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Mergers and Acquisition 1

Mergers and Acquisition 1

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Published by ishy_smith
good for management students
good for management students

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Published by: ishy_smith on Jan 04, 2010
Copyright:Attribution Non-commercial


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1.Executive Summary
Merger - It's the most talked about term today creating lot of excitement andspeculative activity in the markets. But before Mergers & Acquisitions (M&A)activity speeds up, it has to actually pass through a long chain of procedures (bothlegal and financial), which at times delays the deal.With the liberalization of the Indian economy in 1991, restrictions onMergers and Acquisitions have been lowered. The numbers of Mergers andAcquisitions have increased many times in the last decade compared to the slack  period of 1970-80s when legal hurdles trimmed the M&A growth. To put things in perspective, from 15 mergers in 1998, the number crossed to over 280 in FY01. Witha downturn in the capital markets, valuations have come down to historic lows. It'shigh time that the consolidation game speeds up.In simple terms, a merger means blending of two or more existingundertakings into one, consequent to which each undertaking would lose their separate identity. The most common reasons for mergers are, operating synergies,market expansion, diversification, growth, consolidation of production capacities andtax savings. However, these are just some of the illustrations and not the exhaustive benefits.However, before the idea of Merger and Acquisition crystallizes, thefirm needs to understand its own capabilities and industry position. It also needs toknow the same about the other firms it seeks to tie up with, to get a real benefit from amerger.Globalization has increased the competitive pressure in the markets. In ahighly challenging environment a strong reason for merger and acquisition is a desire1
to survive. Thus apart from growth, the survival factor has off late, spurred themerger and acquisition activity worldwide.Take retail finance for instance. With corporate banking becoming anunprofitable business for banks due to high risk of asset quality, banks includingfinancial institutions are tapping the retail finance segment. ICICI's acquisition of Anagram Finance from Lalbhai group, HDFC Bank's merger with Times Bank andICICI Bank's merger with Bank of Madura are some of the latest examples of consolidation in the banking sector. We could see the similar trend perking up inother sectors.The present study gives some insight as to why the banks are going foemerger and acquisition and what are the legal, tax and financial aspects governingthem. The study also deals with other aspects such as types of merger, motives,reasons, bank too much on merger, and successful consolidation in merger, recenttrend in merger and acquisition activity. Lastly a case study involving the merger of ICICI with ICICI Bank has been taken.
Objective of study:
To discuss the form of mergers and acquisitions.
To highlight the real motives of merger and acquisitions.
To focus on the considerations that are important in the mergers andacquisitions negotiations.
To find out reason for merger in the banking sector.
To understand the implications and evaluation.2
2. Mergers and Acquisition
Business combinations which may take forms of merger, acquisitions,amalgamation and takeovers are important features of corporate structural changes.They have played an important role in the financial and economic growth of a firm.Merger is a combination of two or more companies into one company.One or more companies may merge with an existing company or they may merge toform a new company. Laws in India use the term amalgamation for merger. For example, Section 2(1A) of the Income Tax Act, 1961 defines amalgamation as themerger of one or more companies with another company or the merger of two or more companies (called amalgamating company or companies) to form a newcompany (called amalgamated company) in such a way that all assets and liabilitiesof the amalgamated company and shareholders holding not less than nine-tenths invalue of the shares in the amalgamating company or companies become shareholdersof the amalgamated company.Merger or amalgamation may take two forms:
Merger through absorption
Merger through consolidation
In absorption, one company acquires another company. All companiesexcept one lose their identity in merger through absorption.3

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