FURNISHED

BY THE ACQUIRER OF BANKS
1. Draft scheme of amalgamation as approved by the Board of Directors of the acquirer
bank.
2. Copies of the reports of the valuers appointed for the determination of realizable
value of assets (net of amount payable to creditors having precedence over depositors)
of the acquired bank.
3. Information which is considered relevant for the consideration of the scheme of
merger including in particular:A. Annual reports of each of the Banks for each of the three completed financial years
immediately preceding the proposed date for merger.
B. Financial results, if any, published by each of the Banks for any period subsequent to
the financial statements prepared for the financial year immediately preceding the
proposed date of merger.
C. Pro-forma combined balance sheet of the acquiring bank as it will appear
consequent on the merger.
D. Computation based on such pro-forma balance sheet of the following:1. Tier I Capital
2. Tier II Capital
3. Risk-weighted Assets
4. Gross and Net NPA's
5. Ratio of Tier I Capital to Risk-weighted Assets
6. Ratio of Tier II Capital to Risk-weighted Assets
7. Ratio of Total Capital to Risk-weighted Assets
8. Tier I Capital to Total Assets
9. Gross and Net NPAs to Advances
10. Cash Reserve Ratio
11. Statutory Liquidity Ratio

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MERGERS AND ACQUISITONS OF BANKS

RECOMMENDATION OF NARASIMHAM COMMITTEE ON BANKING

SECTOR REFORMS

Globally, the banking and financial systems have adopted information and
communications technology. This phenomenon has largely by passed the Indian
banking system, and the committee feels that requisite success needs to be
achieved in the following areas:-

Banking automation

Planning, Standardization of electronic payment systems

Telecom infrastructure

Data were

Merger between banks and DFL's and NBFC's need to be based on synergies and
should make a sound commercial sense. Committee also opines that merger
between strong banks / fls would make for greater economic and commercial sense
and would be a case where the whole is greater than the sum of its party and have a
force multiplier effect. It also have merger should not be seen as a means of bailing
out weak banks.

A weak bank could be nurtured into healthy units. Merger could also be a solution to
a after cleaning up their balances sheets it only say if these is no Voltaire response
to a takeover of such bank, a restructuring commission for such PSB, can consider
other options such as restructuring , merger and amalgamations to it not closure.

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The committee also options that while licensing new private sector banks, the initial
capital requirement need to be review. It also emphasized on a transparent
mechanism for deciding the ability of promoter to professionally manage the bank.
The committee also feels that a minimum threshold capital for old private banks also
deserved threshold capitals. The committee also opined that a promoter group
couldn't hold more that 40 percent of the equity of a bank.
The Narasimham Committee also suggested that the merger could be a solution to
Weak banks Coney after clearing up the balance sheets) with a strong public sector
bank.
Source: Narasimham Committee report on banking sector reforms.

Changes after the merger:-

While, BOM had an attractive business per employee figure of Rs.202 lakh, a
better technological edge and had a vast base in southern India when compared to
Federal bank. While all these factors sound good, a cultural integration would be a
tough task ahead for ICICI Bank.

ICICI Bank has announced a merger with 57-year-old Bank of Madure, with 263
branches, out of which 82 of them are in rural areas, with most of them in southern
India. As on the day of announcement of merger) 09-12-00), Kotak Mahindra group was
holding about 12 percent stake in BOM, the Chairman BOM, Mr.K.M. Thaiagarajan,
along with his associates was holding about 26 percent stake, Spic groups has about
4.7 percent, while LIC and UTI were having marginal holdings. The merger will give
ICICI Bank a hold on South India market, which has high rate of economic
development.

The board of Director at ICICI has contemplated the following synergies emerging from
the merger:

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Financial Capability: The amalgamation will enable them to have a stronger financial
and operational structure, which is supposed to be capable of greater resource/deposit
mobilization. And ICICI will emerge a one of the largest private sector banks in the
country.

Branch network: The ICICIs branch network would not only 264, but also increases
geographic coverage as well as convenience to its customers.

Customer base: The emerged largest customer base will enable the ICICI bank to offer
banking financial services and products and also facilitate cross-selling of products and
services of the ICICI groups.

Tech edge: The merger will enable ICICI to provide ATM's, Phone and the Internet
banking and finical services and products and also facilitate cross-selling of products
and services of the ICICI group.

Focus on Priority Sector: The enhanced branch network will enable the Bank to focus
on micro-finance activities through self-help groups, in its priority sector initiatives
through its acquired 87 rural and 88 semi-urban branches.

Source: Report submitted at EGM on January 19, 2001.

THE SWAP RATIO:

The swap ratio has been approved in the ratio of 1:2 two shares of ICICI Bank for
every one share of Bank of Madera.
The deal with Bank of Madera is likely to dilute the current equity capital by around 12
percent. And the merger is expected to bring 20 percent gains in EPS of bank.

And also the banks comfortable capital Adequacy Ratio (CAR) of 19.64 percent has
declined to 17.6 percent.

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REASONS BEHIND THE RECENT TREND OF

MERGER IN BANKING SECTOR
The question on top everybodys mind is
Are banks and bankers on the road to redundancy?
First consider the reasons that one does not need banks in large numbers any more
P A depositor today can open a cheque account with a money market mutual fund and
obtain both higher returns and greater and greater flexibility. Indian mutual funds are
queuing up to offer this facility.
P After can be drawn or a telephone bill paid easily through credit cards.
P Even if a bank is just a safe place to put away your savings, you need not go to it.
There is always an ATM you can do business with.
P If you are solvent and want to borrow money, you can do so on your credit card- with
far fewer hassles.
An AAA corporate can directly borrow from the market through commercial papers
and get better rates in the bargain. In fact the banks may indeed be left with dad credit
risk or those that cannot access the capital market. This once again makes a shift to
non-fund based the activities all the more important.

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CASE STUDIES
Case study I

Agrees to amalgamate Bank of Rajasthan:

ICICI Bank has entered into an agreement with certain shareholders of Bank of
Rajasthan (BoR) to amalgamate BoR, with a tentative share exchange ratio of 1:4.72
(25 shares of ICICI Bank for 118 shares of BoR). The final exchange ratio will be based
on due diligence and independent valuation reports. Assuming a share swap ratio of
1:4.72, the deal values BoR at Rs30.4b and will lead to ~3% equity dilution for ICICI
Bank.
Branch addition, stronger North India network are key positives:
The key positives for ICICI Bank will be a 23% increase in the number of branches and
a stronger network in North India. Over 60% of BoRs 463 branches are in the state of
Rajasthan and ~70% are in North India. BoRs biggest competitors in the state of
Rajasthan are SBIs subsidiary, State Bank of Bikaner and Jaipur (~750 branches),
Bank of Baroda (~350 branches) and Punjab National Bank (~310 branches).
Deal at a significant premium; Improvement in deposit franchisee will be key
value driver:
The implied valuation of BoR at 4.8x trailing book value appears expensive, as the book

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needs to be adjusted for the re-assessment of BoRs NPAs by ICICI Bank. The key
near-term challenges for ICICI Bank will be assessment of BoRs asset quality,
rationalization and re-positioning of BoRs branches, and possible regulatory issues.
We will review our target price for ICICI Bank post the merger details. Maintain Buy.

Valuing BoR at Rs66m/branch

While BoRs asset base is just 5% of ICICI Banks, its 463 branches will result in a
~23% increase in ICICI Banks existing network of 2,000 branches. A share swap ratio
of 1:4.72 (25 shares of ICICI Bank for 118 shares of BoR) implies a valuation of Rs66m
per branch and 0.2x the deposit base for BoR. It is noteworthy that ICICI Bank has
opened 580 new branches (1.3x BoRs branch network) since March 2009 at a cost of
Rs8m-10m per branch. However, it takes almost two years for a new branch to break
even
. Comparison of BOR and ICICI
Basis

BoR

ICICI BANK

CASA Deposits

Rs 4163crores

Rs 21000crores

Business per month

Rs 47crores

Rs 304crores

Return on average assets

0.7%

Net non-performing assets

1.05%

1%
2.1%

Implied price per branch lower than last deal in the sector
In the last deal in the sector, HDFC Bank had valued CBoP at Rs285m per branch and
0.5x the deposit base. ICICI Bank had acquired Sangli Bank at Rs3.5b, valuing Sangli
Bank at ~Rs18m per branch. While the price that ICICI Bank is paying is in line with the
valuations of other old private sector banks, it is significantly lower than the CBoP deal.
Benefit of Merger for ICICI Bank
1. The proposed amalgamation would substantially enhance ICICI Banks branch
network, already the largest among Indian private sector banks, and especially
strengthen its presence in northern and western India.
2. The rationale for the merger, according to the ICICI Bank management, is that it
would have taken the bank three years to build the kind of low-cost current account and
savings account (CASA) relationship; it gets to build upon now with the latest move.
ICICI Bank has had its sights set firmly on expanding its share of CASA deposits.

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CASE STUDY 2

PRESENT STATUS OF STATE BANK OF INDIA

P State Bank of India is the largest state-owned banking and financial services
company in India, by almost every parameter - revenues, profits, assets, market
capitalization, etc.
P SBI has 21000 ATMs, 26500 branches including the branches of its associate banks.
P The bank has 131 overseas offices spread over 32 countries. It has branches of the
parent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and environs,
Los Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo.

Financial Performance OF STATE BANK OF INDIA

RATIOS
Mar '06
Mar '07
Mar '08
Net Profit Margin
11.21
10.12
11.65
Return on Net Worth (%)
15.94
14.50
13.72
13.89
Net Interest Income/Total Funds 3.71
3.85
3.87
3.82
Asset Turnover Ratio
5.10
5.44
6.32
Interest expended/
Interest earned
56.32
59.35
65.23
Capital Adequacy Ratio
11.88
12.34
13.47
Advances/total funds(%)
65.66
76.16
78.31
Credit Deposit Ratio
62.11
73.44
77.51

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Mar '09
12.03
15.74

Mar '10
10.54

3.79
7.20

7.26

67.28
14.25
78.34
74.97

66.66
13.39
74.22
75.96

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STATE BANK OF INDORE

-On August 26, 2010, State Bank of Indore was officially merged with State Bank of
India.
P State Bank of Indore was formerly named as Bank of Indore Ltd. It was established
under a special charter of His Highness Maharaja Tukojirao Holker-III, the then ruler of
Malwa region.
P It became a subsidiary of State Bank of India on 1 January 1960, under the State
Bank of India Subsidiary Banks Act, 1959.
P In the following year (1962), State Bank of Indore took over the business of The Bank
of Dewas Ltd.
P In 1965, State Bank of Indore took over The Dewas Senior Bank Ltd. as well.
P State Bank of Indore was upgraded to class 'A' category bank in 1971.
P The business turnover of the Bank crossed Rs.47000 Crore at the end of December
2008.
P It has emerged as the premier bank of Madhya Pradesh due to its steady progress.
P The SBI with the sanction of Govt. of India entered into negotiations with State Bank
of Indore for the acquisition on Oct 8, 2009.
P The Board of Directors of State Bank of Indore On October 31, 2009, approved the
Scheme of Acquisition of State Bank of Indore (SBIN) by SBI, under Section 35 of the
SBI Act, 1955.
P SBI has already announced a share swap ratio of 34:100 for the merger. That means,
SBI would give its 34 shares for every 100 shares of State Bank of Indore held by
minority shareholders.
P For this purpose, SBI would issue up to over 1.16 lakh shares of face value Rs 10
each to minority shareholders of State Bank of Indore.
P After the merger, the issued capital of SBI would increase from Rs 634.96 crore up to
a maximum of Rs 635.08 crore.
P Both the banks separately and independently appointed M/s Haribhakti & company

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(qualified chartered accountants and M/s Axis Bank ltd. (Category 1 merchant bankers)
as the independent valuers.
P M/s Kotak Mahindra capital company ltd.(Category 1 merchant bankers) was
appointed by both the banks independently to provide a fairness opinion to valuation of
the independent valuers.
P After the merger, SBI will be left with five associate banks, State Bank of Bikaner and
Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and
State Bank of Hyderabad. Among these, the State Banks of Bikaner and Jaipur, Mysore
and Travancore are listed companies.
PURPOSE OF THE MERGER
P The merger would avoid competition between the two entities and lead to easier
access to funds at competitive rates, compared to what State Bank of Indore would
have managed for its growing balance sheet.
P Acquisition of State Bank of Indore by SBI would allow economies of scale in terms of
footprint, manpower and other resources.
P State Bank of Indore has a large number of branches outside Madhya Pradesh and
Chhattisgarh and all of them would be controlled conveniently from SBI's local head
offices in various states leading to substantial cost savings.
.

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BANK MERGER TO AFFECT ON INSURANCE SECTOR

Feb 26 (IANS) Bank mergers in India are likely to impact the insurance sector as many
insurers have select banks as their banc assurance partners. Banc assurance is the
sale of life, pension and investment products through the branch network of a bank.
The recent merger announcement of HDFC Bank and Centurion Bank of Punjab Ltd is
expected to impact the business of Aviva Life Insurance Co Ltd and ICICI Lombard
General Insurance Co Ltd.
Centurion Bank is the banc assurance partner for these two insurers.
The arrangements might be discontinued because HDFC Bank sells life and non-life
insurance policies of group companies HDFC Standard Life Insurance Co Ltd and
HDFC General Insurance Co Ltd.
After the opening up of the insurance sector, banks have come to occupy an important
role in insurance distribution, particularly for private life insurers.
Banks procure nearly 40 percent of the fresh business for life insurers. It is not
surprising therefore to have life insurers whose very lifeline is their banking partners.
Insurers find recruiting and training individual agents a time-consuming and costly
process. There are also issues like agency attrition and small-sized policies procured by
agents.
For new private life insurers who want to achieve fast revenue growth, banks are the
only source of business.
Banks also find that selling life insurance products is a lucrative activity.
Normally banc assurance deals are for three years and each bank can represent only
one insurer as a corporate agent.
Realizing their vital role, banks are now dictating the terms of the banc assurance deals.
In some cases banks are demanding commission and other fees totaling nearly 70
percent of the first year premium on a policy, say industry experts However, new private
life insurers are finding it difficult to sign up a banking partner to sell their products as
early entrants have already inked distribution agreements with them.
Some banks have started representing a new life insurer at regular intervals.
For instance, Aviva Life had recently inked a banc assurance deal with the Bank of
Rajasthan, which has switched life insurance partners in recent times.

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Initially, the bank vended policies of Birla Sun Life Insurance Co Ltd. It changed over to
Life Insurance Corp of India (LIC) before signing up with Aviva Life.
V. Srinivasan, chief financial officer of Bharti Axa Life Insurance Co Ltd, said that the
one bank-one insurer concept was not right and would lead to skewed scenario.
A bank has a wide variety of customers. No single insurer can satisfy the needs of all
the bank customers. A bank should be allowed to be a broker and sell the policies of
different insurers

LATEST NEWS ABOUT MERGERS AND

ACQUISITION IN BANKING SECTOR
Banking sector reforms in India are in the progress. Both Finance Ministry of India and
Reserve Bank of India (RBI) are actively suggesting many far reaching reforms for
banking and financial industry of India.
One of such reforms pertains to regulating mergers and acquisitions (M&A) pertaining to
banking sector. Till now the Competition Commission of India (CCI) has a say in the
M&A pertaining to banking companies.
However, with the recent proposed amendments in the Banking Regulations Act, 1949,
only RBI would have power to regulate M&A pertaining to banking sector. In fact, the
proposed amendments have already been approved by Cabinet of India.
Ex- Finance Minister Pranab Mukherjee has also recently said that RBI would have
the final say on bank M&A. He told that banking mergers and acquisitions will not come
under the purview of the Competition Act or the Companies Act.
Indian mergers and acquisitions in 2011 may surpass this years record $71 billion of
deals, led by oil and gas, metals and mining companies, according to M&A bankers
including Topsy Mathew of Standard Chartered.
Billionaire Sunil Mittals $10.7 billion acquisition of mobile-phone operators in Africa led
an almost four-fold increase in takeovers this year as deals surpassed 2007s $69
billion, according to data compiled by Bloomberg.
Companies in Asia-Pacific including India and China are expected to be the most
acquisitive buyers in 2011 as attractive valuations and domestic competition drive deals
globally, according to Bloombergs M&A Global Outlook survey. Overseas firms may
target Indian pharmaceutical and consumer firms, and local enterprises will seek natural
resources, said Bank of America, ranked No. 3.

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Outbound deals would continue to be highly active given that international companies
valuations are still relatively depressed, and Indian companies have access to debt and
equity capital, Saurabh Agrawal, the 41-year-old head of India investment banking at
Charlotte, North Carolina-based Bank of America, wrote in an e-mailed response to
questions. Inbound and local deals will also take place.
Cross-border deals rose to a record $59.2 billion in India this year, after Mittals New
Delhi-Bharti Airtel in March agreed to buy the African assets of Zain for $10.7 billion.
Outbound M&A accounted for 74% of that volume. The acquisition spree in India, China
and Brazil contrasts with a slowdown in global deals. Mergers worldwide are down 46%
from 2007s record. In the US, the worlds largest market, volumes are 51% lower, and
levels in Europe are down by 59%.
Large Indian corporate is going through a growth phase: they think there is a lot of
opportunity, they think they have access to capital, 35-year-old Mathew, managing
director for M&A for India, said in an interview. The London-based bank climbed 13
places to No. 2 among Indian takeover advisers this year, its highest ranking. They are
capitalizing on the positive sentiment to undertake long-term strategic
transactions, he said.
The mergers and acquisitions of banks will now come under the purview of the Banking
Regulation Act. This means M&A in banking sector would no more require the approval
of the Competition Commission of India.
-

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EXECUTIVE SUMMARY
Merger is absorption of one or more companies by a single existing company.
During merger, an acquiring company and acquired companies come together to
decide and execute a merger agreement between them.
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 of another existing
company.
The banking system has three tiers. These are the scheduled commercial banks;
the regional rural banks which operate in rural areas not covered by the
scheduled banks; and the cooperative and special purpose rural banks.
Commercial banks are categorized as scheduled and non-scheduled banks, but
for the purpose of assessment of performance of banks, the Reserve Bank of
India categories them as public sector banks, old private sector banks, new
private sector banks and foreign banks.
Types of merger:
(A) Vertical combination
(B) Horizontal combination
(C) Circular combination
(D) Conglomerate combination
Shareholders may gain from merger in different ways viz. From the gains and
achievements of the company i.e. through
(a) Realization of monopoly profits;
(b) Economies of scales;
(c) Diversification of product line;
(d) Acquisition of human assets and other resources not available otherwise;
(e) Better investment opportunity in combinations.
Impact of mergers on general public could be viewed as aspect of benefits and
costs to:
(a) Consumer of the product or services;
(b) Workers of the companies under combination;
(c) General public affected in general having not been user or consumer or the
worker in the companies under merger plan.
To make a public announcement an acquirer shall follow the following procedure:
1.Appointment of merchant banker
2. Use of media for announcement
3. Timings of announcement
4. Contents of announcement.
Every bank must follow the guidelines issued by RBI, with the approval of
RBI.

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CONCLUSION
One of the most common reasons for mergers and acquisitions is the belief that
"synergies" exist, allowing the two companies to work more efficiently together than
either would separately. Such synergies may result from the firms' combined ability to
exploit economies of scale, eliminate duplicated functions, share managerial expertise,
and raise larger amounts of capital.
Another reason for banks to move towards merger is that they are motivated by a desire
for greater market power. The 'human factor' is a major cause of difficulty in making the
integration between two companies work successfully. If the transition is carried out
without sensitivity towards the employees who may suffer as a result of it, and without
awareness of the vast differences that may exist between corporate cultures, the result
is a stressed, unhappy and uncooperative workforce - and consequently a drop in
productivity. Decision to carry out a merger or acquisition should consider not only the
legal and financial implications, but also the human consequences - the effect of the
deal upon the two companies' managers and employee
Almost 60 -70% mergers and acquisitions and the reason for the failure is cultural
differences, flawed intentions, and sometimes decisions are taken without properly
analysis the future of the merger. Merger of BoR an old private sector bank with India's
2nd largest private sector bank will definitely help both of this parties as ICICI Bank can
extend it activities as it total number branches will go up by 25% and BoR will also get
new direction as it already witness the share price of BoR in BSE is almost doubled
after the announcement of the merger

K.C COLLEGE

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MERGERS AND ACQUISITONS OF BANKS

BIBLIOGRAPHY
1. www.investopedia.com
2. www.business.mapsofindia.com
3. www.bloomberg.com
4. www.legalserviceindia.com
5. www.slideboom.com
6. www.papercamp.com
7. www.moneycontrol.com

K.C COLLEGE