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INTRODUCTION TO MERGERS AND ACQUISITIONS

An entrepreneur may grow its business either by internal expansion or by external expansion. In the case of internal expansion, a firm grows gradually over time in the normal course of the business, through acquisition of new assets, replacement of the technologically obsolete equipments and the establishment of new lines of products. But in external expansion, a firm acquires a running business and grows overnight through corporate combinations. Mergers and Acquisitions combinations have now become important features of corporate restructuring. They have been playing an important role in the external growth of a number of leading companies the world over. They have become popular because of the enhanced competition, breaking of trade barriers, free flow of capital across countries and globalisation of businesses. In the wake of economic reforms, Indian industries have also started restructuring their operations around their core business activities through acquisition and takeovers because of their increasing exposure to competition both domestically and internationally. Mergers and acquisitions are strategic decisions taken for maximisation of a company's growth by enhancing its production and marketing operations. They are being used in a wide array of fields such as banking, insurance, information technology, telecommunications, and business process outsourcing as well as in other businesses in order to gain strength, expand the customer base, cut competition or enter into a new market or product segment.

MERGERS
A merger occurs when two or more companies combines and the resulting firm maintains the identity of one of the firms. One or more companies may merger with an existing company or they may merge to form a new company. Usually the assets and liabilities of the smaller firms are merged into those of larger firms.

ACQUISITION
An acquisition may be defined as an act of acquiring effective control by one company over the assets or management of another company without any combination of companies. In the case of acquisition, one company takes the ownership of another company after paying the price for it to the owners or shareholders of that company. The acquired company becomes the subsidiary of the buyer company.
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Most of these merger and acquisitions actually led to decrease in number of public undertakings and increase in number of private enterprises. This happened as many public organizations all over the world, were either merged into or acquired by big private institutions. By applying the rules of synergy effectively, a merger can be made a success. Several other reasons for mergers are as follows:

It helps in increasing companys productivity. There is also a general tendency that the merged companies would monopolize the market, thereby deriving out others. Political factors. Cutting down expenses and increasing revenues. When a company is not self sufficient to operate on its own. Hindrances may be in the form of insufficient investment capacity, excessive competition due to which the company is not able to keep pace with other companies. Under such circumstances, the subsidiaries may merge with the parent company for better output.

India has emerged as one of the top countries with respect to mergers and acquisitions deal. In 2007, the first two months alone accounted for merger and acquisition deals worth $40 billion in India. The estimated figures for the entire year projected a total of more than $ 100 billions worth of mergers and acquisitions in India. This is two fold growth from 2006 and a growth of almost four times from 2005.

Mergers and Acquisitions in different sectors in India Sector wise, large volumes of mergers and mergers and acquisitions in India have occurred in finance, telecom, FMCG, construction materials, automotives and metals. In 2005 finance topped the list with 20% of total value of mergers and acquisitions in India taking place in this sector. Telecom accounted for 16%, while FMCG and construction materials accounted for 13% and 10% respectively. In the year 2006, for example, Indian companies announced around 125 foreign acquisitions with a value of nearly $10 billion. That was roughly eight times that of the year 2000. However, the first 5 months of year 2007 witnessed a deal size of around $ 15 billion, with over $12 billion coming from the Tata-Corus deal alone and with further large acquisitions in the pipeline. There were reportedly 35 deals between India and the developed economies in the second half of 2007, following on from 34 in the first half.

In the banking sector, important mergers and acquisitions in India in past years include the merger between IDBI (Industrial Development bank of India) and its own subsidiary IDBI Bank. The deal was worth $ 174.6 million (Rs. 7.6 billion in Indian currency). Another important merger was that between Centurion Bank and Bank of Punjab. Worth $82.1 million (Rs. 3.6 billion in Indian currency), this merger led to the creation of the Centurion Bank of Punjab with 235 branches in different regions of India. Merger occurs by adding the active bank assets and Liabilities to the target banks balance sheet and acquiring the active banks name through a series of legal and Administrative measures. Merger and Acquisition in Indian banking sectors have been initiated through the recommendations of Narasimham committee II. The committee recommended that merger between strong bank / financial institutions would make for greater economic and commercial sense and would be case where the whole is greater than the sum of its parts and have force multiplier effect The reason of this particular Merger and Acquisition Trend, was the emergence and rapid growth of Private Equity Funds. Moreover, the regulatory environment of the publicly owned companies and the urge to attain growth of short term earnings were also behind the specific trend of Mergers and Acquisitions. According to a KPMG report(2008), the Indian M&A market witnessed a 14 percent

decrease in volume in 2008 vis-a-vis 2007 with 863 deals, as against 1001 deals in 2007. In volume terms, it means a 41 percent dip from $71.7 billion in 2007 to $42.2 billion in 2008. The first quarter of 2009, the report says, has seen a 63 percent dip in volume over Q1 of 2008. With markets now picking up, there could be renewed interest in M&As and some cross-border deals could be in the offing. With the growth of the Indian economy at an average rate of 8.8 per cent every year, it may just prove to be an additional reason, which triggers the growth in overseas investments. Today, the banking and Insurance industry is counted among the rapidly growing industries in India. It has transformed itself from a sluggish business entity to a dynamic industry. The growth rate in this sector is remarkable and therefore, it has become the most preferred banking destinations for international investors. In the last two decade, there have been paradigm shift in Indian banking industries. The Indian banking sector is growing at an astonishing pace. A relatively new dimension in the Indian banking and insurance industry is accelerated through mergers and acquisitions. It will enable them to achieve world class status and throw greater value to the stakeholders.

Mergers and acquisitions in the insurance sector picked up since the early 1990s. With the opening up of the financial sectors including the insurance sector in many countries due to economic reforms during this period, the potential of mergers and acquisitions in the insurance sector increased substantially across the globe. Both within-border and crossborder mergers and acquisitions gained impetus in the insurance sector.

Review of Literature
Buono and Bowditch (1989), Mergers and Acquisitions: Managing Culture and Human Resources. The authors in this paper suggested that there are two fundamental ways of introducing cultural changes in an organization after a merger. First is getting employees to accept a new set of beliefs and values by studying their attitudes and then trying to change the associated behaviour. Once the behavioural changes are effected, effort should be made to modify the underlying beliefs and values by communicating explicit cultural messages like announcement, memos, and speeches and implicit cultural messages like rituals, ceremonies, stories, metaphors, logos and dcor. Second way to induce cultural change is to recruit and socialize new members who fit into the culture while removing those who do not fit. It is possible that many of the deviants may voluntarily leave the organization. Napier (1989), Impact of Cultural Differences on Merger and Acquisition Performance. The author in this study analysis that when the acquiring firm leaves the acquired firm alone, because it does not need to integrate cultures and routines, compatibility is not important. In knowledge-intensive sectors, however,

compatibility is often essential. Most accounting firms, for example, are partnerships with unlimited liability. If one partner brings a loss to the firm, other partners are also responsible for the loss. Consequently, accounting firms want to use a single

associate-to-partner promotion rule to preserve the quality of partners. So they must use an integrated auditing procedure to maintain the quality of auditing services and to minimize auditing risks. Granstrand and Sjolander (1990), Technological Acquisition and the innovation performance of acquiring. The study reported that in 60 % of cases where key R&D personnel (e.g., the general manager) left the firm, the acquisition resulted in subsequent divestment or other manifestations of failure. The possibility of successful integration depends on the pairs structural and cultural similarities, since the integration of like cultures faces lower resistance from organizational members. Schweiger and DeNisi (1991), Cross-Cultural Competence and Management: Knowledge Migration Communication and Value Change. In a study conducted at
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two plants of one of the two Fortune 500 merging companies, found that the merger led to increase in perceived uncertainty and absenteeism amongst employees. Simultaneous decrease was found in job satisfaction, perceptions of the companys trustworthiness, honesty, and caring, intentions to remain, and self-reported performance. Realistic communication was found to help employees cope with the uncertainty of the situation and insulate themselves from some of the allied negative outcomes. Holtzman (1994), There is No Such Thing as a Perfect Merger or Acquisition . According to Holtzman in his article a merger happens when two firms combine their practices in order that each gains a new area of expertise. The end result is a broader range of services and talents for the combined firm's clients. Although an acquisition has some attributes of a merger, the acquiring firm usually is the larger one. The smaller fin has to conform and change its operating methods and may have less influence on the management of the practice. Steven J. Pilloff, (1997), The Value Effects of Bank Mergers and

Acquisitions.According to author consolidation to a large extent, is based on a belief that gains can accrue through expense reduction, increased market power, reduced earnings volatility, and scale and scope economies whether or not bank mergers actually achieve the expected performance gains is the critical question. If consolidation does, in fact, lead to value gains, then shareholder wealth can be increased. On the other hand, if consolidating entities does not lead to the promised positive effects, then mergers may lead to a less profitable and valuable banking industry. Freidheim, (1998), The Trillion-Dollar Enterprise: How the Alliance Revolution Will Transform Global Business. Friedheim in this study focused on mergers or acquisition enables the surviving entity to combine assets and activities, substantially lower costs, and become a strong competitor-banks merge and close branches, credit companies merge and move down the scale-economies curve; hospital merge and use beds and equipment more efficiently; manufacturing companies merge to combine facilities, increase scale economies, and spread the cost of R&D over volume; agribusiness companies merge to improve the economics of the supply chain-and in all cases, integration of physical assets is vital in achieving the economic objectives of the combination.
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Appelbaum (2000), Strategic organizational change. The study emphasizes the importance of taking quick organization structure decisions. It is imperative for merging firms' employees to openly discuss, as a group, and formulate the best organizational structure. It is also important to establish clear reporting relationships, which need to remain unchanged, in the transition period.

Galpin and Herndon (2000), Process Tools to Support M&A Integration at Every Level. The study emphasize that effective communication during a merger should be linked to the strategic objectives of the integration effort. Immediately after announcement the leadership should be able to convey its commitment to the deal, reaffirm the organizations values and give specific information about the state and objective of merger process. In the following period, communication should be used both, to provide organization specific information and identify managers and employees issues. Information on changes introduced in the organization and their impact on employees should be shared. All along, communication should be honest, proactive and should be planned with ample lead-time and disseminated early.

R Chatterjee and A Kuenzi (2001), Mergers and Acquisitions: The Influence of Methods of a payment Biddes Share price. This study tests two alternative hypotheses for explaining acquiring companies stock return. The Investment Opportunity Hypothesis and the Risk Sharing Hypothesis. Although this test-statistic seems to be almost too conservative for large sample sizes, particularly valuable information has been gained in the case of small sample sizes.

Zingheim and Schuster (2001), Designing Pay and Rewards to Make M&As Work. The study suggest that a wide range of alternatives exist for making rewards work in favor of both the companies and their workforce: This entails choosing either the most expensive or least expensive of alternatives or averaging different elements. The patchwork may or may not work in large part it is based on the compatibility of combined alternative. This requires designing a new reward solution that integrates total rewards for the new organization. A total reward approach encompasses total pay and also a positive workplace, individual growth and a compelling future.
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Larsson and Lubatkin,(2001), Achieving Acculturation in Mergers and Acquisitions: An International Case Survey. Having deliberated on important and critical work in the field of mergers and acquisition, both general and HR related, and understanding different terms and various perspectives, to draw linkages between diverse aspects of HR integration that are of interest to the researcher and narrow down the scope of the study.

Thach and Nyman (2001), Leading in limbo land ; The role of a leader during merger and acquisition transition. It speak about different roles played by leaders in different phases of the merger process. In the pre-combination phase as employees experience a gamut of emotions ranging from anger to grief, before the leaders move forward and encourage employees to continue to focus on work, they must handle the emotional fallout. It is also important to keep the focus intact on business and customer needs. In order to keep employees focused on work, leaders need to renegotiate performance objectives.

Rhodes (2002), Corporate Finance. The author in this journal said that Merger and acquisition will immediately impact the company with changes in ownership, in ideology, and eventually in practice. In order to have a more successful expansion, the company should provide some marketing strategy for the company. The company should provide a strategy that could generate revenues and profits from three sources and these are sales at company-owned stores, royalties from possible franchise stores and franchisee fee from the new store openings.

Zhu & et. al (2004), Cultural Integration in Cross-Border Mergers & Acquisitions. The study said that communication during a merger needs to vary in its openness, depending on the nature of information to be communicated, goals of the organization, specific needs and concerns of the employees, and different needs and expectations of acquiring and acquired company employees.

Craven (2004), Mergers and Acquisitions, Integration and Culture. The study says that HR integration was carried in three phases. In the first phase, stress was on the communication business objectives and cultural aspects of the new organization,
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winning over Compaq employees who appeared disillusioned with the merger, and designing the new organization structure. In the second phase, HR partnered with business to create a high performance workplace. Two different cultures and reward systems were combined and employee performance and personal objectives were tied to business strategy. Employee development and swift behavioural change were encouraged by using reward as a motivator and providing employees training. Employee feedback and developmental training was also initiated. Third phase focused on making the organization the best place to work in the world by providing a satisfying and rewarding environment. Papadakis (2005), The role of broader context and the communication program in merger
and acquisition implementation success. In this study

it was found that increased

communication frequency to employees after a merger or acquisition leads to increased success in the implementation process. The existence of an integrated communication program was also recognized as one of the most significant factors contributing to the successful implementation of merger related changes. He also found a positive relationship between communication frequency and successful implementation of the mergers as high level of communication helps in creation of a smooth working climate and in understanding cultural differences. Schweiger and Goulet (2005) Creating values through Mergers and Acquisitions Integration. In this study the author analysed that merger or acquisition, cultural differences are likely to give rise to ego defenses that encourage maintaining individual identities of the acquirer and target. The elimination of cultural differences is therefore an important step towards successful integration. Thus, both the acquirer and acquired must rise above their ego defenses so that they can develop empathy for one another. This process of learning and developing empathy can be accomplished if one discovers the limitations of ones own culture and the positives in other cultures. This can happen through intermingling of culture which is facilitated through the process of social control, which includes activities like introduction programs, training, cross-visits, retreats, celebrations and similar socialization rituals.

Allred and Holstein (2005), Antitrust Laws. The authors in the article claimed that about sixty to eighty percent mergers fail. The reason for failure are many which includes non realiation of anticipated synergies and cost savings, in compatible facilities and technologies for dismal success rate of mergers and acquisitions.

Kishan and Megha (2008), Merger and Acquisition in pace with emerging knowledge. The authors in this study focused on recent trends on mergers where business models are restructured in accordance with emerging knowledge. He emphasis was made on human capital and intellectual capital in the economy which is closely related to creation and maintainence of competitive advantage in the knowledge. This has led many organisations to consider mergers and strategic alliances to streghthen their intellectual capital.

M Jayadev (2008), Mergers in Indian Banking: An Analysis. The author in this paper reviewed the trends in consolidation in global and Indian banking. For this shareholders views were taken. In the case of voluntary mergers, the bidder banks shareholders have gained more than those of the target banks. In spite of absence of any gains to shareholders of bidder banks, a survey of bank managers strongly favours mergers and identifies the critical issues in a successful merger as the valuation of loan portfolio, integration of IT platforms, and issues of human resource management. Finally he supported the view of the need for large banks by arguing that imminent challenges to banks such as those posed by full convertibility, Basel-II environment, financial inclusion, and need for large investment banks are the primary factors for driving further consolidation in the banking sector in India and other Asian economies.

Rosa Chun (2009), A corporates responsibility to employees during a merger: organizational virtue and employee loyalty. The author in this paper focused on how employee views of the merged organization differ by their pre-merger background, and explained the impact of the poorly perceived organizational virtue on employees emotional response to the merged organization including satisfaction, emotional attachment, job.

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C.A sreeram Musthy (2009), Cross Border Mergers and Acquisitions. The author in this study recognised the costs and benefits of cross border mergers and focused on how to overcome difficulties in currency manipulations and difficulties in abusing oligopolies and monopolies for purpose of establishing competitive market.

Patankar and Chavan (2011), Mergers and Acquisitions and their impact on India after Globalisation. The authors in this study said that influence of foreign courses has increased enormously in the financial and commodity markets in India which lead to the greater courses of competition operating in the industry. The economic units are required to strengthen themselves. The corporate restructuring refers a number of activities that expand or contract a firms operations or substantially modify its financial structure or bring about a significant change in its organizational structure and internal functioning. It can be done through activities such as mergers, purchases of business units, takeovers, slump sales, the mergers, leveraged buyouts, and organizational restructuring.

Schraner and Sellin, (2012), Tailoring integration strategies to secure deal value. The authors in this study stressed that development of appropriate, comprehensive integeration strategy is key component of transaction success is delivering key value drivers corresponding to the deal type. Companies winning at acquisition integration systematically focus on their strategy before signing a denitive agreement or do so as soon as possible thereafter. The integration strategy framework can help to guide this process and get companies ahead of the curve. Most of the value in a M&A deal is captured during integration, yet most transactions fail to create value because companies apply the wrong integration strategy and approach.

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Need of the study


In the world of growing economy and globalisation, major companies on the both domestic and international markets struggle to achieve the optimum market share. The study mergers or acquisitions is likely to be made to know why need arises for the merger or acquisitions, what mergers or acquisitions have taken place in Banking and Insurance sector and what guidelines are provided by RBI in this regard. Employees; the biggest asset of any organisation, what impact does merger and acquisition have on them.

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Objectives of study
Before Beginning, plan carefully. 1. To study various mergers and acquisition in banking and insurance sector. 2. To study the importance of merger and acquisition in banking and insurance companies. 3. To study the various guidelines provided by the RBI regarding merger or acquisition. 4. To study the impact on the performance of Banks and Insurance companies after merger or acquisition. 5. To study performance and behaviour of employees on merger or acquisition.

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Research Methodology
Research is diligent and systematic inquiry or investigation into subject in order to discover or receive fact, theories, applications, etc. Methodology is the system of methods followed by particulars discipline. Thus, Research Methodology is the way how we conduct our research.

Research Design
Research design is the conceptual structure within which research would be conducted. The preparation of such a design facilitates research to be as efficient as possible yielding maximal information. In other words, the function of research design is to provide for the collection of relevant evidence with minimal expenditure of effort, time and money. For my present study my research would be descriptive research and analytical as survey will be conducted through telephonic interview and already existing information from RBI and other publications will be used.

Sampling Technique
Sampling Technique means type of technique used to choose the respondents. I shall be using Convenience Sampling technique for filling up questionnaires from employees of banks and insurance companies as it would not be possible to visit door to door and get filled the questionnaires.

Sample size
Sample size means how many people will be surveyed to meet the requirements of objectives. As it would not be feasible to carry out a census survey for the study so sample survey of 100 respondents approximately will be conducted.

Sample area
Banks and Insurance Companies of India

Tools for data analysis


For purpose of data analysis various tools shall be used so as to interpret the data effectively. Line diagram, bar diagrams and tables shall be prepared to analyse data.

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Sources of data
The present study is made on the basis of data collected from primary and secondary sources.

Primary Data
Primary data are that, which are collected a fresh and happens to be actual in character. Primary data shall be collected through questionnaire method.

Secondary data
The secondary data are that data which was primarily collected for some other purpose. It is data already collected and is also called as second hand data. Secondary data has been collected from the journals, magazines and articles. Journals referred are The IUP Journal of Bank Management, International Journal of Marketing, Financial Services & Management Research, The Journal of Commerce, Indian banker, Bests review.

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Scope of Study
Financial sector of India is internally strong, show evidence of competence and flexibility besides being sensitive to Indias economic aims of developing a market oriented, industrious and viable economy. An established financial sector assists greater standards of endowment and endorses expansion in the economy with its concentration and exposure. This study will help in understanding the scope of the mergers or acquisitions in financial sector. This sector includes banks, investment funds, insurance companies and real estate. The scope of my studies revolves around Banking and Insurance sector. This study will give an idea and overview regarding the merger or acquisitions in Banking and Insurance sector and in turn help those banking and insurance companies who are planning for such merger or acquisition.

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Bibliography
Books Referred Kothari C.R,Research Methodology: Research and techniques, New Age International(P) Ltd. Publisher, pp 320-325 Varshey P.N. Banking Law & Practices, New Delhi: Tata MC Graw, 2011, pp. 4-8. P. Subha. Principles & Practices of Bank Mgt, Mumbai: Himalaya Publishers, 2011, pp. 14-22. Gopal Krishan, G. Insurance Principles and Practice, New Delhi: Sterling Publishers, 1994, pp. 20-30 Referred online Journal, Ranade, Ajit isuues in regulation of insurance, eco and political weekly of india, vol5, jan 29-feb4 2010 International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 9, September 2012, ISSN 2277 3622 The Journal of Commerce, Vol. 3, No. 2 ISSN: 2218-8118, 2220-6043 Hailey College of Commerce, University of the Punjab, PAKISTAN Website links http://business.mapsofindia.com/sectors/financial/ accessed on date 11-01-2013 http://www.investopedia.com/university/mergers/mergers1.asp#axzz2I3DzVs1m accessed on 11-01-2013 http://www.investopedia.com/terms/m/mergersandacquisitions.asp#axzz2I3DzVs1m accessed on 12-01-2013 http://indiacorplaw.blogspot.in/2009/05/indian-acquisitions-abroad.html accessed on 12-01-2013 http://en.wikipedia.org/wiki/Mergers_and_acquisitions accessed on 13-01-2013 http://shodhganga.inflibnet.ac.in/bitstream/10603/2712/12/12_chapter%202.pdf accessed on 13-01-2013 http://ivythesis.typepad.com/term_paper_topics/2010/09/free-literature-review-onmerger-and-acquisition.html accessed on 15-01-2013

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