AMITY SCHOOL OF BUSINESS

AMITY UNIVERSITY, NOIDA, UTTAR PRADESH

PSDA REPORT 2
ON
PRE-MERGER & POST-MERGER ANALYSIS OF 1CICI BANK

Name of Student Enrollment No Class Roll No

YASH MITTAL A3923016021 15

Program: (BBA+MBA Dual Degree)

Course: Corporate Restructuring Mergers & Acquisition

Batch: 2016-2020

Faculty Supervisor: Dr. Harjit Singh

CHAPTER I: INTRODUCTION
Industrial Credit and Investment Corporation of India (ICICI) is the second largest
bank in India and the biggest in the private sector. It started its operations in 1994 as a
new generation private sector bank. ICICI Bank is the first Indian bank to be listed on
the New York Stock Exchange with US GAAP accounting and has a worldwide
presence including in the UK and Canada.

The present merger with Bank Of Rajasthan. is the 4th acquisition of ICICI Bank.
The other deals are:

ICICI Bank- Bank of Madura in 2000

ICICI Bank- ICICI Ltd in 2002
ICICI Bank- Sangli Bank in 2006
Focus: ICICI Bank aims at long-term wealth creation through ‘Cs’ strategy of
Current Account Savings Account (CASA) growth, cost control, credit quality and
capital preservation.

 BANK OF RAJASTHAN
 Bank of Rajasthan is an old private sector bank which has a strong presence in the
northern part of India with registered office at Udaipur, Rajasthan. It started its
operation in the year 1943.

 Branch network: Bank has a branch network of 466 branches out of which 280
were in Rajasthan with 4000 employees. Further, the bank sponsors Mewar
Aanchalik Gramin Bank (MAGB) which was established in 1983 under the RRB
Act, 1976.
 Asset base: The Bank’s asset base and number of customers stands at 173000
million and 3 million respectively as on 31st March 2010.

 Business: The total business amounted to 233,918 million and the business per
branch is 47 crore.
 Efficiency: BOR reported a net loss of 102.13 crore in 2009-10 against a profit of
117.71 crore in the previous financial year.
CHAPTER II: PRE & POST-MERGER

PRE-MERGER STRATEGIES
Prior to merger, ICICI bank’s main focus was on positioning its balance sheet for growth and
they also focused on 4 C’s: CASA, Costs, Credit, Quality and Capital. The overall aim has been
to- Defend market leadership through consolidation, Improve presence in Northern India to
become a truly pan-Indian bank, Improve top-line through increased customer acquisition,
Reduce non-performing assets from the current levels of 5.06%, and Improve Asset-Liability
Management. Also, ICICI Bank followed a strategy of ‘Product-focus’ prior to merger. In terms
of composition of advances, ICICI was focused on retail finance, services, petroleum,
infrastructure, iron & steel.
Unlike ICICI, Bank of Rajasthan main focus was to resolve internal troubles prior to merger. The
strategy of BOR has been to- improve Corporate Governance, Cut down the high credit costs and
employee costs to improve the bottom line, Improve the CAR to regulatory minimum, and
Improve branch presence. In terms of composition of advances, BOR had a strong focus on
infrastructure and metals & mining. BOR also had a strong presence in SMEs by virtue of the
location advantage of its branches and strong link-up with RRBs, especially in the sectors of
textiles, pharmaceuticals and chemical, and gems & jewellery.

Amalgamation of Bank Of Rajasthan

On May 23, 2010, the Board of Directors of ICICI Bank and the Board of Directors of The Bank
of Rajasthan Limited (BOR), an old private sector bank, at their respective meetings approved an
all-stock amalgamation of Bank of Rajasthan with ICICI Bank at a share exchange ratio of 25
shares of ICICI Bank for 118 shares (1:4.72) of Bank of Rajasthan. Deal envisages one ICICI
Bank share for every 4.72 of BOR’s.
The shareholders of ICICI Bank and Bank of Rajasthan approved the scheme of amalgamation at
their respective extra-ordinary general meetings. RBI approved the scheme of amalgamation
with effect from close of business on August 12, 2010.
2.1 Merger Analysis
ICICI bank approved merging of Bank of Rajasthan (BOR) with itself on 18 May 2010.
The share swap ratio was announced at 25:118 (25 shares of ICICI Bank for 118 shares
of BOR). The Reserve Bank of India on 13th August 2010 gave its nod to the merger.
Following the sanctioning of the scheme of amalgamation of Bank of Rajasthan with
ICICI Bank, all branches of BOR started functioning as branches of ICICI Bank with
effect from August13.
Deal
The amalgamation of Bank of Rajasthan by ICICI was a no-cash deal. The deal was
valued at ₹30.41 billion. Each share of BOR was valued at ₹189/- giving a premium of
around ₹90 per share. On price per branch basis, ICICI paid ₹65.7 million per branch.
ICICI offered the smaller bank’s controlling shareholders 25 shares in ICICI for 118
shares of Bank of Rajasthan.
Particulars Swap Ratio Outstanding Price per Market Deal Value
Shares share before Capitalization (Crore)
(crores) announcement (crore)
ICICI 25 111 ₹889.35 ₹99221 ₹3041
BOR 118 16 ₹99.5 ₹1597

2.2 Merger Announcement

The present deal appears more favorable to BOR since their shareholders gained almost
90% between 07.05.2010 (the start of merger negotiations) and 23.05.2010 (Board
Meeting approval).

Particulars ICICI Bank Bank of Rajasthan

Swap ratio 1:4.72 ( 25:118)
Price before a day of 901.10 82.85
merger announcement
Price on the day of merger 809.20 99.45
announcement
Price after a day of merger 824.45 119.35
announcement
Source: Economic Times and website of NSE

2.3 Financial performance of ICICI Bank Pre-Post-merger

Table : Pre-Post-merger Financial Performance of ICICI Bank

Pre-Merger Period
Post-
 Particulars Ratios of ICICI Bank Ratios of Bank of Merger
(Acquirer or Parent Rajasthan (Target Period
company) Company)
Mar Mar Mar Mar Mar
Mar '10 Mar '11
'09 '08 '10 '09 '08
Investment Valuation Ratios
Dividend Per Share 12 11 11 -- 0.2 0.5 14
Operating Profit Per Share
49.8 48.58 51.29 -8.47 8.73 9.26 64.08
(Rs)
Net Operating Profit Per
293.74 343.6 354.71 88.57 90.34 82.57 281.04
Share (Rs)
Free Reserves Per Share
356.94 351 346.21 8.88 15.77 16.57 358.12
(Rs)
Profitability Ratios
Interest Spread 5.66 3.66 3.51 4.65 7.03 5.53 4.01
Net Profit Margin 12.17 9.74 10.51 -6.85 7.81 9.75 15.91
Return on Investment (%) 44.72 56.72 62.34 177.5 185.5 173 42.97
-
7.79 7.58 8.94 18.29 21.75 9.35
Return on Net Worth(%) 18.86
Return on Assets Excluding
463.01 444.9 417.64 33.55 39.88 39.38 478.31
Revaluations
Return on Assets Including
463.01 444.9 417.64 58.04 64.8 69.81 478.31
Revaluations
Management Efficiency Ratios
Interest Income / Total
8.82 9.82 10.6 8.47 9.05 8.08 8.41
Funds
Net Interest Income / Total
4.08 3.99 4.29 2.4 2.85 2.73 4.01
Funds
Non Interest Income / Total
0.08 0.08 0.02 0.36 0.3 0.51 --
Funds
Interest Expended / Total
4.74 5.83 6.31 6.08 6.2 5.36 4.41
Funds
Operating Expense / Total
2.59 2.6 2.76 3.21 1.98 1.82 2.09
Funds
Profit Before Provisions /
1.41 1.3 1.4 -0.52 1.11 1.34 1.77
Total Funds
Net Profit / Total Funds 1.08 0.96 1.12 -0.61 0.73 0.84 1.34
Loans Turnover 0.17 0.18 0.2 0.18 0.19 0.17 0.17
Total Income / Capital
8.9 9.9 10.62 8.83 9.35 8.6 8.41
Employed(%)
Interest Expended / Capital
4.74 5.83 6.31 6.08 6.2 5.36 4.41
Employed(%)
Asset Turnover Ratio 0.1 0.11 0.12 2.21 2.29 1.78 0.09

Profitability Ratios
Interest Expended / Interest
68.44 73.09 76.28 75.36 72.16 70.09 65.29
Earned
Other Income / Total
0.92 0.86 0.17 4.06 3.25 5.99 0.02
Income
Operating Expense / Total
29.05 26.22 26 36.34 21.12 21.18 24.81
Income
Balance Sheet Ratios
Capital Adequacy Ratio 19.41 15.53 13.97 7.52 11.5 11.87 19.54
Advances / Loans Funds(%) 58.57 69.86 72.67 55.07 53.42 59.91 64.96
Debt Coverage Ratios
Credit Deposit Ratio 90.04 91.44 84.99 53.26 52.4 53.26 87.81
Investment Deposit Ratio 53.28 46.35 42.68 44.73 39.74 33.93 59.77
Cash Deposit Ratio 10.72 10.14 10.12 5.89 6.59 7.34 11.32
Total Debt to Owners Fund 3.91 4.42 5.27 27.82 23.6 26.15 4.1
Leverage Ratios
Current Ratio 0.14 0.13 0.11 0.02 0.01 0.01 0.11
Quick Ratio 14.7 5.94 6.42 7.5 8.8 9.6 15.86
Cash Flow Indicator Ratios
Dividend Payout Ratio Net
37.31 36.6 33.12 -- 3.2 6.82 35.23
Profit
Dividend Payout Ratio Cash
32.33 31 29.08 -- 2.91 6.22 31.76
Profit
Earning Retention Ratio 61.4 63.23 66.35 -- 96.8 93.16 64.49
Cash Earning Retention
66.7 68.87 70.51 -- 97.09 93.77 68.01
Ratio
Adjusted Cash Flow Times 44.79 49.41 52.34 -- 117.1 109.74 39.77
36.1 33.76 37.37 7.3 8.57 44.73
EPS -6.33
Book Value 463.01 444.9 417.64 33.55 39.88 39.38 478.31
2.4 Analysis of ratios
The above table shows the position of ICICI Bank and Bank of Rajasthan Ltd. During pre
and post-merger period, ICICI Bank acquired Bank of Rajasthan Ltd., raising the share
value of ICICI Bank to new heights and making the former a stronger bank with a
stronger balance sheet.
1. Operating Ratio: Operating ratio which was 29.05% for ICICI Bank pre merger
while it was 36.34% for Bank of Rajasthan. Post-merger the ratio changed to
24.81% indicating a decline. This clearly indicates that the Company has realized
some losses which might be due to the high costs incurred during the merger
period.

2. Net Profit Ratio: Net profit ratio for the acquirer company before merger was
12.17% while the net profit ratio for the acquired company was 10.04%. During
post-merger the Net Profit ratio was 15.91% which shows a significant increase
from 12.17% to 15.91% and a clear communication that the company has made
profits after merger. It can be suggested that the company has gained monopoly
and the advantages of goodwill are helping the company gain some substantial
profit.
 3. Debt Equity ratio: of Debt-Equity ratio before merger for the acquirer company
was 3.91 and that of the target company was 27.82. Post-merger the ration had
declined to 4.10.

2.5 Common size Financial Statements

Table : Common Size Profit and Loss Account of ICICI Bank

Pre-Merger Period Post-Merger Period
Particulars Mar Mar
Mar '08 '09 '10 Mar '11 Mar' 12
Income          
Interest Earned 78% 79% 78% 79% 81%
Other Income 22% 21% 22% 21% 19%
Total Income 100% 100% 100% 100% 100%
Expenditure          
Interest expended 59% 58% 53% 51% 55%
Employee Cost 5% 5% 6% 9% 8%
Selling and Admin Expenses 15% 15% 18% 11% 7%
Depreciation 1% 2% 2% 2% 1%
Miscellaneous Expenses 9% 10% 8% 12% 13%
Operating Expenses 27% 28% 31% 26% 21%
Provisions & Contingencies 3% 5% 4% 7% 8%
Total Expenses 90% 90% 88% 84% 84%
Net Profit for the Year 10% 10% 12% 16% 16%
Profit brought forward 3% 6% 9% 10% 12%
Total 13% 16% 21% 26% 28%
Appropriations          
Transfer to Statutory Reserves 3% 5% 6% 5% 6%
Transfer to Other Reserves 0% 0% 0% 0% 0%
Proposed Dividend/Transfer to
Govt 3% 4% 5% 5% 5%
Balance c/f to Balance Sheet 6% 7% 10% 15% 17%
Total 13% 16% 21% 26% 28%
Table : Common Size Balance Sheet of ICICI Bank
Pre-Merger Period Post-Merger Period
Particulars
Mar '08 Mar '09 Mar '10 Mar '11 Mar '12
Capital and
Liabilities:          
Total Share
Capital 0.37% 0.39% 0.31% 0.28% 0.24%
Equity Share
Capital 0.28% 0.29% 0.31% 0.28% 0.24%
Preference
Share Capital 0.09% 0.09% 0.00% 0.00% 0.00%
Reserves 11.35% 12.77% 13.90% 13.28% 12.51%
Net Worth 11.71% 13.15% 14.20% 13.56% 12.75%
Deposits 61.14% 57.57% 55.59% 55.54% 53.94%

BORrowings 16.42% 17.75% 25.94% 26.97% 29.59%

Total Debt 77.56% 75.32% 81.53% 82.50% 83.54%
Other Liabilities
& Provisions 10.73% 11.53% 4.27% 3.94% 3.71%
Total
Liabilities 100.00% 100.00% 100.00% 100.00% 100.00%
Assets          
Cash &
Balances with
RBI 7.35% 4.62% 7.57% 5.15% 4.32%
Balance with
Banks, Money
at Call 2.17% 3.28% 3.13% 3.25% 3.33%
Advances 56.43% 57.56% 49.86% 53.26% 53.57%
Investments 27.88% 27.17% 33.27% 33.15% 33.69%
Gross Block 1.76% 1.96% 1.96% 2.24% 1.99%
Accumulated
Depreciation 0.73% 0.96% 1.07% 1.07% 1.02%
Fixed Assets 1.03% 1.00% 0.88% 1.17% 0.97%
Other Assets 5.15% 6.37% 5.29% 4.02% 4.12%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

CHAPTER III: CONCLUSION

Base on the above merger case we can conclude that :
 From the shareholders point of view of Profitability the ICICI Bank attained
positive results in the post-merger period.
 The merger increased the market value of ICICI Bank which indicates that the
merger had generated synergy.
 The earnings growth after merger was found at much higher rate resulted in value
addition to shareholder
 A substantial dividend growth was observed after merger in ICICI Bank.