THE ART OF MERGING

NAME: ILAKKYA S

REG.NO: 16COAE016

COURSE OPTED: STRATEGIC MANAGEMENT

COURSE CODE: COA6502CM

SUBMITTED TO: Ms. SRII LATHA

SUBMITTED ON: 07-03-2019

CONTENT:

 INTRODUCTION
 COMPANY PROFILE
 REASON FOR MERGING
 POST MERGER POSITION
 CONCLUSION
Introduction:

A merger is the voluntary fusion of two companies on broadly

equal terms into one new legal entity. The firms that agree to merge are roughly
equal in terms of size, customers, scale of operations, etc. For this reason, the term
"merger of equals" is sometimes used. Acquisitions, unlike mergers, or generally
not voluntary and involve one company actively purchasing another.

Mergers are most commonly done to gain market share, reduce costs
of operations, expand to new territories, unite common products, grow revenues,
and increase profits—all of which should benefit the firms' shareholders. After a
merger, shares of the new company are distributed to existing shareholders of both
original businesses.

Mergers are affected by exchange of the pre-merger shares for the stock of the new
firm. Owners of the each pre merger firm continue as owners, and the resources of
the merging entities are pooled for the benefit of the new entity, if the merged
entities were competitors, the merger is called horizontal integration. If they were
supplier or customer of one another, it is called Vertical integration.
COMPANY PROFILE:

Bank of Madura:

Bank Of Madura Limited is a Public incorporated on 08

February 1943. It is classified as Non-government Company and is registered at
Registrar of Companies, Chennai. Its authorized share capital is Rs. 250,000,000
and its paid up capital is Rs. 0. It acquired Chettinad Mercantile Bank (est. 1933)
and Illanji Bank (est. 1904) in the 1960s. Bank of Madura has a large customer
base of 2 million plus customers and a network of more than 280 branches and
40+ ATMs centers spread across about 100 cities in India. The bank merged
with ICICI Bank Limited, under Section 44A of the Banking Regulation Act, 1949.
The Reserve Bank of India approved the merger effective 10 March 2001. It was
headquartered at Madurai.
ICICI bank:

ICICI Bank Limited (Industrial Credit and Investment Corporation

of India) is an Indian multinational banking and financial services company
headquartered in Mumbai, Maharashtra. As of 2018, ICICI Bank is the second
largest bank in India in terms of assets and market capitalization. It offers a wide
range of banking products and financial services for corporate and retail
customers through a variety of delivery channels and specialized subsidiaries in the
areas of investment. The bank currently has a network of 4867 branches and 14367
ATMs across India and has a presence in 17 countries including India.
ICICI Bank is one of the Big Four banks of India. The bank has
subsidiaries in the United Kingdom and Canada; branches in United States,
Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, Oman, Dubai International
Finance Centre, China and South Africa; and representative offices in United Arab
Emirates, Bangladesh, Malaysia and Indonesia. The company's UK subsidiary has
also established branches in Belgium and Germany.
REASON FOR MERGING:

As of March 2000, BoM had a staff strength of 2,623 in its rank

(with 955 officers, 1,340 clerks and 328 subordinate staff) while that of ICICI was
1,134. This was due to fact that ICICI had technology to support when it started the
bank, an advantage not available to BoM.

They are aware that ICICI would like to push up their productivity
per employee at least to match the existing level. In 1999-2000 business per
employee at ICICI averaged Rs. 5.95 crores to Bank of Madura's Rs. 2.2 crores and
profit per employee was Rs. 7.83 lakhs to BoM's Rs. 1.72 lakhs. The reason is not
difficult to spot. BoM is very much into the retail trade whereas ICICI has the
support of corporates (partly out of volition and perhaps more by arm twisting).

Yet another advantage is the immediate large asset creation that the
merger has brought in and one more is that ICICI which has comparatively
minimum presence in the South, is now assured of sizable network.

While ICICI boasted itself of 81 branches (as of March 2000),

totally networked Bank of Madura did not rest on its fifty seven year old history. It
had linked 141 branches out of a total of 269 via satellite and its management was
pro-technology unlike many a public sector bank. It had a low net NPA percentage
of 4.7 per cent to net credit (although high in comparison to ICICI's 1.14 per cent)
but it was inevitable given the fact it had a legacy of over fifty years to carry.
Against a deposit base ICICI's Rs. 9,866 cr. Bank of Madura's deposit base stood at
Rs. 3,631 crores and its gross advances were Rs. 2,037 crores while that of ICICI
Rs. 5,071 crores. This overnight asset would strengthen ICICI's financials.

Another group which feels queasy on the merger news is the large and medium-
sized borrowers at Bank of Madura. For many of them access to higher levels of
decision-making was easily available and were listened to by the executive cadre.
They are unsure as to how the new management would view them.
PROCESS OF MERGING:

1. Determine Growth Market and Services:

Leaders start the acquisition evaluation process by identifying

growth opportunities in business or service lines, markets served, or any
combination thereof. To determine growth markets and services, leaders
must collect and analyze extensive data, including the following: client
origin; demographics (population, age, employment/unemployment rates,
income); employers; other competitors; business, program, and service mix
(performance and profitability by service line); field staff; employees;
utilization/case mix (demand projections); competitive cost/charge position;
and consumer preferences/ opinions.

2. Identification of Merging Candidates:

The second step of the acquisition process involves the

proactive identification of the universe of potential merger or acquisition
candidates that could meet strategic financial growth objectives in identified
markets or service lines. This involves methodically identifying “likely
suspects” as well as “outside the box” possibilities based on management
experience, research, the use of consultants, and other methods.

3. Access Strategic Financial Position and Fit:

A comprehensive evaluation of the financial and credit

position of the target and the combined entities is based on solid utilization
and financial forecasts. The assessment focuses on volume, revenue, cost,
and balance sheet considerations.

At this stage following questions shall be answered,

 What are the likely benefits of a transaction with this acquisition target?
 What are the risks?
 How does this target compare to other targeted opportunities?
 4. Make a GO?NO-GO Decision:

Corporate leadership must determine the likely benefits and

drawbacks of the proposed acquisition or merger according to the questions
discussed earlier and make a high-quality decision. During the decision-making
process, leaders identify whether the strategic value-added case for a combined
entity is compelling enough to proceed (or not).

5. Conduct Valuation:

The fifth step in the acquisition process involves assessing the value
of the target, identifying alternatives for structuring the merger or acquisition
transactions, evaluating these, and selecting the structure that would best enable the
organization to achieve its objectives, and developing an offer. There are three key
valuation methods: discounted cash flow analysis, comparable transaction analysis,
and comparable publicly traded company analysis. To identify a realistic valuation
range, corporate leadership should select best suitable method.

6. Perform Due Diligence, Negotiate a Definitive Agreement, and Execute

Transaction:

Once an offer on the table is accepted, leaders of the acquiring

organization must ensure a complete and comprehensive due diligence review of
the target entity in order to fully understand the issues, opportunities, and risks
associated with the transaction. Due diligence involves a review of the target’s
financial, legal, and operational position to ensure an accuracy of information
obtained earlier in the acquisition process and full disclosure of all information
relevant to the transaction. After due diligence is completed, the parties negotiate
definitive agreements. Any regulatory approvals necessary for consummation of
the transaction are obtained and the transaction is closed During transaction
execution, the acquirer should monitor the acquisition or merger to ensure that the
negotiated transaction continues to meet the goals and objectives established for
the transaction at the end of the strategic assessment.
 7. Implement Transaction and Monitor Ongoing Performance:

The analysis seeks answers to such questions as,

 Will management make the tough operational changes required to achieve

the financial benefits?
 What are the HR implications? Is there constituent support (management,
board, service providers, community, and employees)?
 What are the legal and regulatory challenges (Court approvals, SEBI
Regulations, Tax implications, etc)?
 What are the financial, organizational, and community-related risks of
failure?

A successful merger or acquisition involves combining two organizations in an

expedient manner to maximize strategic value while minimizing distraction or
disruption to existing operations.

POST MERGER POSITION:

While the merger has completed the easier part of the operation,
the real issue starts now. As Ronald and Suzanne point out ``A management team
will eventually run the merged organization, but often no one is responsible for the
integration process itself - for charting how the two will combine their operations,
for seeing to it that the integration meets its deadlines and performance targets, for
educating the new people about the parent company, and vice versa.''

If anything, the market should react more on who is playing the

role of the Integration Manager than on the mere aspects of merger itself. It is only
when the acquisition strategy metamorphoses into a transformed dynamic
organization that one realizes the value of money invested, and that to happen the
role of the integration manager becomes purposeful.

Suzanne and Ronald point out that the Integration Managers help to speed up the
process create a structure forge social connections between the two organizations
and finally help short term successes to bring in business results. It is this
significant role that can create value addition to the scrip’s and as far as one can
see the attention of the media, the market and perhaps of the organizations
concerned them, are far from it! Small is no more beautiful.

A total integration of the business synergies before coming March could be the
best booster to the banking industry itself - for, it could lead to several such fusions
in the coming years. To otherwise talk of upswing in the banking scrip’s, it is too
early days.

CONCLUSION:

“Mergers increase value when the value of the combined firm is

greater than the sum of the pre-merger values of the independent entities. One of
the advantages of combining firms is that capabilities can be added more quickly
than by internal programs. With greater turbulence in the economic environment,
the pressures to adjust to change rapidly are increased. Mergers enable a firm to
adapt to change more rapidly than internal organic growth. Hence, more rapidly
changing environments create a greater potential role for M&As”.

The first benefit is the new technologies and new range of

products companies receive when they achieve M&A deals. The M&A transaction
is almost certain to be one of the most complicated deals in business market, which
requires a lot of energy from the Board of the buyer and the seller.

The second benefit that everyone respects to get in M&A deal is

the effective and efficient way to enter a new market, improve a new product line
and expand distribution system. The buyer can touch customers in the different
religion with the low cost and the strong brand identify through the current chain
store of the seller.

In conclusion, I want to emphasize the importance of M&A to

the development of corporations. M&A is really confirmed to be one of the most
useful methods to overcome current difficulties and improve the development of
companies. M&A really support for the growth of global economics, for it make
companies in crisis become bigger in capitals, human resources. Therefore, the
competition advantages of companies bring them to success and prosperity.
Mergers and acquisitions are extremely noticeable ways to tackle with difficulties
in the 21st century.