4

Content Page No.

Executive summary 5

Introduction 6

Methodology and Data 8

Objective of the Project 9

History of Banking Sector 10

Merger and Acquisition defined 12

Data Analysis and Interpretation 21

Gains and Loss in M&A 40

Social Issue 42

Conclusion 47

Bibliography 49
 5

Executive Summary

Merger is a combination of two or more companies into one company. One or more
companies can merge with an existing company or they can merge together to form a new
company. The acquiring company, (also referred to as the amalgamated company) acquires
the Assets and liabilities of the target company (or amalgamating company). Generally,
shareholders of amalgamating company accept shares of the Merged company in return of
their shares in the amalgamating company.

There are two ways which company can grow; First is internal growth and second is
external growth. The internal growth suffers from drawbacks like problems of raising
adequate Finance, longer implementation time of the projects, etc. To overcome these
problems a company can, grow externally by acquiring the existing business firms. This is
the route of mergers and acquisitions.

The objective of this project is to study the mergers and acquisitions and as to why
organizations undertake the inorganic mode of expansion. Also, we will study the operating
performance and shareholder value of amalgamated company and compare their
performance before and after Merger.

I will concentrate on the Indian banking sector to test the hypothesis that merges
improve operating performance of acquiring company and to evaluate whether it creates
any shareholders value. However, on studying the case I conclude that mergers do not
improve financial performance at least in the immediate short term also, shareholders of the
target company get benefited more than the acquired company.
 6

Introduction

In today's market the main objective of the firm is to make profits and create shareholders
wealth. Growth can be achieved by introducing new products and services or by expanding
its present operation on its existing products. This growth can be achieved with the help of
mergers. The mergers and acquisitions as an external growth strategy has again in
popularity in recent years due to globalization, liberalization adopted by several companies
over the world. India also has witnessed a Storms of merger and acquisition in recent years.
The financial Act 1999 clarified many issues relating to business reorganizations thereby
facilitating and making business restructuring tax neutral.

The merger and acquisition in banking sector has become admired trend round the
country. A large number of private sector banks, PSU’s and other banks are engaged in
M&A activities in India. The main reason behind M&A in the Indian banking sector is to
reap the interest of Economies of scale. M&A have played an important role in
transforming the face of the banking sector of India.

Mergers and acquisitions are considered as a relative very rapid and systematic
approach to develop in new markets and bring in new technologies. For a firm the main
motive to M&A is to sustain and strengthen their position in the Market. M&A have played
a major hand in restructuring the corporate and Financial Services industry. We can find
many evidences that their success is by no means a sure. Pressure on the employees of
banks around the world have indeed been multiple times across, entry of new players and
products with superior Technology, globalization of financial markets, changing
demographic customer behavior, consumer pressure for wider choice and low-cost service,
shareholder wealth demands, shrinking margins.
 7

According to Finance Minister (FM) this has been done to accelerate internal
liberalization and to release productive energies and creativity of Indian businesses. The
years 1999-2000 has notched up deals over Rs.21000 Cr. In Indian corporate sector this
level of activity was never seen. Media, InfoTech, Pharma, cement, Banking and power are
the sectors which are more active in mergers and acquisitions.
 8

METHODOLOGY AND DATA

For the purpose of this project archival research strategy has been used. This research does
make use of existing research done on banking sector mergers and acquisitions. This
strategy focus on past and current changes, is it exploratory, descriptive or explanatory. The
project primarily relies on Secondary Data. When a researcher is expected to further
analyses the data that has been collected already for some other purpose, such data are
known as secondary data. It includes both the raw data & published summaries. For the
purpose of this project I have gathered the required data from websites of ICICI bank,
HDFC bank, Kotak bank, and Money Control and various other sources. The study is
carried out over various years by using Accounting Based Approach using different
financial parameters and Ratios. The pre-merger and post-merger averages for a set of key
financial ratios were computed for 3 years prior to, and 3 years after, the year of merger
completion. For the years prior to a merger, the key financial ratios of the acquiring firm
alone are considered. Post the merger, the operating ratios for the combined firm are taken.
 9

Objective of the Project

Primary objective:

➢ The main objective of the study is to analyses the merger and acquisition in the
banking sector in India.

Secondary objective:

➢ To study post-merger analysis of financial performance.

➢ To understand the difficulties & challenges faced during merger and acquisition in
India.
➢ To study merger and acquisition in banking sector
➢ To study social issues faced during and after Merger.

Research design:

➢ There are three types of research: causal design, descriptive design, exploratory
design. In this project, I have used descriptive research design.

Sources of data:

➢ There are two sources of data: primary and secondary data. I have used secondary
data for merger and acquisition in the banking sector in India.

Samples Taken:

➢ Merger of ICICI Bank and Bank of Rajasthan

➢ Merger of HDFC Bank with Centurion Bank
➢ Merger of kotak Mahindra bank and ING vysya bank
 10

History of Banking Sector

In the year 1870, bank of Hindustan was set up. Later under the Presidency banks Act
1876, three presidency banks namely the Bank of Calcutta, Bank of Bombay and Bank of
Madras were set up. Foundation of modern banking in India was laid down by these banks.
In the year 1921, these three banks merged and formed the Imperial Bank of India, which
later became the State Bank of India in 1995. The RBI was not established at the time and
therefore these banks carried out the few of Central Banks functions. They were engaged in
commercial banking business of all types but they did not engage in dealing with foreign
exchange.

In the year 1934, the Reserve Bank of India act was passed, and the RBI was given
the status of an apex body. Later in 1949, the Banking regulation act was passed which
brought RBI under Government control and was authorized to control and supervise the
commercial banks. Besides the act empowered RBI to conduct timely inspections of the
commercial banks. The RBI acquired control of the Imperial Bank of India in 1955 which
came to be known as The State Bank of India. Later in the year 1959 SBI took over eight
private banks. In 1969, govt. of India nationalized 14 banks. Later in 1980, government
acquired six more banks. Bank is the backbone of growth of a country’s economy. The
Indian banks have faced many economic crises. A lot of changes were brought about by
means of rules and regulations to prevent Indian banks from the economic crisis. In the
recent times, the banking scenario in India has become very dynamic. The Reserve Bank of
India was nationalized in 1949. Also, the Bank regulation act empowered RBI to inspect
and control all the commercial banks in India. In 1990’s, a few private sector banks were
given the license during Narsimha Rao government.
 11

The Narsimhan Committee came up with the following suggestions, on April 23,
1998, regarding the reforms in the Indian Banking Sector,

● It stresses on the use of merger among banks, to enhance the operational

strength, Reach and size, for each of the banks.
● It recommended that the legal framework needs to be stringent, if we want to
aim for credit recovery.
● It promotes automation and computerization in banking sector
● They recommended that the bank Merger should take place among banks of
similar size
● Also, they merger of large banks to make them strong so that they can
compete in the international markets
● The committee recommended that there should be 2 to 3 e banks in India
which are oriented internationally and 8 to 10 national banks with a vast
network of local banks to help the banking sector reach remote locations

● Reevaluation of the method of training process, staffing and the salary policy
of Public Sector Banks and stressed on professionalization of banking boards.
● Mergers between banks need to be based on synergies and should make a
sound commercial sense. It is also proposing that mergers should not be seen
as a way of bailing out on weak banks.

● It emphasized on a transparent mechanism to decide the ability of promoters

to manage the banks professionally.
 12

Merger and Acquisition defined

Mergers and acquisitions (M&A) are basically executed to increase profits, Tax benefits,
expand the organization and save the company facing losses. M&A is a life saving
techniques for these companies. Mergers and acquisitions represent the ultimate in change
for a business. No other event is more difficult and challenging as a merger and acquisition.
It has become a normal routine in life and people are more likely used to them. In today's
global and competitive environment mergers have become the means for long term
survival. Any merger or acquisition calls for great management survey and skills. The
employee related problems, inherent in any corporation are escalated many times by the
stress, anxiety, disruption and sacrifice caused by joining two corporations together.

Mergers and acquisitions seem a name normally pronounced together but in reality,
two words having two different meanings. Mergers on one hand are more on a positive side
whereas acquisitions are more of hostile nature. When we talk about a 'merger', we are
referring to the merging or getting together of two companies where one company will
continue to exist. Merger and acquisition are a financial tool that is used for enhancing
long-term profitability by expanding their operations. Mergers happens only when the
merging companies have mutual accord as different from acquisitions. The terms ‘merger’
is the combination of two or more separate firms into a single firm. The firm that results
from the process could take any of the following identities: Acquire target or new identity
Acquisition on the other hand, takes place where a company takes over the controlling
shareholding interest of another company.
 13

"The fusion of two or more enterprises through direct acquisition by one of the net assets of
the other or others. In a merger no new concern is created." Eric L. Kohler.

On the other hand, 'Acquisition' refers to acquiring of assets of acquisition is a corporate

action in which a company buys all or most of the company's ownership in order to have
control over the targeted firm. In simple terms, an acquisition is when one company takes
over or purchases another company while a merger is a consensuane company by another.
In acquisitions, the acquiring company will remain in the business and the acquired or the
targeted company will be integrated into the acquiring company. A situation wherein two
companies agree to continue business operations and go forward as a single new company.

"An acquisition is said to occur if one corporation buys either assets, net assets (assets -
liabilities) or stock of another corporation." Robert N. Anthony

"A series of transactions whereby a person (individual, group of individuals or

company) acquires control over the assets of a company, either directly by becoming the
owner of those assets or indirectly by obtaining control of the management of the
company." Thus, a Takeover is similar to an acquisition. It also implies that the acquirer is
much larger than the acquired.

"A combination under a single head of all or a portion of assets and liabilities of two or
more business units by merger or consolidation." Eric L. Kohler
 14

Types of Mergers & Acquisitions

Mergers are generally classified into 3 types i.e. horizontal, vertical or conglomerate mergers.
These types differ in their characteristics and their effects on the Organizations Performances

Horizontal Mergers
Mergers of companies in similar business or product lines are termed as horizontal mergers.
These mergers help to elimination of the competitors, leads to an increase in the market
share of the acquirer & to a degree also the concentration of the industry (M&A, Milford
Green, 1990). However, there are strict laws and rules being enforced to ensure that there is
fair competition in the market and to limit concentration and misuse of power by
monopolies and oligopolies. In addition to increasing the market share, horizontal mergers
often used to protect the dominance of an existing firm. Horizontal mergers also help in
improving the efficiency and economies of scale of the acquirer firm.

Horizontal mergers have been the most important and prevalent form of merger in
India. Post liberalization (1994) more than 60% of mergers have been of horizontal type.
 15

Vertical Mergers
A vertical merger is the coming together of companies at different stages or levels of the
same product or service. Generally, this type of merger is done with an objective to ensure
the sources of supply. In vertical mergers, the manufacturer and distributor form a
partnership. This makes it difficult for competitor companies to survive due to the
advantages of the merger. The distributor need not pay additional costs to the supplier as
they both are now part of the same entity. Such increased synergies can make business
extremely profitable & help drive out competition.

Conglomerate Mergers

Conglomerate mergers occur between firms that are unrelated by value chain or peer e
would competition. Conglomerate mergers are formed with the belief that one central office
will have the know-how and expertise to allocate the capital and run the businesses better
than how it would have been run independently. The main motive behind the formation of a
conglomerate is risk diversification as the successful performers balance the badly
performing subsidiaries of the group. Conglomerate mergers can also be explained as a
merger between companies which does not have a buyer seller relationship and also not
competitors. The conventional observation is that such mergers are not very successful.
 16

Motives of Merger

Factors affecting mergers change with change in legal political and economic and social
environment. Business organizations has identified two common reasons which are derived
out of merger and acquisition that is Efficient Gain (EG) and Strategic Rationale (SR). EG
Means the merger would result in benefits in the form of Economies of scale and
Economies of scope. These are achieved because of the integration of volumes and
efficiencies of both the companies put together. Also, the strategic rationale is derived from
the mergers and acquisitions activity that would lead to change in the structure of the
combined entity, which would have a positive impact on the profits of the firm.

However, there are various other factors that lead to mergers and acquisitions.
These factors are as below.
 17

Synergy
Energy has been described as 2 + 2 = 5 meaning the whole would be greater than the sum
of its parts. It indicates that the integrated handling of different activities in a single
combined organization is better than what it would be in 2 distinct entities. The word
synergy comes from a Greek word that means to cooperate and work together. Mergers also
revolve around the same concept where two companies come together and pool their
resources to perform better. Estimating the effect of synergy is an important decision in the
merger process, For the following reasons,

a) Mergers are meant for value creation and hence assessing the future value that
would be created in the Merger by this synergy is important.
b) How investors would react to the Merger deal is also an important consideration
c) Merging organizations need to disclose these Strategies and benefits of such deals to
the investors and hence their information and knowledge needs perfection.
d) For developing post-merger strategies

Synergies can be further classified as financial operational and managerial.

Operational synergy
Mergers are generally carried out keeping operational synergies in mind. Operational
synergies deal with those class of resources that led to production and administrative
efficiency. Operational synergy e NB referred to as a combination of Economics of Scale
that reduces the overall average cost as a result of efficient use of resources which helps the
company to generate or create more output from the same amount of input.
 18

Financial Synergies

Financial synergy deals with reducing the cost of capital newly merged companies. Which
In turn leads to increased borrowing power. Conglomerate merger generally focuses on FS.
It increases the output for individual unit monitored by a centralized company beyond what
could have been achieved buy a separate competing individual company. Decrease of
conglomerate Merger, financial Synergy can bring various other advantages like stable cash
flow, insurance gain and tax advantages.

Managerial Synergy

When the management team of 2 firm comes together to produce higher efficiency as a
result, then it is called as Managerial Synergy. Managerial expertise are results of coming
together of 2 different teams with different strength. This synergy can be seen when
competitively relevant skills possessed by managers of previously separate companies can
be successfully transferred to the merged entity
 19

Diversification
Diversification means expansion of operation of firms through the merger in unrelated lines
of business. Such mergers are called conglomerate mergers. This works in favor of
companies who are looking to reduce their risk. This risk from a point of view of
shareholders can be seen as business risk, insolvency risk, etc.

Growth
Growth is vital for any firm to succeed. Growth implies expansion of a firm’s operation in
terms of sales, profit and assets. When a company is unable to grow internally because of
resource and management constraints, it can grow externally by taking over the operations
of another company. Thus, the Companies shift their focus towards mergers and
acquisitions. Although mergers and acquisitions sound easier than organic growth, there are
actually many risks involved in cultivating the expected profits.

Limit competition and exploiting factor markets

Merger can give controlling power to the merged entity. Thus, by limiting competition, it
can earn supernormal profits. Through Merger not only they acquire the customer base of
the other bank but also widens their reach to customers.
 20

Financing
Sometimes internal growth may not be possible due to financial constraints. If operations of
other company can be acquired by the exchange of shares then financial and external
growth becomes easy.

Taxation
The urge to minimize tax liability may also cause the merger of two companies. It is often
seen that large profitable organizations merge or acquire some small loss-making ones to
help them reduce tax expenditure. Merger deals structured through share swap do not
attract any tax liabilities while in an acquisition the cash money is paid for acquiring the
shares and thus attracts capital gains tax.

Personal reasons
There may be a number of personal motivations, with or without economic substance, for
merger activity. For example, owners of a closely held firm may like to be acquired by a
widely held company whose shares are well distributed and well traded in the stock market.
This allows them to diversify their portfolio and improve liquidity of their holdings.
 21

Data Analysis and Interpretation

Financial Statement and Ratios Analysis

The success of a company depends upon its financial health and the financial statements
disclosed periodically by the company helps us determine its profitability. Mainly the
financial statements provided by the company are balance sheet and profit and loss account.
Prior gives us Structure of assets and liabilities while the latter tells about its earnings. The
balance sheet portrays a financial position of the company on the last day of accounting
year. Profit and loss account also known as income statement reveals the revenue generated
and costs incurred to the company also resulting profits or losses in the company in one
accounting year. The EPS is the most important figure for most of the investor Which is
mentioned in the income statement.

Ratios measures banks performance and ascertain its ability to generate profits.
Different ratios can be used to measure a variety of aspects of a company health and
performance. We will analyses the pre and post-merger condition of banks to find out
whether these mergers helped these banks create value for its stakeholders and its
customers. In any business poppy seeds are used to fund the development of that business
and pay dividend to the shareholders, profitability ratios indicate exactly how efficient the
company is at generating profit which is the most important aspect of all the shareholders.
profitability ratio also measures how a bank uses its assets I am manage its expenses. The
ratios are indicators for good or bad financial health of the bank and its asset utilization.
following ratios have been taken into consideration to analyses the banks performance
 22

1. Operating Profit Margin = Operating Profit/Sales × 100

2. Net Profit Margin = Net Profit/Sales × 100
3. ROA =Net Profit/Total Assets × 100
4. ROE =Net Profit/Equity Shareholders Funds × 100
5. Debt Equity = Total Debt/ Shareholder Equity
6. Dividend Payout =Dividend / Net Income X 100
7. CEPS = (PAT + Depreciation) / No. of Shares
8. ROCE= PBIT/ Capital Employed
9. EPS=PAT/No. of Shares
10. RONW= PAT/Net worth
11. ROI=net profit /total Investment
 23

ICICI Bank and Bank of Rajasthan

On Aug 13 2010, ICICI announced the amalgamation of BoR with ICICI. In this Merger of
ICICI is the Acquirer and BoR is being Merged in ICICI. The promoters of bank of Rajasthan
were under tremendous pressure from the regulatory authorities of India to restructured the
bank for a variety of reasons from 2009 onwards. Due to this bank of Rajasthan decided to
merge with ICICI Bank, the 2nd largest in India, who was looking for a target to increase their
customer base in Northern India. To analyses the financial performance of ICICI Bank post-
Merger we will do ratio analysis of the bank before and after Merger.

ICICI Bank

ICICI Bank has been using merger as a strategy to develop themselves, to increase their
customer base, geographical coverage and meet regulatory requirements since 2000 has
become the 2nd largest bank in India and the largest in private sector. ICICI Bank ok was
first instituted in 1994, it was the first bank to be listed on the New York stock exchange
having a worldwide present including UK and Canada.

Its merger with bank of Rajasthan is 4th Merger of ICICI Bank prior to this it has
acquired Bank of Madura in 2000, ICICI Limited in 2002, Sangli Bank in 2006. With this
merger ICICI aims for long term wealth creation through CASA growth, cost control, credit
quality and capital preservation.

At the end of fiscal year 2010 the number of branches and ATM count for ICICI
was 1709 and 5219 respectively and employ count of 37000. Total business amounts to Rs.
3832222 million.
 24

Bank of Rajasthan

Bank of Rajasthan was an old private sector bank having a strong presence in Northern part
of India. It started its operation in year 1943. At that time, they had branch network of 466
with 4,000 employees. Further they were sponsoring Mewar Aanchalik Gramin Bank
(MAGB). The bank head and customer base of 3 million and its total business amounted to
Rs. 233918 million. BoR reported Rs. 102.13 crore loss in FY 09-10.
25
26
 27

ICICI Bank Pre-Merger Post-Merger

Avg. Avg.

Operating
Profit Ratio 24.1 27.6

Net Profit
Ratio 10.9 17.0

ROA 1.1 1.6

ROE 8.9 10.4

EPS 36.4 71.1

Debt to
Equity 4.5 4.3

Dividend
Payout 35.7 30.2

Share Price 685.3 1059.0

28
 29

Above Table and Graph shows the analysis of financial performance of ICICI Bank
pre and post-merger with Bank of Rajasthan. The analysis is based financial ratios. It can
be clearly seen that there is a difference in the performance of ICICI after the merger. There
is an increment in the average Operating Profit Margin from 24.10% to27.65%. In Net
Profit Margin there is an increment of 6% (10.90 vs 17%), Return on Assets moved from
1.1 % to 1.6%. Increment in EPS was 36.43% to 71.07%, in ROE it was 1.4% i.e. from 8.9
% to 10.35% after the transaction. While in case of Dividend Payout Ratio and Debt Equity
Ratio there is no significant difference even after the transaction. Share Price of the bank
have shown a steady increment throughout the post-merger period and the average Share
Price went to 1059 Rs from the pre-merger price of 685 Rs, which reflects the favorable
impact of this Merger.
 30

HDFC Bank with Centurion Bank

Housing Development Finance Corporation (HDFC) was established in the year of

liberalization 1994. At the time of Merger with Centurion bank, HDFC had a branch
network of 754 and Centurion had a branch network of 394 branches. ICICI which is a
close competitor of HDFC had a branch network of 955 at the time. That means HDFC
became the largest bank in the private sector with branch network of 1148. The merger took
place in early 2008 for which the swap ratio was 1:29.

HDFC acquired combined asset size of Rs.110000 crores. The balance sheet size of
HDFC Bank grew to 150000 crores. According to Deepak Parekh (Chairman of HDFC and
the time),” It’s a Win-Win situation for all stakeholders, shareholders, employees and
customers of the bank”. Prior to this merger HDFC banks had previous experience of
acquiring Times Bank whereas Centurion Bank of Punjab had earlier experience of
acquiring Lord Krishna Bank and merger of Centurion Bank with Bank of Punjab. With
this merger HDFC achieved Geographical synergy i.e. addition of significant branch
network and which brings a lot of CASA growth for the bank. Only downside of this not
there for HDFC Bank is the NPA’s from the books of Centurion Bank.

From the ratio analysis pre and post-Merger given below, it can be clearly scene
that HDFC’s took a beating on parameters like operating profit, net profit, ROCE and
RONW. Still there is a significant increase in EPS and PE ratio which is due to the
significant profits made by the company. Overall stakeholders of HDFC Would be happy
with company's performance under the given circumstances.
31
32
 33

HDFC Bank Pre-Merger Post-Merger

avg avg

Operating Profit
Ratio 39.50 30.85

Net Profit Ratio 24.20 14.70

RONW 20.50 14.35

ROCE 2.67 2.50

EPS 35.54 48.87

Debt to Equity 10.55 9.41

PE 20.93 26.01
34
 35

Kotak with ING Vysya

Kotak Mahindra Bank Limited

Kotak Mahindra Finance Capital Management Limited Was established in 1985, as a non-
banking financial services company of the Kotak Group. It was the first ever NBFC to be
converted into a bank. Despite its ordinary beginnings, today its one of the fastest growing
banks in India. Kotak provides commercial banking services, investment banking services,
consumer banking services and other financial services. It had 15 subsidiaries and a few
joint ventures across the world, and 600 branches at the time of merger.

ING Vysya Bank Limited

In 2002, The first Merger between an Indian and foreign bank took place another result
ING Vysya Bank was instituted. The Dutch banking giant ING Group took a controlling
stake in the bank. The bank grew a strong presence in south India with over 500 branches in
the south and it grew its presence abroad in 5 countries because of its ties with the ING
Group. The bank’s total income was INR 60,723.40 Million as of March 2014 and the total
net profit was INR 6,578.51 million as of March 2014. The bank Provides banking services
in private, retail and wholesale.

Kotak with 600+ branches had presence in northern and western parts of India and ING
Vysya was a perfect match for them to improve their reach in south. Another driver for the
merger was ING groups exit from INDIA though wasn't officially announced by the ING
group, there were reports of ING groups intention to divest and exit Indian market. Swap
ratio for the Merger was 725:1000, i.e. Shareholders ING Vysya will receive725 shares of
Kotak for every 1000 shares. Also, the fraction of the shares was not granted and were
instead pooled and sold off. The cash consideration from the sales were distributed among
the shareholders proportionate to their fraction.
36
37
 38

KOTAK BANK Pre-Merger Post-Merger

Operating Profit
Ratio 0.4073 2.4

Net Profit Ratio 0.0509 0.9

ROA 0.1480 1.8

ROE 0.2364 12.7

Debt to Equity 18.6284 32.3

ROI 0.1480 0.4

Share Price 650.00 700.0

 39

After analyzing the ratios above, we can clearly see a significant increase in Operating
Profit, Debt to Equity, ROE and net profits. However, ROI does not show any significant
change. From this we can say that the Operating expenses can have reduced due to
economies of scale. So, we can say that Overall synergy is working good for this merger.
 40

Gain and Loss in Merger and Acquisition

For Banks Merger and Acquisition is a very helpful tool to grow but they are not always
helpful. Following are some pros and cons for bank merger:

Gains
I. Higher value generation through Economies of scale
II. Tax benefits
III.Cost efficiency

V. Increased EPS
VI. Reduces competition
VII. Increase in equity financing

Losses
I. Increase in liabilities
II. Large value form losers there share price/value
III. Stock market volatility

V. Weakening of financial position

 41

Effects on Stock Market

I. Share price volatility after the announcement of merger

II.uncertainty causes to lower the price
III.hostile takeover affects the price more adversely
IV. most of the time target stock will rise after acquisition

When a bank acquires another bank, there is usually a short-term effect on the stock price
for both banks. Normally the acquiring Bank stock will drown while the target company
stock will surf. Usually the acquiring company has to pay a premium for the acquisition,
unless the acquiring company offers more Per share price than the current price of a target
company there isn't it any incentive for the current owners of the target to sell their shares
to the takeover company. Thus, the target company share price usually surfs. Some other
problems that takeover company has to face during an acquisition: problems associated
with different workplace culture, loss of productivity, struggles of Management, additional
debt or expenses that must be incurred for the purchase, accounting issues, loss of goodwill.
 42

Social Issues

Social issue is the aspect of merger and acquisition that have to deal with people and their
relationship with the merging entities. It includes post-Merger structuring of the board of
directors, what will happen to the employee-employer relationship, employment
agreements and retention provisions. It covers organizations relation and dealing with
customer and its dealing with the communities in which the both parties has operated.

Directors and Officers

Normally the nature of transaction will already indicate towards the overall structure of
officers and board of directors. In case of hostile takeover, the positions of acquiring forms
officer are not generally undergo change, Contradictory to this, the offices of the target
form are not in position to negotiate for Further participation in future business. Still In
some cases it is important for the acquirer to retain some executives to preserve the value of
the targeted business. But in case of a friendly Merger auto physician structuring of board
of directors and the roles allotment to the executive of the form plays a crucial role for or
obtaining support for the Merger

● Employment agreements - During due diligence the employment agreements of

the higher ups of the target firm Needs to be reviewed and renewed or terminated
with caution.
 43

● Post-transaction executive suite - In cases of most of the Merger the selection of

the CEO post-Merger is quite obvious but in some cases this choice is not very clear
and thus it is an issue which must be handled delicately. In some cases, having co-
CEOs or an alternative role for the other party’s CEO can be a solution. But this
duplicate see needs to be dealt with carefully because any uncertainty and insecurity
around the future of their career can distract them from their job and it can possibly
create problems for the Merger. This issue needs to be dealt with, prior to Merger.

● Retention - Considering the problems discussed above, Organizations keeps

retention agreement in place with its key executives to make sure that they will stay
throughout the transaction process. these retention agreements also provide for
payments to the executives for continuing their service with the company during the
change of Management.
● Collateral benefits - Collateral benefits is the benefit when a shareholder gets
compensation for his shares over and above fair value than other shareholders. This
can be done by the acquirer by payment over and above the consideration amount or
Collateral benefits over the payment of their shares. When the executive who are
also shareholders of the target company enter into an Employment agreement, the
concern arises that this could be Collateral benefit for them. if search Benefits are
confirmed the recipient may be excluded from voting on the transaction. there are
exemptions available for benefits conferred through employment, but there are
limitations and require to be reviewed by the target board.
● Board composition –In a merger of peers, the composition of the compound of the
merged entity may be controversial, as the simple combination of the compounds of the
parts may lead to too large and expensive connection. Among the factors to be
considered in the selection of directors in addition to the qualifications of individuals
 44

themselves, compliance with the requirements of the corporate content of company

law, compliance with the requirements of the stock market and the law of securities
for independent directors, the expectations consider the voting advisory firm on
issues such as over boarding, ensure candidates have the necessary experience to
perform audit tasks and other committees, and meet the expectations of shareholders
and regulators in relation to gender representation and diversity , Sometimes the
CEO of the target company or the acquirer who is not the CEO of the merged entity
is a good option to be the new CEO of the merged entity.

.
 45

Employees

Employees below the level of the Executive Suite are in a difficult situation. At the start of
a merger and acquisition process, it is likely that these employees will not know what is
going on, due to concerns about confidentiality and leakage protection. Over time, and
especially with careful consideration, certain employees must be included in the agreement
team. As the circle widens, the potential for rumors increases. Since employees may have
limited roles and are not at the negotiating table, their skills are incomplete and erroneous
information may be extended. Controlling the flow of information to employees is
important. Just as the parties should be prepared to publicize in the event of a leak, they
should also be prepared to deal with the employees. The two can go hand in hand. Another
reality (and employees are all too aware of this) is that an M&A transaction will likely
result in job losses. Key points in this regard for the parties to the transaction are:

● Cost - While synergies and cost savings are likely to be most important when
considering the workforce of the merged entity, the reduction of employees carries
its own costs. The due diligence required to determine termination costs under
employment contracts, statutory provisions and general law. It should also be
remembered that a change in title, responsibility or responsibility for informing an
employee, and a change in compensation, can sometimes be considered a
constructive dismissal with potential responsibility to the employee.
 46

● Share-based compensation - An acquisition or merger can create problems related

to option plans and other share-based payments. In an acquisition scenario, the
acquirer wants to ensure that all rights to acquire target values are removed in order
to ensure that the target is 100% of the total ownership. Often, the stock-based
compensation of the target must be replaced with a shareholder-based plan of the
acquirer.
● Effective Communication - To minimize disruption Constant, timely and accurate
communication is necessary.

● Implementation - While the time difference between announcing and completing a

transaction is undeniable, it usually makes sense to implement organizational
changes as soon as possible once the transaction is complete.
 47

Customers

Customers often consult with the investing public about a press M & A transaction. Often
there is nothing wrong with that, in other cases it can be too late. For example, the parties
may need to contact an important customer whose ongoing business is of key importance to
the merged entity to ensure that no objections to the agreement are raised. In some cases,
the Office of Competition or the Investment Division of Canada may address such client in
relation to its approval procedures. Anticipating and preparing such an approach can
facilitate the review process.

Communities

As we see more and more, provincial and local governments can have a huge impact on
commercial transactions, from pipelines to acquisitions. Anticipating and preparing for
possible responses in this regard may not lead to the disappearance of problems, but it may
be possible to focus the relationship on dialogue rather than confrontation.
 48

Conclusion

Will Mergers and acquisitions lead to increase in price and financial gains for the target
bank depends upon the condition that it will help in increasing the profit of the acquirer or
not. Primary purpose of a bank to go through merger or acquisition is to expand its business
Geographically and by increasing its customer base, reduce competition and protect the
existing market. So, we can say that each merger has its pros and cons. Mergers are also
good for the growth and betterment of a country's economy. Even though mergers shrink
the industry because of the reduced number of firms still it improves the competitive edge
of the industry in order to compete in the Global market. Merger helps in improving and
strengthening the financial base and gives access to tax benefits and cash resources.

In banking industry merger and acquisition helps the weaker banks to strengthen
their position by merging with large and strong banks. From the above analysis we can say
that the merger between the Kotak Bank and ING-Vysya was a huge success. In case of
ICICI the merger shows a profitable situation, also the merger of HDFC and Centurion
Bank shows increased profitability ratios due to reduced debt structure of both Bank.

Thus, we can say that the merger in banking industry is fruitful in most of the cases.
While the public sector banks operating in India Can tenant their position in the emerging
markets by merging with each other We can conclude that there are various advantages of
merger and acquisition in banking sector like increase in customer base, increase in branches,
increase in number of product and service offered, increase in number of ATM network,
increase in number of employees , benefits of expertise employees , access to
 49

various region in the country, increase in deposit and advance amount. There are also
various challenges like difference in deposit rate and interest rate, difficulty in managing
nonperforming assets, difficulty in managing the employees because difference in salary
structure, etc. after analysis post-merger financial performance we can say that after merger
and acquisition, there is increase in net interest income, increase in profitability, increase in
number of customers, improve liquidity, share price has been increased. The aim of the
study was to analyses the cultural and social factors that influence the merger and
acquisition decision of investors. The results showed that social factors like the education,
life expectancy and cultural factors like bureaucracy, informal payments and legal system
plays a significant role in explaining the number of mergers and acquisitions in the
Banking sector. The highest no of Merger took place in the most developed economies in
the world in 2014. But at the same we can see that, but there are also high number of
mergers taking place in developing economies. This means investors are not only looking
for developed economies but also to economies where political and social factor can help
them in furthering their business ahead.
 50

BIBLIOGRAPHY

V.R. Nagsai, Dr. S. Sultana (2013) “Financial performance analysis in banking sector – a pre
& post-merger perspective” international monthly refereed journal of research in
management & technology ,56, issn – 2320-0073 volume ii.

Dr. KA Goyal and vijay Joshi, “Mergers and Acquisition in Banking Industry: A Case
Study of ICICI Bank Ltd.”, International Journal of Research in Management, Vol. 2,
March 2012, Pg. No. 30-40.

Antony Akhil, K. (2011), “Post-Merger Profitability of Selected Banks in India,”

International Journal of Research in Commerce, Economics and Management, Vol. 1, No.
8, (December)

https://shodhganga.inflibnet.ac.in/bitstream/10603/35533/12/12_chapter%206,%20mergers
%20and%20acquisitions%20in%20the%20indian%20banking%20sector.pdf

http://www.business-standard.com/article/markets/ing-vysya-bank-kotak-mahindra-bank-
gain-on-merger-report-114112000136_1.html

https://shodhganga.inflibnet.ac.in/bitstream/10603/117606/9/09_chapter%201.pdf
 51

https://www.researchgate.net/publication/24088042_Geography_of_Domestic_Mergers_an
d_Acquisitions_MAs_Evidence_from_Matched_Firm-level_Data

http://www.ibpsexamadda.org.in/banking-awareness-49-mergers-and-acquisitions-of-
banks-7469/