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Mergers of Bank

Mergers:

Mergers has been defined as an arrangement whereby the one company


(which may or may not be one of the original two companies), which has, as its
share holders, all or substantial all the share holders of the companies, it may
also include fusion of two or more companies into other.

In merger one or two existing companies merger its identify into another
existing companies form a new company , or one or another form a new
company and merger there identify into another existing company.

Definition:

The term Merger, Acquisition and take over are all parts of the Merger
parlance. In a merger, the companies come together to combine and share
their resources to achieve common objectives , shareholders of the combining
firms often remain as joint owners of the combined entity, an acquisition
resembles more of arms- length deal, with one firms shareholders creasing to
be owners of that firm.

In a merger, a new entity may be formed subsuming the merging firms,


whereas in an acquisition the acquired firm becomes the subsidiary of the
acquirer firm.

Types of Mergers:
Form an economics standpoint, different types of merger can be grouped on
the basis of their stage of economic of the form.

1 Horizontal merger
2 Vertical merger
3 Conganaric merger
4 Conglomerate merger

The situation may be illustrated as under:

There are two companies A and B, which decide to merge:

Option 1: where A co. Merges with B co. Combined merged co. Emerges as
B Ltd.

Option 2 : Where B co. Merges into A co, combined merged company


emerges as A Ltd.

Option 3: A co and B co. Both merges to formed a new company C


combined merged companies emerges as C Ltd.

Merger is a marriage between two companies of roughly same size. It is tyhus,


one of the various forms of corporate restructuring modes.

In details the types of merger are as follows.

1 Horizontal mergers
2 Vertical mergers
3 Conglomerate mergers
1 Horizontal Mergers

This types of merger involves two firms that operate and compete in a similar
kind of business. The merger is based on the assumption that it will provide
economies of scale from the larger combined unit.

Example: Glaxo welcome plc. And smithkline Beecham Plc.

2 Vertical Mergers:

Vertical mergers take place between in different stages of production /


operation, either as forward or backward integration. The basic reason is to
eliminate costs of searching for prices, contracting, payment collection and
advertising and may also reduce the cost of communication and coordinating
production. Both production and inventory can be improved on account of
efficient information flow within the organization.

List of Bank Merger

Year Merged Bank Acquiring Bank


1969 Bank of Bihar State bank of India
1970 National bank of Lahore State bank of India
1974 Hindustan mercantile United bank of India
bank
1975 Gauhati bank Porbanehal banl
1976 Belgaum bank United bank of India
1976 Jharia industrial Bank United commercial bank
1988 Lokshmi Bank Canara Bank
1988 Traders Bank Bank of Baroda
1993 New bank of India Punjab national Bank
1994 Bank of Karad Bank of India
1996 Kashinath seth bank State bank of india
1997 Baari doab bank Oriental bank of
commerce
1999 Bareily corporation bank Bank of Baroda
2004 Global trust bank Oriental bank of
commerce
2005 FEB India ocean international State bank of India
bank

Case Study:

ICICI and BANK of Madura

The takeover of bank of Madura (BoM) by ICICI Bank has been the second
success story in the banking industry after the takeover of Times bank by HDFC
Bank last year. The board of Directors of ICICI Bank and Bank of Madura (BoM)
approved the merger of the two banks at their respective meetings held on
11th December and agreed to a share swap ratio of two shares of ICICI bank for
one share of BoM.

The arnalgamation scheme was placed for approval at the meeting of


shareholders of the two banks on January 19. The proposed date of merger
was February 1 ,2001 . ICICI Bank Limited has fixed Wednesday , April 11,2001
as the Record dateto determine the shareholders of Bank of Madura Limited
who would be entitled to receive the entity shares of ICICI Bank.

ICICI Bank was third time lucky after two earlier attempts of merger. The first
was a proposed merger with Centurion Bank, which fizzled out after the banks
promoters asked for higher valuations, the second a recent reverse merger
with parents ICICI. The integration exercise was scheduled to be completed by
September 2001.

Before we move onto why the two banks decided to merge. Let us look at why
ICICI decided to merge with Bank of Madura?
ICICI Bank has been scouting for a private banker for merger.

Though it had 21 percent of stake, the choice of Federal Bank, was not
lucrative due to the employee size (6600), per employee business is as low at
RS. 161 lakhs and a snail pace of technical up gradation, while, BOM had an
attractive business per employee figure of RS. 202 lakhs, a better technological
edge and had a vast base in solution India when compared to Federal Bank.

Reasons for the merger:

BoM was bankrupt (with assets which are RS. 350 crores behind
liabilities) and had a leverage of 41 times. If it were to be brought up to a
point where its assets were 10% ahead of liabilities, which is broadly
consistent with the Basle Accord , this would require an infusion of RS.
800 crores of equity capital, which be impossible for them to rise.
BoM had network, which ICICI Bank wanted. They had many regional
branches, which would help ICICI increase their reach in the regional