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Mergers and acquisitions

Mergers and acquisitions

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Published by Ankita Godhawat

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Published by: Ankita Godhawat on Apr 19, 2011
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INTRODUCTION

Mergers and acquisitions (M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. The acquisition process is very complex and various studies shows that only 50% acquisitions are successful. An acquisition may be friendly or hostile. In a friendly takeover a company’s cooperate in negotiations. In the hostile takeover, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover. Although merger and amalgamation mean the same, there is a small difference between the two. In a merger one company acquires the other company and the other company ceases to exist. In an amalgamation, two or more companies come together and form a new business

.  Once the valuation is accepted by the respective banks . being the authorities vested with the responsibility of administering the Acts. a scheme is prepared incorporating therein the all the details of both the banks and the area terms and conditions. they send the proposal along with all relevant documents such as Board approval. its reach and anticipated growth and sends its report to the respective banks. an extra ordinary general meeting of the shareholders of the respective banks is convened to discuss the proposal and seek their approval. The Registrars.  Once the scheme is finalized.market capital.  After the Board approval of the merger proposal. The valuer valuates the banks on the basis of its share capital. the authorized officials of the acquiring bank and the merging bank sit together and discuss the procedural modalities and financial terms.Procedure of Bank Merger  The procedure for merger either voluntary or otherwise is outlined in the respective state statutes/ the Banking regulation Act.  Before deciding on the merger. valuation report etc to Reserve Bank of India and other regulatory bodies such Security & exchange board of India SEBI for their approval. They would also be ensuring compliance with the statutory procedures for notifying the amalgamation after obtaining the sanction of the RBI. a registered valuer is appointed to valuate both the banks.  After obtaining approvals from all the concerned institutions. it is tabled in the meeting of Board of directors of respective banks. a merger and acquisition agreement is signed by the bank. assets and liabilities. will be ensuring that the due process prescribed in the Statutes has been complied with before they seek the approval of the RBI. authorized officials of both the banks sit together and discuss and finalize share allocation proportion by the acquiring bank to the shareholders of the merging bank SWAP ratio  After completion of the above procedures . shareholders approval.  After the board approval of the merger proposal.After the conclusion of the discussions. The board discusses the scheme thread bare and accords its approval if the proposal is found to be financially viable and beneficial in long run.

Retail Banking Services. 1. a premier housing finance company (set up in 1977) of India.82 billion.45 billion) in 2008 09.Wholesale Banking Services. The Bank started operations as a scheduled commercial bank in January 1995 under the RBI's liberalisation policies. It was among the first companies to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. Coleman & Co.8 crore (US$ 4. the bank has reported net profit of 2.89. HDFC Bank has 1.232 ATMs. trade services.000 crore. up 41% from the previous fiscal.63.725 branches and over 4. Total annual earnings of the bank increased by 58% reaching at 19. The Bank was promoted by the Housing Development Finance Corporation.. The balance sheet size of the combined entity is more than Rs.59 million). India's largest housing finance company.9 crore (US$ 509.1006. money markets and debt trading and equity research. . HISTORY OF HDFC BANK HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation Limited (HDFC). As of 30 September 2008 the bank had total assets of Rs.1. incorporated in August 1994. BUSINESS FOCUS HDFC Bank deals with three key business segments . For the fiscal year 2008-09.Times Bank Limited (owned by Bennett.622. corporate finance and merchant banking. after the Reserve Bank of India allowed establishing private sector banks.HDFC Bank acquired Centurion Bank of Punjab HDFC Bank Ltd is a major Indian financial services company based in India. in 779 cities in India.75 shares of Times Bank. in 2000.000. It is also providing sophisticated product structures in areas of foreign exchange and derivatives. and all branches of the bank are linked on an online real-time basis.000 crore and net advances of about Rs. Shareholders of Times Bank received 1 share of HDFC Bank for every 5.22.244.000 crore. The amalgamated bank emerged with a base of about Rs. It has entered the banking consortia of over 50 corporates for providing working capital finance. In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more than 1. Treasury. / Times Group) was merged with HDFC Bank Ltd. This was the first merger of two private banks in India.

 1995 Centurion Bank amalgamated 20th Century Finance Corporation. from the current 10th position. The Bank's shares were listed on the major Indian stock exchanges and on the Luxembourg Stock Exchange.Kerala in 1940. The combined bank took as its name Centurion Bank of Punjab. During the 1960's. It was a joint venture between 20th Century Finance Corporation and its associates and Keppel Group of Singapore through Kephinance Investment (Mauritius). . MERGER & ACQUISITION OF HDFC AND CBOP  1994 Centurion Bank was incorporated on 30 June 1994 and received its certificate of Commencement of Business on 20 July. Josna Bank and Kerala Union Bank. The merger will make HDFC Bank the country’s seventh largest bank after Bank of India (BoI) and ahead of IDBI Bank.CENTURION BANK OF PUNJAB The Centurion Bank of Punjab (formerly Centurion Bank) was an Indian private-sector bank that provided retail and corporate banking services. On 23 May 2008 HDFC Bank acquired Centurion Bank of Punjab.” said a banking source.  2008 HDFC Bank acquired Centurion Bank of Punjab. Lord Krishna acquired three commercial banks: Thiyya Bank.000 employees. the Boards of Directors of Centurion Bank and Bank of Punjab agreed to a merger of the two banks.  2006 Centurion Bank of Punjab acquired Kochi-based Lord Krishna Bank. Lord Krishna Bank had been established at Kodungallur in Thrissur District. It operated on a strong nationwide franchise of 403 branches and had over 5.  2005 On 29 June 2005. Bank of Punjab had been founded in 1995. which grew to 29 branches the next year. The swap ratio is expected to be around 1:25-30. Centurion had a network of ten branches.

keeping a long-term perspective in sight.  The expected merger of the HDFC Bank with the Centurion Bank of Punjab (CBoP) is believed to broaden the scope and reach of HDFC by crediting to its already welldistributed network. the share swap ratio stands at 1:29. 3) The merger will strengthen HDFC Bank's distribution network in the northern and the southern regions.48 per cent stake and the Kephinance Investment (Mauritius) with 6. that is every shareholder of CBoP will get one share of HDFC Bank for every 29 shares of CBoP owned. The HDFC Bank. HIGHLIGHT THE MERGER.510 crore.  The HDFC Bank is further expected to pay Rs 100 billion to Rs 120 billion in shares for acquiring the CBoP. BENEFITS FROM THIS DEAL  The corporate world is a place where only the vigilant. impromptu decisions to be crafted.02 per cent stake. after the principal shareholders of CBoP – Bank Muscat with 14. to make its network bigger and stronger. Sabre Capital with 3.48 per cent stake and Kephinance Investment (Mauritius) with 6. The merger talks between the two banks began in January 2008. every second tests the mental acumen of the professionals by putting them into various odd situations which demand spontaneous.13 per cent stake decided to move away from this partnership. Though this ratio is believed to have been worked out after . 4) HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion Bank of Punjab (CBoP) for Rs 9.13 per cent — decided to exit. while the remaining admire or envy the success of the former . will add to itself 394 branches of the CBoP to itself. Sabre Capital with 3. In what claims to be the largest ever private bank merger.02 per cent stake.The merger talks between the two banks began in January 2008 after the principal shareholders of CBoP – Bank Muscat with 14.HDFC AND CENTURION BANK OF PUNJAB 1) HDFC bank is merged with Centurion Bank of punjab 2) New entity is named as “HDFC bank itself”. the sharp and the spontaneous can explore their way up the ladder. Here. which currently spans India with its chain of 746 branches.

 The HDFC Bank which presently enjoys the 10th position in the list of largest banks in India on the basis of assets.  This merger has come after a series of activities marking an eventful past for CBoP. 2008. which include acquiring the Lord Krishna Bank and the Bank of Punjab.  The bank's focus on technology and superior margins with support from low-cost deposits will ensure profitable growth in the future. and with this merger. However. we wish it brings some reason to rejoice for the shareholders that have stood through its history of highs and lows. the current stake of HDFC in the CBoP.  The merger of retail focused-Centurion Bank of Punjab (CBOP) with HDFC Bank [Get Quote] effective May 23. which is 23. absorbing the strengths of both the merging companies. will now witness a jump to the 7th position. It has come as a yet another setback for them after a volatile period witnessing a decline in CBoP shares and an unstable management. Put together. the synergies from the merger with start reflecting over 12-24 months.Another important concern that rises with such mergers is the question of blending the two distinct and diverse styles of functioning and ensuring a smooth transition to a new work culture. which have helped it maintain asset quality. would ensure that it will be among the least affected in a slowdown. along with superior credit risk management practices. will shore up revenues in the medium-term.38% is projected to fall to about 19% on completion of the deal. EFFECT OF MERGER AND ACQUISITION OF HDFC AND CBOP  HDFC Bank's ability to grow at over 30 per cent annually in the last nine years. As the CBoP stands at a new dawn. At the same time. it has failed to receive a positive reaction from the CBoP shareholders. It is a meticulous task to ensure that the fundamental ways of working and the ideology of the two companies supplement the growth of each other rather than leaving any one of the potential organizations obsolete.rigorous discussions among the Board of Directors of both the banks. the gains . and boost profitability.

training processes to assign all the employees of CBOP in their new roles is marching ahead with almost 90 per cent of the people retrained. With regards the systems. it has also led to some pressure on key ratios (see Merger Effects) for the combined entity. and how fast HDFC Bank can ramp up efficiency levels of CBOP to its own benchmarks. While the merger has helped increase the size of HDFC Bank.7 lakh crore. POST-MERGER  The inherent synergies of HDFC Bank and CBOP in their retail focus was the driver for the merger. they have already been integrated with HDFC's platform. The next pertinent question is the pace of integration. while the overall retail banking is expected to be completed in the next two months.from organic and inorganic initiatives will help the bank sustain growth rates in excess of its historical average of 29-30 per cent.  The integration plan is on schedule. wholesale banking and retail loan segments. The re-branding of CBOP was completed in May itself. CBoP ratios were lower than that of HDFC Bank. treasury. which added around 400 branches to HDFC Banks' branch strength of 760 (as on March 2008) along with a 15-20 per cent increase in the asset base to more than Rs1. and in a profitable manner. .

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