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A

STUDY
ON
MERGERS &
ACQUISITION IN BANKING INDUSTRYA GLOBAL PHENOMENON

SUBMITTED BY: Shipra Jindal

Table of Contents
S.NO.

TOPIC

Preface

Acknowledgement

Executive Summary
INTRODUCTION:

Introduction

Indian Banking-An Overview

M&A A Global Phenomenon

Merger and Acquisition an Overview


OBJECTIVE AND SCOPE

Who Consitute a Merger

The Anticompetitive Threshold

10

Market Definition

11

Evaluative Criteria

12

The Efficiency Exception

13

M&A in Banking Industry

14

M&A in Indian Banking

15

Why Mergers in Banking?

16

Consolidation in Indian Banking

17

Is bigger better?

18

M&A in Indian Banking Sector as an Imperative

19

M&A in the Indian Banking Sector as an Opportunity


Adoption of M&A as a key Strategic Tool

PAGE NOS.

20

Role of Strategic Investments

21

Mergers as a source of Competitive Advantage

22

LIMITATIONS

23

Size, Challenges and Final balance of


Opportunities and Threats

24

Importance of Deregulation and its Impact

25

The Indian Scenario-Deregulation


THEORETICAL PERSPECTIVE

26

Value created by Merger

27

Cost and Benefit of merger

28

Cross Border M&A in Banks

29

Underlying Theories in Merger & Acquisition

30

Stages of Merger and Acquisition Integration Process


The Foreign Experience

31
The European Bank Experience
32
Consolidation and Human Resource Management
33
METHODOLOGY
WORK
34

AND

PROCEDURE

OF

A Big Merger about to happen in the Industry


Motive of Merger and Acquisition in Indian Banking

35
Managed Transition
36
Current Investment Banking Scenario in India
37
Most famous Merger and Acquisition in India
38
39

Merger Between Centurion Bank of Punjab and Lord


Krishna Bank
Merger Between Centurion Bank and Bank of Punjab

40
Hutuch-Essar goes to Vodafone

42

Change in name : UTI, then Axis now

43

Findings

44

Will Reliance Communication acquire Capgemini to


become Indias largest IT Service Provider

45
Mega Acquisition by Indian Company changing brand
India
46
Matrix Bid : Fight between Infosys & Wipro
47

ANALYSIS OF DATA
Tools for data collection

48

Big Acquisition by Indian Companys in near future

49

Indian Merger & Acquisition: The changing face of


Indian Business

50
Rediff Takeover : Rumour or Reality?
51

Indian Merger
exponentially

&

Acquisition

are

growing

52
Indias new found confidence : global Acquisitions
53

Bank Merger a pipedream

54

FINDINGS,
INFERENCES
RECOMMENDATIONS

55

Presentation on Competition on Laws & Policy


Merger & Indian Perspective

56
Conclusion
57

SUMMARY OF THE PROJECT REPORT

58

ANNEXURES

59

Proposal
References

60

AND

PREFACE
Practical training imbibes an integral part of management studies. One cannot merely upon the
theoretical knowledge. It is to be coupled with practical for it to be fruitful classroom lectures make
the fundamental concept of management clear. They also facilitate the learning of practical things.
However class lectures must be correlated with practical training in the company has a significant role
to play in the subject in business management. To develop managerial and administrative skill in
future managers have to enhance their analytical skills, it is necessary that they combine their
classroom learning with the knowledge of real business environment.

After liberalization Indian Economy Scene is really a buzz with activity. Lots and lots of multinational
companies are coming in with their technical expertise and proven management concepts. Industrial
activity in Indian has become a thing to watch and I really wanted to be of it and it was essential for
me being a management student.

It is difficult to elaborate everything, which I learned during the training however, I have endeavored
to many, comprehensive picture of details about working in the following pages.

I have accumulated the desired information through personal observations, study of documents and
discussions.

ACKNOWLEDGEMENT
This work is a culmination of sincere efforts put in during the making of this project. This task could
not have been accomplished without the support and help of lots of people. It is with great pleasure
and privilege that I wish to thanks all of them who actively supported me in this project.

I would like to place on record my gratitude to Mr. Sandeep Gupta(Senior Manager, Finance) whose
valuables advice and suggestions were available through out the preparation of this project.

Executive Summary:
Consolidation in the Banking sector is very important in terms of mergers and acquisitions for the
growing Indian Banking Industry. This can be achieved through Cost Reduction and Increasing
Revenue. The important part over here is that why do we need consolidation in Indian Banking and
what is the Challenges Ahead. The role of the Central government is also very necessary to be
analyzed in the entire process as they play a crucial role in the policy formation required for the
growth of Indian Banking.
In the recent times, we have seen some M&A as voluntary efforts of banks. Merger of Times Bank
with HDFC Bank was the first of such consolidations after financial sector reforms ushered in 1991.
Merger of Bank of Madura with ICICI Bank, reverse merger of ICICI with ICICI bank, coming
together of Centurion Bank and Bank of Punjab to form Centurion Bank of Punjab and the recent
decision of Lord Krishna Bank to merge with Federal Bank are voluntary efforts by banks to
consolidate and grow.
Is growing is size better for the Indian banks? India is still an unbanked country and by global
standards, even the biggest of Indian banks are minnows in a business where size means clout and
where geographical boundaries are blurring. Even by Indian standards, most of the banking sector is
disadvantaged by size: the top 25 banks of which, 18 are owned by the government account for
about 85 per cent of banking assets.
An analysis of the Indian banking industry shows that due to factors like stability, return to
shareholders, adhering to regulatory norms, etc make m&a as an imperative. Also m&a gives an
opportunity to these Indian banks of creating a universal bank. Also mergers can be used as a strategic
tool and also there is a possibility of strategic investments where traditional M&A are not possible. In
the changing economic and business environment characterized by speed, flexibility and
responsiveness to customers, size has a lot to contribute to staying ahead in the competition. It is in
this context that mergers and acquisitions (M & As) as a tool to gain competitive strength comes into
the forefront with Partnering for competitiveness being a recognized strategic argument for the same.

Also deregulation plays a very important role in the entire economy if its going to opened to foreign
players. A careful study needs to be done before the foreign players are allowed to enter into the
market and examples from different economies across the globe must be considered.

Also there needs to be a proper consideration of the human resource i.e. the employees interest must
not be affected due a particular merger. Also the various other threats need to be considered.

Mergers like the one between Centurion bank and Bank of Punjab and also CBOP and Lord Krishna
Bank shows that its upto the private sector players to understand the need to grow inorganically and
that too without any pressure from a third party. These type of merger and the latest one that is going
to happen between CBOP and HDFC bank would ensure that Indian banks are to take on the foreign
banks when they enter the market in 2009.

OBJECTIVES
The project was undertaken to analyze why merger and acquisition is necessary from a companys or a
banks point of view, when two or more of them are agree to combine their operations, then what will
happen to the merged co and to the surviving co.
Objectives are strategic decisions leading to the maximization of a companys growth by enchancing
its production and marketing operations.

The numbers of reasons that are attributed for the

occurrences of the merger and acquisitions are:


To limit competition.
To utilise under-utilised market power
To overcome the problem of slow growth and profitablility in ones own industry.
To achieve diversification
To gain economies of scale and increase income with proportionately less investment.
To establish a transnational bridgehead without excessive start-up cost to gain access to a foreign
market.
To utilise under-utilised resourceshuman, physical and managerial skills.
To displace existing management
To circumvent government regulations.
To reap speculative gains attendant upon new security issue or change P/E ratio.
To create an image of aggressiveness and strategic opportunism, empire building and to amass vast
economic powers of the company.
To maintain or accelerate a companys growth, particularly when the internal growth is constrained
due to paucity of resources.
To enhance profitability, through cast reduction resulting from economies of scale, operating
efficiency and synergy.
To diversify the risk of the company, particularly when it acquires those businesses whose income
streams are not correlated.
To reduce tax liability because of the provision of setting off accumulated losses and unabsorbed
depreciation of one company against the profits of another.
To limit the severity of competition by increasing the companys market power.

NEED FOR TOPIC


As merger is a combination of two or more cos into an existing co or a new co. Acquired co. transfer
its assets, liabilities and shares to the acquiring company for cash or exchange of shares.Need for
Merger and Acquisition arises because in general, a merger can facilitate the ability of two or more
competitors to exercise market power interdependently, through an explicit agreement or arrangement,
or through other forms of behaviour that permits firms implicitly to coordinate their conduct. It will be
found to be likely to prevent or lessen competition substantially when the parties to the merger would
like to be in a position to exercise a materially greater degree of market power in a substantial part of a
market for two years or more, than if the merger did not proceed in whole or in part. In short, a
company can achieve its growth objective by:

Expanding its existing markets

Entering in new markets

A company can expand internally or externally. If internally there is a problem due to lack of
resources and managerial skill it can to the same externally through mergers and acquisitions. This
helps a company to grow at a faster pace in a convinent and inexpensive way. Combination of
companies may result in more than the average profitability due to reduction in cost and effective
utilization of resources.

METHOLOGY AND PROCEDURE OF


WORK
Research Objective:

The main objective of research is to show the merger and acquisition between two or more companies.
Mergers and Acquisitions are there both in public or private company or whether it is a bank. The
research shows why mergers and acquisitions are necessary in day to day life of a business which is
continuously running in a loss, or for a businessman who want to expand his entire business or a
particular existing unit. What are the major roles played by the acquiring company? What the major
factors behind merger and acquisition?

This research shows the need of merger and acquisition both in banking sector and public/private
sector. I added some biggest hikes and slides in the history of merger and acquisition.

In this report I also added some mega mergers and acquisitions by some bigger companies in the year
2007 other than bank merger.

Research Design

In order to make this project effective and to show the real picture of Merger and Acquisition, I have
undertaken the following steps:

I first searched the different companies like Dimension consulting pvt Ltd., Centurion Bank,
HDFC bank, Hutuch, Reliance.

Then I collected the data from top companies and Bank who provide fundamental reseach to the
customers.

After I searched for the modes for collecting the information regarding Merger and Acquisition
which is provided by these companies.

I opted these modes for the completion of this project.

Then I started off one by one firstly with Mr. Ajay Kapoor, Finance Manager, and his views about
merger and acquisitions done by Dimension Consulting Pvt. Ltd.

In this report two methods were used for the data collection:

Primary Data
Secondary Data

The primary data collection system consisted of, collection of annual report of the company, merger
and acquisition information, the business profile of the company and the relevant literature one merger
and acquisition.

The mechanism involved in secondary data collection, mainly borrowing through adequate journal
(related to merger and acquisition), web portals, books, white papers.

The methodology adopted for the project was divided into two types of analysis:

Qualitative and Quantitative

Qualitative analysis required studying the business profile of the company, the performance of the
company in last few years and what policy they adopt and studying what role merger and acquisition
play.
Quantitative analysis required analyzing the current assets and current liabilities of the company, the
statement of analysis, analyzing the operating cycle and ratios to reveal the financial position and
soundness of the business and give a good basis for quantative analysis of financial problems.

The information has been primarily sourced and administered from company websites and/or the stock
exchanges. The questionnaire sought details on aspects such as management, memberships, reach &
access, size & strength, products & services, technology platforms & solution providers, growth &
consolidation plans and areas of focus and thrust in the future.

Besides, information has also been collected from secondary sources such as annual reports of the
companies , banks and their respective websites. Every effort was made to ensure that companies
respond to the questionnaire..
At last after collecting all the essential data, I omitted the incomplete/unnecessary data.

INTRODUCTION

INDIAN BANKING
AN OVERVIEW

M&A
A
GLOBAL
PHENOMENON

MERGER &
ACQUISITION
AN
OVERVIEW

Introduction
The banking industry is one of the prominent indicators of the health of an economy. A banks ability
and freedom to borrow from other banks and lend to corporates has a great impact on the growth rate
of the economy. Deregulation of US banks in the 1970s was followed by a drastic change in US
banking banks became larger and better diversified. Soon banks of other developed nations also
began to operate in more competitive markets. Developing countries also followed suit in the last
decade of the 20th century. Similar to the US, the Indian banking industry too has undergone several
changes since the initiation of financial sector reforms in 1992. Deposits and credit have grown at a
fast pace driven by the booming economy, increasing disposable income and increased corporate
activity; credit penetration has increased significantly though it remains way below the numbers in
developed markets; and foreign banks have set the trend in product and service innovation.

The future of Indian banking looks quite exciting with Competition intensifying which would lead to
consolidation, though foreign banks are likely to jump into the fray only by 2009, New regulations
pertaining to corporate governance and BASEL II coming into effect which would make the banking
infrastructure more robust and transparent, Technology being adopted aggressively by banks to make
processes efficient and cost-effective, provide services 24X7 and analyze customer data to offer
products and services tailor-made to suit their tastes new segments emerging which would enable
banks to tap into new markets and offer new products and services product and service innovation by
banks (both foreign and Indian), offering the customer greater choice.

From the Public sector dominated scenario, Indian Banking has come a long way to the current
scenario where private banks co-exist with their public bank counterparts who have adjusted to the
changing times. While The Indian Banking system has done fairly well in adjusting to the changing
market dynamics, greater challenges lie ahead.
Consolidation in the Banking sector is very important in terms of mergers and acquisitions for the
growing Indian Banking Industry. This can be achieved through Cost Reduction and Increasing
Revenue. The important part over here is that why do we need consolidation in Indian Banking and
what is the Challenges Ahead. The role of the Central government is also very necessary to be

analyzed in the entire process as they play a crucial role in the policy formation required for the
growth of Indian Banking.
Are we seeing the beginning of a phase of consolidation in Indian banking? Will liberalization and
globalization make consolidation through Mergers and Acquisitions a logical way forward for banks to
survive and grow? Will banks in India willingly agree to be taken over by other banks? Do we need
changes in our legal framework for facilitating mergers and acquisitions in the Indian banking
industry? Will Mergers and Acquisitions always lead to an appreciation in shareholder value? Well,
these are some of the questions which need to be analyzed keeping in the mind the future prospects of
the Indian Banking Industry.

Indian Banking-An Overview


The banking industry is the backbone of any monetized economy. The stage of development of this
industry is a good reflection of the development of the economy.

The banking industry in India is governed by Banking Regulation Act of India, 1949. Since 1949, this
sector has undergone phenomenal reforms due to the eddorts and the vision of the policymakers. The
first phase of reform began with nationalization if the 14 banks in 1969. At this stage, priority sectors
were identified and banking support was given to them. The second phase was the nationalization of 6
more banks in 1980. However, what can be considered as a breakthrough in banking services was the
entry to private sector banks whish was initiated in 1993. Eight new banks entered the market at this
stage with state of art technology and a brought with them a new wave of professionalism. It was at
this time that India was introduced to the concept of Debit and Credit cards, e-transfer of funds,
ATMs.

Post-liberalisation, the banking industry in India has grown at a fast pace. Increased economic activity
coupled with de-regulation has further strengthened the position of Indian banks. By the end of March
2006, the total deposits held by the scheduled commercial banks stood at INR 21 lakh crores, a growth
of 15.8 percent over 2005 and a compound annual growth rate (CAGR) of 14.9 percent since 2001-02.
The total loans and advances offered by commercial banks grew by 36 percent between March 2005
and March 2006 to reach INR 15 lakh crores, recording a CAGR of 23.6 percent since 2001-02.

By the end of fiscal year 2005-06, there were 26 public sector banks (including seven associates of the
State Bank of India), 29 private sector banks (21 old and 8 new private banks) and 30 foreign banks as
Scheduled Commercial Banks (SCBs) in India. As more foreign banks and aggressive new private
banks are looking towards increasing their footprints in an already crowded Indian banking industry,
the competition for nationalised banks is likely to escalate.
Banks have witnessed a significant decline in NPAs over the last few years (Figure 9). This trend is
visible for almost all categories of banks. This is primarily due to the stringent lending norms
implemented by banks and their better knowledge of Indian customers. Moreover, the RBI has been
tightening norms in line with the best international practices in recent years.

Source: evalueserve whitepaper on Indian Banking

Few Facts
The nationalized banks have more branches than any other types of banks in India. Now there are
about 33,627 Branches in India, as on March 2005.
Investments of scheduled commercial banks (SCBs) also saw an increase from Rs 8,04,199 crore in
March 2005 to Rs 8,43,081 crore in the same month of 2006.
India's retail-banking assets are expected to grow at the rate of 18% a year over the next four years
(2006-2010).
Retail loan to drive the growth of retail banking in future.
Housing loan account for major chunk of retail loan.

Indian Banking Industry- A Transition


Phase
The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be
broadly classified into two major categories, non-scheduled banks and scheduled banks.Scheduled
banks comprise commercial banks and the co-operative banks. In terms of ownership,commercial
banks can be further grouped into nationalized banks, the State Bank of India and itsgroup banks,
regional rural banks and private sector banks (the old/ new domestic and foreign).These banks have
over 67,000 branches spread across the country.
The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and
resulted in a shift from Class banking to Mass banking. This in turn resulted in a significant growth in
the geographical coverage of banks. Every bank had to earmark a minimum percentage of their loan
portfolio to sectors identified as priority sectors. The manufacturing sector also grew during the
1970s in protected environs and the banking sector was a critical source. The next wave of reforms
saw the nationalization of 6 more commercial banks in 1980. Since then the number of scheduled
commercial banks increased four-fold and the number of bank branches increased eightfold. After the
second phase of financial sector reforms and liberalization of the sector in the early nineties, the Public
Sector Banks (PSB) s found it extremely difficult to compete with the new private sector banks and the
foreign banks. The new private sector banks first made their appearance after the guidelines permitting
them were issued in January 1993. Eight new private sector banks are presently in operation. These
banks due to their late start have access to state-of the- art technology, which in turn helps them to
save on manpower costs and provide better services. During the year 2000, the State Bank Of India
(SBI) and its 7 associates accounted for a 25
percent share in deposits and 28.1 percent share in credit. The 20 nationalized banks accounted for
53.2 percent of the deposits and 47.5 percent of credit during the same period. The share of foreign
banks (numbering 42), regional rural banks and other scheduled commercial banks accounted for 5.7
percent, 3.9 percent and 12.2 percent respectively in deposits and 8.41 percent, 3.14 percent and 12.85
percent respectively in credit during the year 2000.

Current Scenario
The industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of
the Indian Banking system are in the process of shedding their flab in terms of excessive manpower,
excessive non Performing Assets (Npas) and excessive governmental equity, while on private sector
banks are consolidating themselves through mergers and
acquisitions. PSBs, which currently account for more than 78 percent of total banking industry assets
are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues from traditional
sources, lack of modern technology and a massive workforce while the new private sector banks are
forging ahead and rewriting the traditional banking business model by way of their sheer innovation
and service. The PSBs are of course currently working out challenging strategies even as 20 percent of
their massive employee strength has dwindled in the wake of the successful Voluntary Retirement
Schemes (VRS) schemes.
The private players however cannot match the PSBs great reach, great size and access to low cost
deposits. Therefore one of the means for them to combat the PSBs has been through the merger and
acquisition (M& A) route. Over the last two years, the industry has witnessed several such instances.
For instance, Hdfc Banks merger with Times Bank Icici Banks acquisition of ITC Classic, Anagram
Finance and Bank of Madura. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank are said
to be on the lookout. The UTI bank- Global Trust Bank merger however opened a pandoras box and
brought about the realization that all was not well in the functioning of many of the private sector
banks.
Private sector Banks have pioneered internet banking, phone banking, anywhere banking, mobile
banking, debit cards, Automatic Teller Machines (ATMs) and combined various other services and
integrated them into the mainstream banking arena, while the PSBs are still grappling with disgruntled
employees in the aftermath of successful VRS schemes. Also, following Indias commitment to the W
To agreement in respect of the services sector, foreign banks, including both new and the existing
ones, have been permitted to open up to 12 branches a year with effect from 1998-99 as against the
earlier stipulation of 8 branches.
Talks of government diluting their equity from 51 percent to 33 percent in November 2000 has
also opened up a new opportunity for the takeover of even the PSBs. The FDI rules being more
rationalized in Q1FY02 may also pave the way for foreign banks taking the M& A route to acquire
willing Indian partners. Meanwhile the economic and corporate sector slowdown has led to an
increasing number of banks focusing on the retail segment. Many of them are also entering the new
vistas of Insurance. Banks with their phenomenal reach and a regular interface with the retail investor
are the best placed to enter into the insurance sector. Banks in India have been allowed to provide fee-

based insurance services without risk participation, invest in an insurance company for providing
infrastructure and services support and set up of a separate joint-venture insurance company with risk
participation. Aggregate Performance of the Banking Industry Aggregate deposits of scheduled
commercial banks increased at a compounded annual average growth rate (Cagr) of 17.8 percent
during 1969-99, while bank credit expanded at a Cagr of 16.3 percent per annum. Banks investments
in government and other approved securities recorded a Cagr of 18.8 percent per annum during the
same period.
In FY01 the economic slowdown resulted in a Gross Domestic Product (GDP) growth of only 6.0
percent as against the previous years 6.4 percent. The WPI Index (a measure of inflation) increased
by 7.1 percent as against 3.3 percent in FY00. Similarly, money supply (M3) grew by around 16.2
percent as against 14.6 percent a year ago.
The growth in aggregate deposits of the scheduled commercial banks at 15.4 percent in FY01 percent
was lower than that of 19.3 percent in the previous year, while the growth in credit by SCBs slowed
down to 15.6 percent in FY01 against 23 percent a year ago.
The industrial slowdown also affected the earnings of listed banks. The net profits of 20 listed banks
dropped by 34.43 percent in the quarter ended March 2001. Net profits grew by 40.75 percent in the
first quarter of 2000-2001, but dropped to 4.56 percent in the fourth quarter of 2000 -2001.
On the Capital Adequacy Ratio (CAR) front while most banks managed to fulfill the norms, it was a
feat achieved with its own share of difficulties. The CAR, which at present is 9.0 percent, is likely to
be hiked to 12.0 percent by the year 2004 based on the Basle Committee recommendations. Any bank
that wishes to grow its assets needs to also shore up its capital at the same time so that its capital as a
percentage of the risk-weighted assets is maintained at the stipulated rate. While the IPO route was a
much-fancied one in the early 90s, the current scenario doesnt look too attractive for bank majors.
Consequently, banks have been forced to explore other avenues to shore up their capital base.While
some are wooing foreign partners to add to the capital others are employing the M& A route. Many are
also going in for right issues at prices considerably lower than the market prices to woo the investors.

Interest Rate Scene


The two years, post the East Asian crises in 1997-98 saw a climb in the global interest rates. It was
only in the later half of FY01 that the US Fed cut interest rates. India has however remained more or
less insulated. The past 2 years in our country was characterized by a mounting intention of the
Reserve Bank Of India (RBI) to steadily reduce interest rates resulting in a narrowing differential
between global and domestic rates.
The RBI has been affecting bank rate and CRR cuts at regular intervals to improve liquidity and
reduce rates. The only exception was in July 2000 when the RBI increased the Cash Reserve Ratio
(CRR) to stem the fall in the rupee against the dollar. The steady fall in the interest rates resulted in
squeezed margins for the banks in general.

Governmental Policy
After the first phase and second phase of financial reforms, in the 1980s commercial banks began to
function in a highly regulated environment, with administered interest rate structure,
quantitative restrictions on credit flows, high reserve requirements and reservation of a significant
proportion of lendable resources for the priority and the government sectors. The restrictive regulatory
norms led to the credit rationing for the private sector and the interest rate controls led to the
unproductive use of credit and low levels of investment and growth. The resultant financial
repression led to decline in productivity and efficiency and erosion of profitability of the banking
sector in general. This was when the need to develop a sound commercial banking system was felt.
This was worked out mainly with the help of the recommendations of the Committee on the Financial
System (Chairman: Shri M. Narasimham), 1991. The resultant financial sector reforms called for
interest rate flexibility for banks, reduction in reserve requirements, and a number of structural
measures. Interest rates have thus been steadily deregulated in the past few years with banks being free
to fix their Prime Lending Rates(PLRs) and deposit rates for most banking products.
Credit market reforms included introduction of new instruments of credit, changes in the credit
delivery system and integration of functional roles of diverse players, such as, banks, financial
institutions and nonbanking financial companies (Nbfcs). Domestic Private Sector Banks were
allowed to be set up, PSBs were allowed to access the markets to shore up their Cars.
Implications Of Some Recent Policy Measures
The allowing of PSBs to shed manpower and dilution of equity are moves that will lend greater
autonomy to the industry. In order to lend more depth to the capital markets the RBI had in

November 2000 also changed the capital market exposure norms from 5 percent of banks
incremental deposits of the previous year to 5 percent of the banks total domestic credit in the
previous year. But this move did not have the desired effect, as in, while most banks kept away almost
completely from the capital markets, a few private sector banks went overboard and exceeded limits
and indulged in dubious stock market deals. The chances of seeing banks making a comeback to the
stock markets are therefore quite unlikely in the near future.
The move to increase Foreign Direct Investment FDI limits to 49 percent from 20 percent during the
first quarter of this fiscal came as a welcome announcement to foreign players wanting to get a foot
hold in the Indian Markets by investing in willing Indian partners who are starved of networth to meet
CAR norms. Ceiling for FII investment in companies was also increased from 24.0 percent to 49.0
percent and have been included within the ambit of FDI investment. The abolishment of interest tax of
2.0 percent in budget 2001-02 will help banks pass on the benefit to the borrowers on new loans
leading to reduced costs and easier lending rates. Banks will also benefit on the existing loans
wherever the interest tax cost element has already been built into the terms of the loan. The reduction
of interest rates on various small savings schemes from 11 percent to 9.5 percent in Budget 2001-02
was a much awaited move for the banking industry and in keeping with the reducing interest rate
scenario, however the small investor is not very happy with the move Some of the not so good
measures however like reducing the limit for tax deducted at source (TDS) on interest income from
deposits to Rs 2,500 from the earlier level of Rs 10,000, in Budget 2001-02, had met with disapproval
from the banking fraternity who feared that the move would prove counterproductive and lead to
increased fragmentation of deposits, increased volumes and transaction costs. The limit was thankfully
partially restored to Rs 5000 at the time of passing the Finance Bill in the Parliament.
April 2001-Credit Policy Implications
The rationalization of export credit norms in will bestow greater operational flexibility on banks,and
also reduce the borrowing costs for exporters. Thus this move could trigger exports growth in the
future. Banks can also hope to earn increased revenue with the interest paid by RBI on CRR balances
being increased from 4.0 percent to 6.0 percent The stock market scam brought out the unholy nexus
between the Cooperative banks and stockbrokers. In order to usher in greater prudence in their
operations, the RBI has barred Urban Cooperative Banks from financing the stock market operations
and is also in the process of setting up of a new apex supervisory body for them. Meanwhile the
foreign banks have a bone to pick with
the RBI. The RBI had announced that forex loans are not to be calculated as a part of Tier-1 Capital
for drawing up exposure limits to companies effective 1 April 2002. This will force foreign banks

either to infuse fresh capital to maintain the capital adequacy ratio (CAR) or pare their asset base.
Further, the RBI has also sought to keep foreign competition away from the nascent net banking
segment in India by allowing only Indian banks with a local physical presence, to offer Internet
banking Crystal Gazing On the macro economic front, GDP is expected to grow by 6.0 to 6.5 percent
while the projected expansion in broad money (M3) for 2001-02 is about 14.5 percent. Credit and
deposits are both expected to grow by 15-16 percent in FY02. India's foreign exchange reserves should
reach US$50.0 billion in FY02 and the Indian rupee should hold steady. The interest rates are likely to
remain stable this fiscal based on an expected downward trend in inflation rate, sluggish pace of nonoil imports and likelihood of declining global interest rates. The domestic banking industry is
forecasted to witness a higher degree of mergers and acquisitions in the future. Banks are likely to opt
for the universal banking approach with a stronger retail approach. Technology and superior customer
service will continue to be the imperatives for success in this industry.
Public Sector banks that imbibe new concepts in banking, turn tech savvy, leaner and meaner post
VRS and obtain more autonomy by keeping governmental stake to the minimum can succeed in
effectively taking on the private sector banks by virtue of their sheer size. Weaker PSU banks are
unlikely to survive in the long run. Consequently, they are likely to be either acquired by stronger
players or will be forced to look out for other strategies to infuse greater capital and optimize their
operations.
Foreign banks are likely to succeed in their niche markets and be the innovators in terms of
technology introduction in the domestic scenario. The outlook for the private sector banks indeed
looks to be more promising vis--vis other banks. While their focused operations, lower but more
productive employee force etc will stand them good, possible acquisitions of PSU banks will definitely
give them the much needed scale of operations and access to lower cost of funds. These banks will
continue to be the early technology adopters in the industry, thus increasing their efficiencies. Also,
they have been amongst the first movers in the lucrative insurance segment.Already, banks such as
Icici Bank and Hdfc Bank have forged alliances with Prudential Life and Standard Life respectively.
This is one segment that is likely to witness a greater deal of action in the future. In the near term, the
low interest rate scenario is likely to affect the spreads of majors. This is likely to result in a greater
focus on better asset-liability management procedures. Consequently, only banks that strive hard to
increase their share of fee-based revenues are likely to do better in the future.

M&A- A Global Phenomenon


Be it industrial sector or services sector, M&As have become way forward in todays world. In a free
market economy, companies have to keep evolving to remain competitive. Adaptability to changes in
the market becomes a crucial factor for survival. M&As as a style of doing business got a fillip in the
1980s in the post oil-shock world. USA led the change with over 55000 M&As reported in the decade.
This activity gained further momentum in the nineties and even more so in the new millennium.
Merger between Arcelor and Mittal steel to become the largest steel manufacturer in the world is a
recent development which was followed with great interest by all of us.
What drives M&As? Theoretically, consolidation can be with two basic motives. One, A motive to
maximize value for stakeholders and two, non-value maximizing motives. In a perfect capital market
all activities of any company will be to maximize shareholder value. In reality, value maximization
comes from cost reduction or revenue growth.

MERGER AND ACQUISITON AN


OVERVIEW
The phrase mergers and acquisitions (abbreviated 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.
Acquisition
An acquisition, also known as a takeover or a buyout or "merger", is the buying of one company (the
target) by another. An acquisition, or a merger, may be private or public, depending on whether the
acquiree or merging company is or isn't listed in public markets. An acquisition may be friendly or
hostile. Whether a purchase is perceived as a friendly or hostile depends on how it is communicated to
and received by the target company's board of directors, employees and shareholders. It is quite
normal though for M&A deal communications to take place in a so called 'confidentiality bubble'
whereby information flows are restricted due to confidentiality agreements (Harwood, 2005). In the

case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the
takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer.
Hostile acquisitions can, and often do, turn friendly at the end, as the acquiror secures the endorsement
of the transaaction from the board of the acquiree company. This usually requires an improvement in
the terms 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. Another type
of acquisition is reverse merger, a deal that enables a private company to get publicly listed in a short
time period. A reverse merger occurs when a private company that has strong prospects and is eager
to raise financing buys a publicly listed shell company, usually one with no business and limited
assets. Achieving acquisition success has proven to be very difficult, while various studies have shown
that 50% of acquisitions were unsuccessful] The acquisition process is very complex, with many
dimensions influencing its outcome. There is also a variety of structures used in securing control over
the assets of a company, which have different tax and regulatory implications:
The buyer buys the shares, and therefore control, of the target company being purchased. Ownership
control of the company in turn conveys effective control over the assets of the company, but since the
company is acquired intact as a going concern, this form of transaction carries with it all of the
liabilities accrued by that business over its past and all of the risks that company faces in its
commercial environment.
The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid
back to its shareholders by dividend or through liquidation. This type of transaction leaves the target
company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the
transaction as an asset purchase to "cherry-pick" the assets that it wants and leave out the assets and
liabilities that it does not. This can be particularly important where foreseeable liabilities may include
future, unquantified damage awards such as those that could arise from litigation over defective
products, employee benefits or terminations, or environmental damage. A disadvantage of this
structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers
of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges
or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller's shareholders.
The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation where one
company splits into two, generating a second company separately listed on a stock exchange.

Distinction between mergers and acquisitions


Although often used synonymously, the terms merger and acquisition mean slightly different things.
[This paragraph does not make a clear distinction between the legal concept of a merger (with the
resulting corporate mechanics - statutory merger or statutory consolidation, which have nothing to do
with the resulting power grab as between the management of the target and the acquirer) and the
business point of view of a "merger", which can be achieved independently of the corporate mechanics
through various means such as "triangular merger", statutory merger, acquisition, etc.]
When one company takes over another and clearly establishes itself as the new owner, the purchase is
called an acquisition. From a legal point of view, the target company ceases to exist, the buyer
"swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms agree to go forward as a single new
company rather than remain separately owned and operated. This kind of action is more precisely
referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks
are surrendered and new company stock is issued in its place. For example, in the 1999 merger of
Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new
company, GlaxoSmithKline, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy
another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a
merger of equals, even if it is technically an acquisition. Being bought out often carries negative
connotations, therefore, by describing the deal euphemistically as a merger, deal makers and top
managers try to make the takeover more palatable. An example of this would be the takeover of
Chrysler by Daimler-Benz in 1999 which was widely referred to in the time.
A purchase deal will also be called a merger when both CEOs agree that joining together is in the best
interest of both of their companies. But when the deal is unfriendly - that is, when the target company
does not want to be purchased - it is always regarded as an acquisition.

Business valuation
The five most common ways to valuate a business are
asset valuation,
historical earnings valuation,
future maintainable earnings valuation,
relative valuation (comparable company & comparable transactions),
discounted cash flow (DCF) valuation
Professionals who valuate businesses generally do not use just one of these methods but a combination
of some of them, as well as possibly others that are not mentioned above, in order to obtain a more
accurate value. The information in the balance sheet or income statement is obtained by one of three
accounting measures: a Notice to Reader, a Review Engagement or an Audit.
Accurate business valuation is one of the most important aspects of M&A as valuations like these will
have a major impact on the price that a business will be sold for. Most often this information is
expressed in a Letter of Opinion of Value (LOV) when the business is being valuated for interest's
sake. There are other, more detailed ways of expressing the value of a business. These reports
generally get more detailed and expensive as the size of a company increases, however, this is not
always the case as there are many complicated industries which require more attention to detail,
regardless of size.
Financing M&A
Mergers are generally differentiated from acquisitions partly by the way in which they are financed
and partly by the relative size of the companies. Various methods of financing an M&A deal exist:
Cash
Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the
shareholders of the target company are removed from the picture and the target comes under the
(indirect) control of the bidder's shareholders.

Specialist M&A advisory firms


Although at present the majority of M&A advice is provided by full-service investment banks, recent
years have seen a rise in the prominence of specialist M&A advisers, who only provide M&A advice
(and not financing). These companies are sometimes referred to as Transition companies, assisting
businesses often referred to as "companies in transition." To perform these services in the US, an
advisor must be a licensed broker dealer, and subject to SEC (FINRA) regulation. More information
on M&A advisory firms is provided at corporate advisory.
Motives behind M&A
The dominant rationale used to explain M&A activity is that acquiring firms seek improved financial
performance. The following motives are considered to improve financial performance:
Economy of scale: This refers to the fact that the combined company can often reduce its fixed costs
by removing duplicate departments or operations, lowering the costs of the company relative to the
same revenue stream, thus increasing profit margins.
Economy of scope: This refers to the efficiencies primarily associated with demand-side changes, such
as increasing or decreasing the scope of marketing and distribution, of different types of products.
Increased revenue or market share: This assumes that the buyer will be absorbing a major competitor
and thus increase its market power (by capturing increased market share) to set prices.
Cross-selling: For example, a bank buying a stock broker could then sell its banking products to the
stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts.
Or, a manufacturer can acquire and sell complementary products.
Synergy: For example, managerial economies such as the increased opportunity of managerial
specialization. Another example are purchasing economies due to increased order size and associated
bulk-buying discounts.
Taxation: A profitable company can buy a loss maker to use the target's loss as their advantage by
reducing their tax liability. In the United States and many other countries, rules are in place to limit the
ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an
acquiring company.
Geographical or other diversification: This is designed to smooth the earnings results of a company,
which over the long term smoothens the stock price of a company, giving conservative investors more

confidence in investing in the company. However, this does not always deliver value to shareholders
(see below).
Resource transfer: resources are unevenly distributed across firms (Barney, 1991) and the interaction
of target and acquiring firm resources can create value through either overcoming information
asymmetry or by combining scarce resources
Vertical integration: Vertical integration occurs when an upstream and downstream firm merge (or one
acquires the other). There are several reasons for this to occur. One reason is to internalise an
externality problem. A common example is of such an externality is double marginalization. Double
marginalization occurs when both the upstream and downstream firms have monopoly power, each
firm reduces output from the competitive level to the monopoly level, creating two deadweight losses.
By merging the vertically integrated firm can collect one deadweight loss by setting the downstream
firm's output to the competitive level. This increases profits and consumer surplus. A merger that
creates a vertically integrated firm can be profitable
However, on average and across the most commonly studied variables, acquiring firms' financial
performance does not positively change as a function of their acquisition activity. Therefore,
additional motives for merger and acquisition that may not add shareholder value include:
Diversification: While this may hedge a company against a downturn in an individual industry it fails
to deliver value, since it is possible for individual shareholders to achieve the same hedge by
diversifying their portfolios at a much lower cost than those associated with a merger.
Manager's hubris: manager's overconfidence about expected synergies from M&A which results in
overpayment for the target company.
Empire-building: Managers have larger companies to manage and hence more power.
Manager's compensation: In the past, certain executive management teams had their payout based on
the total amount of profit of the company, instead of the profit per share, which would give the team a
perverse incentive to buy companies to increase the total profit while decreasing the profit per share
(which hurts the owners of the company, the shareholders); although some empirical studies show that
compensation is linked to profitability rather than mere profits of the company.

Effects on management
A study published in the July/August 2008 issue of the Journal of Business Strategy suggests that
mergers and acquisitions destroy leadership continuity in target companies top management teams for
at least a decade following a deal. The study found that target companies lose 21 percent of their
executives each year for at least 10 years following an acquisition more than double the turnover
experienced in non-merged firms.
The Great Merger Movement
The Great Merger Movement was a predominantly U.S. business phenomenon that happened from
1895 to 1905. During this time, small firms with little market share consolidated with similar firms to
form large, powerful institutions that dominated their markets. It is estimated that more than 1,800 of
these firms disappeared into consolidations, many of which acquired substantial shares of the markets
in which they operated. The vehicle used were so-called trusts. To truly understand how large this
movement wasin 1900 the value of firms acquired in mergers was 20% of GDP. In 1990 the value
was only 3% and from 19982000 it was around 1011% of GDP. Organizations that commanded the
greatest share of the market in 1905 saw that command disintegrate by 1929 as smaller competitors
joined forces with each other. However, there were companies that merged during this time such as
DuPont, US Steel, and General Electric that have been able to keep their dominance in their respected
sectors today due to growing technological advances of their products, patents, and brand recognition
by their customers. The companies that merged were mass producers of homogeneous goods that
could exploit the efficiencies of large volume production. However more often than not mergers were
"quick mergers". These "quick mergers" involved mergers of companies with unrelated technology
and different management. As a result, the efficiency gains associated with mergers were not present.
The new and bigger company would actually face higher costs than competitors because of these
technological and managerial differences. Thus, the mergers were not done to see large efficiency
gains, they were in fact done because that was the trend at the time. Companies which had specific
fine products, like fine writing paper, earned their profits on high margin rather than volume and took
no part in Great Merger Movement.

Short-run factors
One of the major short run factors that sparked in The Great Merger Movement was the desire to keep
prices high. That is, with many firms in a market, supply of the product remains high. During the panic
of 1893, the demand declined. When demand for the good falls, as illustrated by the classic supply and
demand model, prices are driven down. To avoid this decline in prices, firms found it profitable to
collude and manipulate supply to counter any changes in demand for the good. This type of
cooperation led to widespread horizontal integration amongst firms of the era. Focusing on mass
production allowed firms to reduce unit costs to a much lower rate. These firms usually were capitalintensive and had high fixed costs. Because new machines were mostly financed through bonds,
interest payments on bonds were high followed by the panic of 1893, yet no firm was willing to accept
quantity reduction during that period.[citation needed]
Long-run factors
In the long run, due to the desire to keep costs low, it was advantageous for firms to merge and reduce
their transportation costs thus producing and transporting from one location rather than various sites of
different companies as in the past. This resulted in shipment directly to market from this one location.
In addition, technological changes prior to the merger movement within companies increased the
efficient size of plants with capital intensive assembly lines allowing for economies of scale. Thus
improved technology and transportation were forerunners to the Great Merger Movement. In part due
to competitors as mentioned above, and in part due to the government, however, many of these
initially successful mergers were eventually dismantled. The U.S. government passed the Sherman Act
in 1890, setting rules against price fixing and monopolies. Starting in the 1890s with such cases as
U.S. versus Addyston Pipe and Steel Co., the courts attacked large companies for strategizing with
others or within their own companies to maximize profits. Price fixing with competitors created a
greater incentive for companies to unite and merge under one name so that they were not competitors
anymore and technically not price fixing.

Merger waves
The economic history has been divided into Merger Waves based on the merger activities in the
business world as:

Period
1889 - 1904
1916 - 1929
1965 - 1989
1992 - 1998
2000 -

Name
First Wave
Second Wave
Third Wave
Fourth Wave
Fifth Wave

Facet
Horizontal mergers
Vertical mergers
Diversified conglomerate mergers
Congeneric mergers; Hostile takeovers; Corporate Raiding
Cross-border mergers

Cross-border M&A
In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A deals
cause the domestic currency of the target corporation to appreciate by 1% relative to the acquirers.
The rise of globalization has exponentially increased the market for cross border M&A. In 1997 alone
there were over 2333 cross border transactions worth a total of approximately $298 billion. This rapid
increase has taken many M&A firms by surprise because the majority of them never had to consider
acquiring Due to the complicated nature of cross border M&A, the vast majority of cross border
actions have unsuccessful anies seek to expand their global footprint and become more agile at
creating high-performing businesses and cultures across national boundaries
Even mergers of companies with headquarters in the same country are very much of this type (crossborder Mergers). After all,when Boeing acquires McDonnell Douglas, the two American companies
must integrate operations in dozens of countries around the world. This is just as true for other
supposedly "single country" mergers, such as the $29 billion dollar merger of Swiss drug makers
Sandoz and Ciba-Geigy (now Novartis).

Types of Mergers & Acquisitions


Merger types can be broadly classified into the following five subheads as described below.
They are

Horizontal Merger
Conglomeration,
Vertical Merger,
Product-Extension Merger
Market-Extension Merger.

Horizontal Merger
Horizontal mergers are those mergers where the companies manufacturing similar kinds of
commodities or running similar type of businesses merge with each other. The principal objective
behind this type of mergers is to achieve economies of scale in the production procedure through
carrying off duplication of installations, services and functions, widening the line of products, decrease
in working capital and fixed assets investment, getting rid of competition, minimizing the advertising
expenses, enhancing the market capability and to get more dominance on the market.

Nevertheless, the horizontal mergers do not have the capacity to ensure the market about the product
and steady or uninterrupted raw material supply. Horizontal mergers can sometimes result in
monopoly and absorption of economic power in the hands of a small number of commercial entities.

According to strategic management and microeconomics, the expression horizontal merger delineates
a form of proprietorship and control. It is a plan, which is utilized by a corporation or commercial
enterprise for marketing a form of commodity or service in a large number of markets. In the context
of marketing, horizontal merger is more prevalent in comparison to horizontal merger in the context of
production or manufacturing.

Horizontal Integration
Sometimes, horizontal merger is also called as horizontal integration. It is totally opposite in nature to
vertical merger or vertical integration.
Horizontal Monopoly
A monopoly formed by horizontal merger is known as a horizontal monopoly. Normally, a monopoly
is formed by both vertical and horizontal mergers. Horizontal merger is that condition where a
company is involved in taking over or acquiring another company in similar form of trade. In this way,
a competitor is done away with and a wider market and higher economies of scale are accomplished.

In the process of horizontal merger, the downstream purchasers and upstream suppliers are also
controlled and as a result of this, production expenses can be decreased.
Horizontal Expansion
An expression which is intimately connected to horizontal merger is horizontal expansion. This refers
to the expansion or growth of a company in a sector that is presently functioning. The aim behind a
horizontal expansion is to grow its market share for a specific commodity or service.
Examples of Horizontal Mergers
Following are the important examples of horizontal mergers:
Theformation of Brook Bond Lipton India Ltd. through the merger of Lipton India and Brook Bond
The merger of Bank of Mathura with ICICI (Industrial Credit and Investment Corporation of India)
Bank
Themerger of BSES (Bombay Suburban Electric Supply) Ltd. with Orissa Power Supply Company
Themerger of ACC (erstwhile Associated Cement Companies Ltd.) with Damodar Cement

Advantages of Horizontal Merger:


Horizontal merger provides the following advantages to the companies which are merged:
1) Economies of scope
The notion of economies of scope resembles that of economies of scale. Economies of scale
principally denote effectiveness related to alterations in the supply side, for example, growing or

reducing production scale of an individual form of commodity. On the other hand, economies of scope
denote effectiveness principally related to alterations in the demand side, for example growing or
reducing the range of marketing and supply of various forms of products. Economies of scope are one
of the principal causes for marketing plans like product lining, product bundling, as well as family
branding.
2) Economies of scale
Economies of scale refer to the cost benefits received by a company as the result of a horizontal
merger. The merged company is able to have bigger production volume in comparison to the
companies operating separately. Therefore, the merged company can derive the benefits of economies
of scale. The maximum use of plant facilities can be done by the merged company, which will lead to
a decrease in the average expenses of the production.

The important benefits of economies of scale are the following:


Synergy
Growthor expansion
Risk diversification
Diminution in tax liability
Greatermarket capability and lesser competition
Financial synergy (Improved creditworthiness, enhancement of borrowing power, decrease in the
cost of capital, growth of value per share and price earning ratio, capital raising, smaller flotation
expenses)
Motivation forthe managers

For attaining economies of scale, there are two methods and they are the following:
Increased fixed cost and static marginal cost
No or small fixed cost and decreasing marginal cost

one example of economies of scale is that if a company increases its production twofold, then the
entire expense of inputs goes up less than twofold.

3) Dominant existence in a particular market

Conglomeration.
As per definition, a conglomerate merger is a type of merger whereby the two companies that merge
with each other are involved in different sorts of businesses. The importance of the conglomerate
mergers lies in the fact that they help the merging companies to be better than before.

Types of Conglomerate Mergers


There are two main types of conglomerate mergers the pure conglomerate merger and the mixed
conglomerate merger. The pure conglomerate merger is one where the merging companies are doing
businesses that are totally unrelated to each other.

The mixed conglomerate mergers are ones where the companies that are merging with each other are
doing so with the main purpose of gaining access to a wider market and client base or for expanding
the range of products and services that are being provided by them

There are also some other subdivisions of conglomerate mergers like the financial conglomerates, the
concentric companies, and the managerial conglomerates.

Reasons of Conglomerate Mergers


There are several reasons as to why a company may go for a conglomerate merger. Among the more
common reasons are adding to the share of the market that is owned by the company and indulging in
cross selling. The companies also look to add to their overall synergy and productivity by adopting the
method of conglomerate mergers.

Benefits of Conglomerate Mergers


There are several advantages of the conglomerate mergers. One of the major benefits is that
conglomerate mergers assist the companies to diversify. As a result of conglomerate mergers the
merging companies can also bring down the levels of their exposure to risks.

Implications of Conglomerate Mergers


There are several implications of conglomerate mergers. It has often been seen that companies are
going for conglomerate mergers in order to increase their sizes. However, this also, at times, has
adverse effects on the functioning of the new company. It has normally been observed that these
companies are not able to perform like they used to before the merger took place.

This was evident in the 1960s when the conglomerate mergers were the general trend. The term
conglomerate mergers also implies that the two companies that are merging do not even have the same
customer base as they are in totally different businesses.

It has normally been seen that a lot of companies that go for conglomerate mergers are able to manage
a wide variety of activities in a particular market. For example, these companies can carry out research
activities and applied engineering processes. They are also able to add to their production as well as
strengthen the marketing area that ensures better profitability.

It has been seen from case studies that conglomerate mergers do not affect the structures of the
industries. However, there might be significant impact if the acquiring company happens to be a
leading company of its market that is not concentrated and has a large number of entry barriers.

Vertical Merger
Vertical mergers refer to a situation where a product manufacturer merges with the supplier of inputs
or raw materials. In can also be a merger between a product manufacturer and the product's distributor.

Vertical mergers may violate the competitive spirit of markets. It can be used to block competitors
from accessing the raw material source or the distribution channel. Hence, it is also known as "vertical
foreclosure". It may create a sort of bottleneck problem.

As per research, vertical integration can affect the pricing incentive of a downstream producer. It may
also affect a competitors incentive for selecting input suppliers. Research studies single out several
factors, which point to the fact that vertical integration facilitates collusion. Vertical mergers may
promote collusion through an outlets effect. A corollary of vertical integration is that integrated
business structures are able to perform better in crisis phases.

There are multiple reasons, which promote the vertical integration by firms. Some of them are
discussed below.
The prime reason being the reduction of uncertainty regarding the availability of quality inputs as
also the uncertainty regarding the demand for its products.
Firms may also enter vertical mergers to avail the plus points of economies of integration.
Vertical merger may make the firms cost-efficient by streamlining its distribution and production
costs. It is also meant for the reduction of transactions costs like marketing expenses and sales taxes. It
ensures that a firm's resources are used optimally.

Bird's Eye View of US Laws Pertaining to Vertical Mergers


In USA the vertical mergers abide by the 'Clayton Act (15 U.S.C.A. 12 et seq.)'. The transactions
conducted here fall under the purview of antitrust acts.

It is interesting to note that vertical mergers do not lead to a fall in the number of operating economic
agents at a particular market level. However, it may result in a change of industry behavior pattern.

At its worst suppliers might be faced with a loss of product market. The retail chains may run out of
stock. Competitors may also face blockages for supplies as well as outlets.

Vertical mergers by virtue of their market power may effectively block new firms from entering the
market thereby violating the competitive flavor of the market.

The Supreme Court of USA has given a ruling on just 3 cases pertaining to vertical merger under the
Clayton Act ( section 7 ) as per the latest available information.

In the first case the Court contradicted the general assumption that section 7 was not applicable for
vertical mergers.

In the following vertical merger case the US Supreme Court observed that the primary disadvantage of
vertical merger lies in the throttling of the spirit and essence of competition. Business rivals may be
denied a fair chance at competition.

The Court observed that regarding vertical mergers two areas need close scrutiny and regulation.

One concerns the purpose and nature of the vertical merger arrangement. The other parameter
concerns the industry concentration trend in that specific sector.

In the third judgment passed on vertical merger US Supreme Court quashed Ford's claim that its
acquisition of Autolite had made the latter a better competitor.

Thus a vertical merger is a situation where a firm acquires a product supplier or a customer. Vertical
mergers may at times violate the US federal antitrust laws.

Gist of European Commission Guidelines on Vertical Mergers


In 2007 the European Commission released a new set of guidelines for non-horizontal mergers. It can
be noted that vertical merger is a type of non-horizontal merger. The Commission is the regulatory
body overseeing the compliance aspect of firms going for vertical mergers.

The guidelines cited instances where conglomerate and vertical mergers significantly affected the
competitive nature of the market.

The European Commission normally is not bothered about 'competition concerns' in what is
commonly known as 'safe harbors'. The guidelines set benchmarks for market share levels and
concentration levels below which comes the 'safe harbors'. Market analysts consider this 'safe harbor'
aspect of the new guidelines to be an innovative one.

Seen in overall terms the new guidelines from the European Commission aims at providing a
transparent regulatory guideline framework for the business community as well as the legal fraternity.

Product Extension Merger


Product-Extension Merger is executed among companies, which sell different products of a related
category. They also seek to serve a common market. This type of merger enables the new company to
go in for a pooling in of their products so as to serve a common market, which was earlier fragmented
among them.
According to definition, product extension merger takes place between two business organizations that
deal in products that are related to each other and operate in the same market. The product extension
merger allows the merging companies to group together their products and get access to a bigger set of
consumers. This ensures that they earn higher profits.

Example of Product Extension Merger


The acquisition of Mobil ink Telecom Inc. by Broadcom is a proper example of product extension
merger. Broadcom deals in the manufacturing Bluetooth personal area network hardware systems and
chips for IEEE 802.11b wireless LAN.

Mobil ink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are
equipped with the Global System for Mobile Communications technology. It is also in the process of
being certified to produce wireless networking
chips that have high speed and General Packet Radio Service technology. It is expected that the
products of Mobilink Telecom Inc. would be complementing the wireless products of Broadcom
.

Market Extension Merger


Market-Extension Merger occurs between two companies that sell identical products in different
markets. It basically expands the market base of the product
As per definition, market extension merger takes place between two companies that deal in the same
products but in separate markets. The main purpose of the market extension merger is to make sure
that the merging companies can get access to a bigger market and that ensures a bigger client base.

Example of Market Extension Merger


A very good example of market extension merger is the acquisition of Eagle Bancshares Inc by the
RBC Centura. Eagle Bancshares is headquartered at Atlanta, Georgia and has 283 workers. It has
almost 90,000 accounts and looks after assets worth US $1.1 billion.

Eagle Bancshares also holds the Tucker Federal Bank, which is one of the ten biggest banks in the
metropolitan Atlanta region as far as deposit market share is concerned. One of the major benefits of
this acquisition is that this acquisition enables the RBC to go ahead with its growth operations in the
North American market.

With the help of this acquisition RBC has got a chance to deal in the financial market of Atlanta ,
which is among the leading upcoming financial markets in the USA. This move would allow RBC to
diversify its base of operations.

Difference between Market Extension Merger and Product Extension Merger


The difference between market extension merger and product extension merger lies in the fact that the
later is meant to add to the existing variety of products and services offered by the respective merging
companies; while, in case of the former the two merging companies are dealing in similar products.

In case of the market extension merger the two merging companies are operating in the same market
and as far as product extension merger is concerned the two merging companies are operating in
different markets.

SCOPE AND OBJECTIVE

WHO CONSTITUTE A MERGER

THE ANTICOMPETITIVE THRESHOLD

MARKET DEFINITION

EVALUATIVE CRITERIA

THE EFFICIENCY EXCEPTION

M&A IN BANKING INDUSTRY

WHY MERGERS IN BANKING?

CONSOLIDATION IN INDIAN BANKING

IS BIGGER BETTER?

NEED FOR CONSOLIDATION

BENEFITS OF CONSOLIDATION

RISKS OF CONSOLIDATION

M&A IN INDIAN BANKING SECTOR AS AN IMPERATIVE

M&A IN THE INDIAN BANKING SECTOR AS AN OPPORTUNITY

ADOPTION OF M&A AS A KEY STRATEGIC TOOL

ROLE OF STRATEGIC INVESTMENT

MERGERS AS A SOURCE OF COMPETITIVE ADVANTAGE

WHAT CONSTITUTE A MERGER


In general terms, section 91 deems a "merger" to occur when direct or indirect control over, or
significant interest in, the whole or a part of a business of another person is acquired or established.
The principal issue

is the interpretation of the words "significant interest". The acquisition or

establishment of a significant interest in the whole or a part of a business of another person is


considered to occur when a person acquires or establishes the ability to materially influence the
economic behaviour of the business of a second person; (e.g., block special or ordinary resolutions or
make decisions relating to pricing, purchasing, distribution, marketing or investment). In general, a
direct or indirect holding of less than a 10 percent voting interest in another entity will not be
considered a significant interest.A significant interest may be acquired or established pursuant to
shareholder agreements, management contracts and other contractual arrangements involving
incorporated or non-incorporated entities.
The Anticompetitive Threshold
In general, a merger will be found to be likely to prevent or lessen competition substantially when the
parties to the merger would more likely be in a position to exercise a materially greater degree of
market power in a substantial part of a market for two years or more, than if the merger did not
proceed in whole or in part. Market power can be exercised unilaterally or interdependently with other
competitors. To date, most of the mergers that the Director has concluded would likely have prevented
or lessened competition substantially have raised concerns about the ability of the merging parties to
unilaterally exercise market power. However, the Guidelines indicate that a merger can also facilitate
the ability of two or more competitors to exercise market power interdependently, through an explicit
agreement or arrangement, or through other forms of behaviour that permit firms implicitly to
coordinate their conduct. In the assessment of the extent to which market power will likely be acquired
or entrenched as a result of a merger, the focus is primarily upon the price dimension of competition.
Nevertheless, competition can be substantially prevented or lessened with respect to service, quality,
variety, advertising or innovation, where rivalry in the market in respect of these dimensions of
competition is important.

Market Definition
Outlines the conceptual framework that underlies the approach taken to market definition, and
describes the various factual criteria that are typically assessed in the case-by-case application of this
framework. In general, a relevant market is defined as the smallest group of products and the smallest
geographic area in relation to which sellers could impose and maintain a significant and nontransitory
price increase above levels that would likely exist in absence of the merger.In most contexts, the
Bureau considers a 5 percent price increase to be significant, and a one year period to be nontransitory.
However, a different price increase or time period may be employed where the Director is satisfied
that the application of the 5 percent or one year thresholds would not reflect market realities, Where
potential competition from new entrants or expansion by fringe firms within the market would require
significant construction or adaptation of facilities, or overcoming significant difficulties related to
marketing and distribution, it is considered subsequent to market definition, in the assessment of
whether new entry into the relevant market would ensure that competition would not likely be
prevented or lessened substantially.
Evaluative Criteria
Addresses the various evaluative criteria that are analyzed in the determination of the likely effects of
a merger on competition in a relevant market. The first matter discussed is the significance of
information relating to market share and concentration. Mergers generally will not be challenged on
the basis of concerns relating to the unilateral exercise of market power where the post-merger market
share of the merged entity would be less than 35 percent. Similarly, mergers generally will not be
challenged on the basis of concerns relating to the interdependent exercise of market power, where the
share of the market accounted for by the largest four firms in the market post-merger would be less
than 65 percent. Notwithstanding that market share of the largest four firms may exceed 65 percent,
the Director generally will not challenge a merger on the basis of concerns relating to the
interdependent exercise of market power where the merged entity's market share would be less than 10
percent. These thresholds merely serve to distinguish mergers that are unlikely to have anticompetitive
consequences from mergers that require further analysis, of various qualitative assessment criteria
such as those highlighted in section 93. No inferences regarding the likely effects of a merger on
competition are drawn from evidence that relates solely to market share or concentration. In all cases,
an assessment of market shares and concentration is only the starting point of the analysis.

The Guidelines then address the seven qualitative assessment criteria specifically mentioned in section
93 of the Act, together with two additional criteria that are often important to consider. As is the case
with high market share and concentration, the presence of impediments to new competition that would
impose on entrants a significant cost disadvantage, irrecoverable costs, or time delays is generally a
necessary, but not sufficient precondition to a finding that competition is likely to be prevented or
lessened substantially. In the absence of such impediments, a significant degree of market power
generally cannot be maintained. Where future entry or expansion by fringe firms within the market
would likely occur on a sufficient scale within two years to ensure that a material price increase could
not be sustained beyond this period in a substantial part of the relevant market, the Bureau would
likely conclude that the merger does not require enforcement action.
Similarly, information relating to either the failing firm or the effective remaining competition factors
can be sufficient to warrant a decision not to challenge a merger. In cases where one of the merging
parties is likely to exit the market in absence of the merger, and there are no alternatives to this exit
that would result in a materially higher degree of competition than if the merger proceeded, the merger
will generally not be found to be likely to contravene the Act. Likewise, where the degree of effective
remaining competition that would remain in the market is not likely to be reduced, the merger likely
will not be challenged.

The Efficiency Exception


Address in detail the approach taken to the efficiency exception provisions of section 96. These
provisions become operative where a merger has been found to be likely to substantially prevent or
lessen competition. The review of submissions relating to efficiency gains focuses primarily upon
quantifiable production related efficiency gains. However, qualitative dynamic efficiencies can in
certain circumstances also receive significant weight. The total efficiency gains that would not likely
be attained if the merger did not proceed are balanced against the effects of any prevention or
lessening of competition likely to be brought about by the merger. The focus of the evaluation of the
magnitude of these anticompetitive effects is upon the part of the total loss likely to be incurred by
buyers or sellers that is not merely a transfer from one party to another but represents a loss to the
economy as a whole, attributable to the diversion of resources to lower valued uses.

M&A in Banking Industry


Banking system is the bloodline of any economy and banks are trustees of public money. The
depositors therefore, have more stakes in the welfare of banks than the share holders. Failure of a bank
has more systemic implications than say, the failure of a manufacturing company. Laws governing
regulation and supervision of banks in all countries therefore focus on protecting the interests of
depositors. Naturally, fillip to bank consolidation in many countries came through regulatory and
governmental actions in public interest. Large scale public funding has also taken place in a number of
countries to prevent failure of banks/banking system.
United States witnessed large scale bank failures in the eighties (Savings and Loan Institutions) and
the Government came to the rescue of banking system through liberal FDIC (Federal Deposit
Insurance Corporation) support. An estimated USD 100 Billion was sent on the rescue. In the process
the Government encouraged mergers among banks by giving incentives to the banks taking over assets
and liabilities of failed banks. Subsequent M & A activity in the USA in nineties and in recent years
have been motivated by market forces.
Nearer home, we have the Asian experience in bank consolidation post 1997 economic meltdown. The
crisis brought out the vulnerability of a weak banking system to economic shocks. Here again, the
governments had come up with funding support and actively encouraged consolidation among banks.
Let us look at some of the initiatives taken in this region for strengthening the banking system.
Indonesia witnessed large scale infusion of public funds into the banking system through a specialized
restructuring agency. Regulatory forbearance was also present in good measure to facilitate bank
recovery. As against Basel Capital adequacy norm of 8%, banks were allowed to operate with 4% as
an interim measure. Only banks which had Capital adequacy ratio reduced to below - 25% were
marked for immediate closure. Consolidation among banks was actively encouraged and FDI was
allowed up to 99%. Net result was that the number of banks in Indonesia which stood at 239 in 1996
came down to 138 by 2003. Consolidation was most visible among private banks with the number of
such banks coming down from 164 to 76 during the period. Post restructuring, the banks are now
healthier and their branch network and coverage has increased significantly in recent years.
In Malaysia Bank Negara, the Central Bank implemented a well crafted financial master plan aimed at
strengthening the domestic banks, create a level playing field for foreign banks and open banking

sector to global competition. The regulator used suasion to create 10 anchor banks through the
consolidation of 22 banks and 39 finance companies. FDI capped at 30% is expected to be increased in
the second phase of reforms scheduled to commence from 2007.
In Singapore, there are 3 main banking groups and they have given boost to consolidation process not
only within the country, but also in South Korea and Malyasia
Thailand has implemented a Financial Sector Master Plan aimed at removing obstructions to M & A
and also allows FDI flow to strengthen the banking system.
Japan is a country which has witnessed a virtual collapse of the banking system along with economic
stagnation which lasted over 15 years. Japan had some of the leading names in global banking arena.
The economic slowdown saw the NPA levels going up over the roofs and the banks virtually looking
for governments support. Needless to say, the low interest rate regime (near zero rates) would have
eased their sufferings somewhat. However, the banking system has recovered in recent years helped
by liberal financial assistance from the government and an environment of extremely loose monetary
policy. Consolidation process which was kicked off as restructuring strategy has resulted in emergence
of three large banks viz. Mitsubishi UFJ, Mizuho and Sumitomo Mitusui.
Today NPA levels have come down to an acceptable level of 2% from a peak level of 8.4% in the year
2002. Capital adequacy ratios have improved above the Basel Benchmark of 8%. Banks have started
showing profits and there is a pick-up in their credit portfolio. Japanese banks may still have a long
way to go as their ratings continue to be low and they are heavily dependant on interest income with
heavy reliance on low margin corporate loans.
Another interesting development taking place in Japan is the government move to privatise the postal
agency, which doubles as a financial institution that holds the worlds largest pool of household
savings. The Housing Loan Corporation managing the advances of the postal agency had, at one time,
nearly 50% of all mortgage loans in Japan. As part of privatisation this Corporation is being wound up
with the assets getting transferred to the banking system. The privatisation of the postal agency would
see the emergence of a new bank (named as Yacho Bank) which could probably be one of the largest
banking entities in the world.

M&A in Indian Banking


Mergers and Acquisitions are not an unknown phenomenon in Indian Banking. In fact, the predecessor
of State Bank of India, the Imperial Bank of India was born out of consolidation of three Presidency
Banks way back in 1920. In fact there were several cases of bank failures, mergers and acquisitions
which were reported in pre-independence period dating back to even early 19th Century. Proper
regulation and control of banks and intervention by the regulator in the event of a crisis came into
being with the passing of Banking Regulation Act in 1949.
However, forced merger and amalgamation as a tool to provide relief to ailing banks besides
protecting public and depositor confidence in banking system came into being only in 1960 when
Section 45 inserted in BR Act. Panic created by the Nath Bank in the fifties and Laxmi bank and Palai
Central bank in 1960 had prompted this legislative move. The first half of the sixties saw 45 forced
mergers under section 45. In the post nationalization period also a number of mergers and acquisitions
took place, most of them under Section 45. Interestingly almost all of them were amalgamations of
failed private banks with one of the Public sector banks.
In the recent times, we have seen some M&A as voluntary efforts of banks. Merger of Times Bank
with HDFC Bank was the first of such consolidations after financial sector reforms ushered in 1991.
Merger of Bank of Madura with ICICI Bank, reverse merger of ICICI with ICICI bank, coming
together of Centurion Bank and Bank of Punjab to form Centurion Bank

of Punjab and the recent decision of Lord Krishna Bank to merge with Federal Bank are voluntary
efforts by banks to consolidate and grow.
Consolidation fever has not been confined to the Scheduled Commercial Banks. We have seen
consolidation process gaining strength in other sectors as well. We had 196 RRBs since 1989. The last
year and a half has seen their numbers dwindle to 103 with merger of RRBs sponsored by commercial
banks within the same state. This move is expected to bring most of the RRBs into profit making
entities capable of playing their role in the way they were expected to do when the RRB Act was
passed in 1996.

Well, the big question is When will we see M&A activity among Public Sector Banks? Public
Sector Banks form nearly 75% of Indian Banking and we need to see consolidation in this sector for
the Indian Banking sector to stand up and be counted in the Global Banking map.

Why Mergers in Banking?


Achieving Cost Reduction
a) Cost reduction through economy of Scale- Consolidation helps in scaling in up operations, there by
reducing per unit cost
b) Cost reduction through economy of Scope- This is achieved through synergy involved in the ability
to offer multiple products using the same infrastructure. Example: Banks can offer insurance and
investment products using their branch network and thereby achieve economy of scope
c) Cost reduction through rationalization of man power. The merged entity will be able to identify the
right persons to man critical functions from a larger pool of human resources.
d) Reduction in risk. The merged entity will be able to reduce credit risk through spreading it across
wider geographies or product range.
e) Cost reduction through possible reduction in tax obligations
f) Cheaper sourcing of inputs with increased bargaining power with vendors and suppliers
g) Ability to enter new business areas with reduced initial cost as compared to a new set up.

Increasing Revenue
a) A bigger entity will be able to serve a large customer better. By offering more services and taking
bigger share in the business of the customer the bank will be able to increase the revenue per customer
b) Product diversification will facilitate one stop shopping by the banks customers.
c) A larger customer base will generate more revenue
d) Greater visibility in the market place will enhance the ability to attract new customers.
e) A bigger size and share in the market will boost the banks ability to raise product prices without
losing customers
f) The merged entity will be able to take bigger risk and reap its rewards.

Consolidation in Indian Banking


Indian banks are smaller in size and scale, compared to their international counterparts. This can be
gauged from the fact that Indias largest bank, SBI, stands 72nd among the top 1000 banks in the
world (according to a list published by The Banker in 2006) and its Tier I capital is roughly 1/10th
the size of the worlds biggest bank, Citigroup. Moreover, SBI does not find a place in the top ten
banks even in Asia. On the contrary, there are six Chinese banks that feature in the list of the top 25
banks in Asia. Only two Indian Banks, SBI and ICICI, are among the top 25 Asian Banks.

The lack of size and scale acts as a major inhibitor to the Indian banks competing against the foreign
banks. Currently, the banking sector is very strictly regulated, limiting the growth of foreign banks in
India. Indian banks require approval from RBI for expanding overseas. These measures have shielded
the Indian banks from competing with foreign banks.
With India strongly pushing for liberalisation and globalisation, this situation is bound to change.

The RBI has proposed opening the banking sector and providing a level playing field to foreign and
national banks in 2009. This has spurred the Indian banks to consolidate to achieve size and scale
comparable to foreign banks. Further, the pressure on capital structure to meet prudential capital
adequacy norms as prescribed by Basel II necessitates the need for consolidation in the banking
industry.

Besides achieving scale and size, consolidation can reduce the cost of operations through economies
of scale, for example, the effective use of manpower and offering multiple products using the same
infrastructure. The larger banks are in a better position to manage credit risk by spreading it across
geographies and multiple product range. The bigger entities are also in a better position to attract
customers and provide diversified products to the customers.

Is Bigger Better?
At around $780 billion, Indias GDP (gross domestic product) is comparable to that of South Korea,
yet Korean banks have seven times more banking assets than Indian banks. With assets of around Rs
4,93,000 crore, State Bank of India (SBI) is the countrys largest bank, yet it is only ranked 84 in the
world, according to The Banker; the next biggest is ICICI Bank, which is half the size of SBI and
ranked around 200 globally.
Two things become clear. One, India is still an unbanked country. Two, by global standards, even the
biggest of Indian banks are minnows in a business where size means clout and where geographical
boundaries are blurring. Even by Indian standards, most of the banking sector is disadvantaged by
size: the top 25 banks of which, 18 are owned by the government account for about 85 per cent
of banking assets.
Such fragmentation is a matter of concern, more so approaching 2009 the date set by the Reserve
Bank of India (RBI) to relax operational norms for foreign banks. The sweep, nature and timeline of
those changes havent been articulated yet, but as and when foreign banks are allowed unrestricted
access, or even something approaching that, they could muscle out the smaller banks with their large
capital base.

Squeezed by size and competition, a similar fate could await banks that are small or are uncompetitive,
where theres a lot of duplication of products and services without any value-addition to the customer.
The set of public sector banks, which account for 75 per cent of banking assets, are ripe for mergers
and acquisitions, and hold the key for any meaningful change in the dynamics of the banking sector.
Barring SBI, theres not much to distinguish one public sector bank from another. Its common to find
10 public sector banks in an area, all offering an identical banking proposition. Consolidation will lead
to more efficient use of resources branches, ATMs, employees, technology enabling them to
offer cheaper banking services.

Compared to their smaller peers, big banks can allocate more towards technology, the benefits of
which are being able to service more customers and reach the desired economies of scale. In some of
the new, large private sector banks, as much as 75 per cent of banking transactions are now conducted
through the automated route (ATMs, Internet banking and call centres), compared to 20 per cent about
four years ago.

The common consensus among banking sector experts is that M&As are desirable, even inevitable.
But since the Left doesnt think the same way, the sense of urgency is missing in the set of banks that
need it the most: public sector banks. Since any merger moves are likely to be scuttled by employee
unions and the Left, the best public sector banks are able to do today is form loose alliances of the kind
struck by Corporation Bank, Indian Bank and Oriental Bank of Commerce, which agreed to, among
other things, rationalise branch network, and share IT and treasury resources.
Private Banks have to grapple with survival issues of their own. Being financial intermediaries that
mobilise public savings and lend them onwards, banks have a fiduciary responsibility. Hence, the
ownership pattern of banks is considered crucial to protecting the interests of depositors. As some of
the private sector banks are community-based or promoter-driven, their shareholding pattern is
concentrated in the hands of a few, which raises the possibility of misappropriation of funds. If their
stakes are to be reduced, some of the smaller banks will necessarily have to merge among themselves.
Compared to public sector banks, theres less overlap between private banks, as they have different
business models and cater to different segments, but that also creates its own shortcomings.

The RBI has also mandated a net worth of at least Rs 300 crore for banks. Some of the smaller banks
with a lower net worth will be forced to become bigger and find ways to raise more capital. In a short
period of time till 2009, it will be difficult for banks to grow organically; hence they are left with no
option but to merge. The RBI has paved the way over the next few years for banks to grow bigger,
whether by themselves or through M&As.

List of mergers in Indian Banking


Serial
No

Banks/Entities Merged

Time of
Merger

United Western Bank

Lord Krishna Bank


Bank

Ganesh Bank of Kurunwad


Bank

IDBI Bank

Bank of Punjab
Bank

Global Trust Bank


Commerce

IDBI Bank

September
2006

Centurion

August
2007

Federal

January
2006

IDBI Limited

April
2006

Centurion

June 2005

Oriental Bank of

July 2004

Nedungadi Bank
Punjab

Bank of

December
2002

Benares State Bank


Baroda

Bank of

June 2002

Bank of Madura

ICICI Bank

March
2001

10

ICICI Limited

ICICI Bank

January
2000

11

Times Bank

HDFC Bank

December
1999

12

Sikkim Bank

Union Bank

December
1999

13

Bareilly Corporation Bank


Baroda

Bank of

June 1999

M&A in Indian Banking Sector as an Imperative


There are multiple reasons that lead to the fact that M&A in the Indian Banking sector as an
imperative.

Stability

Fragmentation poses increasing risk in the Indian Banking Sector. During the financial period 20012005, only four banks have been able to cross the market capitalization of Rs. 50 billion included Bank
of Baroda, HDFC Bank, ICICI Bank, and State Bank of India. Considerable fragmentation exists in
the Banking sector for banks with market capitalization of less than Rs. 50 billion.

Moreover the created value is moving away from the top 5 banks thus indicating fragmentation indeed
has increased over the period of last five years. Shown below are the deposit shares of the Banks
operating in India over the period 2000-2004. It is observed that the share of the top 5 players has
eroded and been consumed by the next fifteen players.
Considering that the base of total deposits has been consistently increasing, consequently the value in
deposits gained by the next 15 banks has been tremendous.

Year
Top 5 Banks
Next 15 Banks
Remaining
Banks

2000
52.40%
34.39%
13.21%

2004
47.09%
38.04%
14.87%

Source: Data on deposits from RBI website

Similar trends are observed in profit after tax, borrowings and interest and non interest incomes of the
banks, thereby hinting at increased levels of fragmentation in the top 20 banks. Though this could be
the sign of a competitive bank market with healthy banks remaining in the market the goal of globally
competent banks would be missed.

In other words, while a fragmented Indian banking structure may very well be beneficial to the
customers (given increased competition due to lower market power of existing players), at the same
time this also creates the problem of no player having the critical mass to play the game at the global
banking industry level. This has to be looked at significantly from the states long-term strategic
perspective. Furthermore, it is observed that in an increasing competitive arena the smaller fragmented
banks with no economies of scale, low capabilities to manage risks and poor market power at times
end up taking excessive risks resulting in irreparable loss to their depositors. This also results in
affecting the state and its regulators i.e., central bank negatively. Take the following cases of trouble
in the recent past:

Global Trust Bank: Significant exposure to high risk mid size corporates and an excessive exposure
to capital market operations.
Madhavpura Mercantile Co-operative Bank: Nineteen customers had unsecured loans of more than
Rs. 10 billion.
South Indian Co-operative Bank: Non Performing Assets (NPAs) from excessive lending to small
group of clients.
Nedungadi Bank: This bank based in Southern part of India had significant exposure to plantation
industry and had weak credit risk management systems and processes.

Further recent cases (in 2005-06) of two banks in India namely United Western Bank and Sangli Bank
became attractive targets for acquisition by private sector banks because of their risk profile. The
merger with these larger banks is expected to improve the asset profile, NPA management and protect
the depositors at the same time offer the acquiring private sector banks further reach in terms of
branches and customer base.

The Value is moving Away to Fewer Banks

Source: FICCI Presentation on M&A in Banks, 2005

The above figure shows that in the year 1998 the share of market value mostly remained not with the
top 5 banks but with the next 15 banks. As time has moved, the value has moved away to a fewer
banks. In 2004 the top 5 banks had a share of market value at 36.4% with the next 15 banks getting
41.5% of the Indian Banking. This also shows that no particular banks have a complete control in the
Indian Banking Industry.
Another important thing to consider is that the valuations still remain low as compared to other
markets.
Countries
Germany
USA
Hong Kong
Brazil
Thailand
India
Korea

P/E
15.2
14.1
17.7
9.0
8.1
6.7
8.5

P/B
1.2
2.3
2.6
1.7
1.5
1.39*
1.1

Source: FICCI presentation on M&A in Banks in 2005


*: weighted average of 37 banks.

Bank Valuation in India


Banks
New
Banks
Old
Banks
Public
Banks

Private

P/E
8.0

P/B
2.6

Private

4.8

1.5

Sector

3.4

0.8

Source: FICCI presentation on M&A in Banks in 2005

2. Return and Risk to Shareholder

A small analysis of performance of the bank sector and the equity market benchmark index in India
and USA showed the following results:

India

Beta
Mean
Returns
(daily)
Std.
Devn.

Bankex
0.807

Nifty

0.17%

0.12%

1.97%

1.40%

Beta
Mean
Returns
(daily)
Std.
Devn.

USA
NYSE
Financial
0.95

NYSE
Composite

0.06%

0.06%

0.84%

0.78%

Source: Note on opportunities and imperatives in Indian Banking for M&A by Jay Mehta and Ram
Kumar Kakani, XLRI and S.P Jain Centre of Management, Nov 2006
The above table clearly indicates that the banking portfolio in US is as risky as the composite portfolio
which is not the case in India. Though the returns are more in India the risk is also higher as shown by
the standard deviation. A report as early as August 1991 recognized the trend in shareholder returns in
the US and hence was one of the reasons for the bank M&A wave in the USA1.

3. Benefit to Customers
Benefits to customers can be seen in a number of ways. One such way is lowering in the
intermediation costs. A 10 year trend in the intermediation costs as a percentage of Total assets in
Indian Banks shows that the Indian private sector banks have the least intermediation costs as a
percentage of total assets. During the time frame of study, a significant decreasing trend can also be
observed in the Private Sector banks of India in the decade. Being non fragmented they could claim
greater efficiency and hence lower intermediation costs. Thus, building a strong case where
intermediation costs can be lowered and M&A could be a way for the same.

Comparison within the Indian banking sector reveals that consolidation will help in reducing the
intermediation costs and this will in fact benefit the customers and will also give the customers better
access to quality products and services which is restricted to a small part of the market.

Operating Costs/Average Assets


Ranks/Banks

Public Sector

Private Sector

Foreign
Banks

Top 5
Next 10
Remaining
Average*

2.4
2.52
2.86
2.45

1.59

2.91
---

1.82
1.79

--3.03
90

Source: FICCI Presentation on M&A in Banks, 2005 and RBI and Mckinsey analysis
*: Average for 4 years; FY 2000-2003
U.S. Banking Industry Finds Salvation in Merger Binge, By John J. Duffy International Herald
Tribune
4. Adhering to International Capital Adequacy Ratio and Supporting Regulatory
Framework

Supporting institutional and regulatory framework in India is vital for domestic banks aspiring for
global operations. The Central Bank i.e., the Reserve Bank of India (RBI) has suitably changed the
countrys regulatory framework from time to time to support Indian financial institutions to withstand
the competitive pressures placed on them by increasing globalization. Proper steps have been taken to
guide the banking sector to see that the banks pass through this transition phase by and large
successfully.

With the RBI regulating the Capital to Risk-Weighted Asset Ratio (CRAR) at 9%, a percent above the
Basel II CRAR, going forward many banks would not be able to meet these requirements and may
have to go through restructuring in order to meet the regulatory requirements. Furthermore there are a
number of banks in India whose growth is restricted due to unavailability of capital. These banks have
a significant depositor base but the market perception does not enable them to raise further funds. Take
a look at the

banks that have raised equity from the capital markets at least twice in the past five years to get
indicative cues. Hence such banks also become potential targets of acquisition.

Average Capital Adequacy Ratio of Banks in India


Category
of
Banks
Foreign Banks
Private Sector
Public Sector
SBI Group

20002001
17.04
12.13
10.98
12.43

20012002
20.22
12.64
10.81
12.96

20022003
24.58
12.66
12.05
13.11

20032004
32.28
13.41
13.18
13.02

Source: www.indiastat.com
The reforms initiated in the banking sector have now reached a crucial stage. Governments stake in
many Public Sector Banks (PSBs) has gone down and as a consequence other shareholders equity
ownership in these PSBs has gone up. This leads to greater responsibility on the bank managements
since the level of accountability has increased. Pressures of performance and profitability will keep the
PSBs on their toes all the time as the public shareholders expect good financial performance along
with good returns on their equity. Many PSBs have already started the exercise of cleaning up of their
balance sheets by shedding the excess baggage. The Voluntary Retirement Scheme (VRS) in the
recent past in some of the banks was aimed not only at downsizing the manpower but also at cutting
down the future staff costs and increasing the performance levels of the staff in the long run. Some of
these PSB banks are able to run the show to a certain extent by low cost funds that are available thanks
to the branch network spread over the length and breadth of the country. M&A activity will further
boost this process for many other banks that cannot go through this exercise individually and need
larger partners to execute them in terms of processes and resources.

5. Managing Bankruptcy Risks


Recent studies have established that if merger and acquisitions in banks if allowed in a controlled
manner would significantly reduce the bankruptcy risk of the merged entity.
Obviously, mergers would also provide these benefits to banks in India reducing their bankruptcy
concerns. With most of the recent merger that have happened in the Indian banking have mostly been
weak and bankrupt banks being forced to merge with stronger banks to protect the interests of the
customers and only few mergers have happened keeping in mind strategic reasons and the need to
grow inorganically.

6. Bottom Line Growth

Mergers and Acquisitions or Restructuring may also help banks improve in three other areas as listed
below:
Economies of Scale: An acquirer would have the capabilities to improve the collections, service
processes, distribution, infrastructure and IT of the target bank.
Economies of Scope: An ability to grow products and segments and an opportunity to cross sell
would enhance revenue. This could also result in more geographic growth could also be obtained.
Synergy Benefits: Treasury performance would be improved as the cost of funds would reduce
(hence, improve spread) as it would have a better credit rating. A bank would also be able to leverage
scale and improve its trading income.

M&A in the Indian Banking Sector as an Opportunity


There are two prime reasons to believe that M&A in the Indian Banking Sector is an opportunity.

1. Creation of a Financial Super Market or a Universal Bank


A recent trend is to promote the concept of a financial super market chain, making available all types
of credit and non-fund facilities under one roof under one umbrella organization (or through
specialized subsidiaries).
An example of such a financial supermarket would be the reverse merger of ICICI and ICICI Bank.
ICICI Bank today stands as Indias second largest bank offering its clients both in India and overseas a
product range as varied us retail banking products to exotic investment banking and treasury solutions.
Similarly, IDBI and IDBI Bank treaded the same route. Though one has to state that consolidated
accounting and supervisory techniques would have to evolve and appropriate fire walls built to address
the risks underlying such large organizations and banking conglomerates.

2. Technological Expertise
New entrants in the banking sector are armed with technological expertise while older players are well
equipped with experience in practices. Mergers would thus help both parties gain an expertise in areas
in which they lack. In India, the retail banking market biased towards the urban markets is growing at
a Compounded Annual Growth Rate (CAGR) of almost 18-20% while the rural market is yet to be
fully tapped. Keeping in focus the population profile, technology would be a major enabler for
banking in the future. A number of state owned banks in India are adopting sophisticated core banking
solutions and these are just the larger ones. For smaller banks to adopt technology platforms the
expenditure may not be sustainable and hence this may be one more reason for M&A.

Growing integration of economies and the markets around the world is making global banking a
reality. The surge in globalization of finance has also gained momentum with the technological
advancements which have effectively overcome the national borders in the financial services business.

Widespread use of internet banking, mobile banking, and other modern technologies (such as SWIFT)
has widened frontiers of global banking, and it is now possible to market financial products and
services on a global basis.

In the coming years globalization would spread further on account of the likely opening up of financial
services under WTO. India is one of the signatories of Financial Services Agreement (FSA) of 1997.
This gives Indias financial sector including banks an opportunity to expand their business on a quid
pro quo basis. An easy way for this is thus to go through adequate reconstruction to acquire the
necessary technology and get an early mover advantage in globalizing the Indian Banks.

Adoption of M&A as a key Strategic tool


There are strategic needs for and benefits of M&A which needs to be looked at before consolidating.
Gaining market share as a complement / supplement to organic growth
Rapid expansion or access to new markets / products
Acquisition of partners capabilities and customers i.e. if you cant beat them then buy them.
Getting a jump on competition

For this to happen there are a certain market requirements that need to be achieved.

Mature market / saturation reached


Availability of attractive targets
Transparent company information

Wide range of funding options

Also there needs to be a proper regulatory backup which is very essential for any market to have
proper investors and an easy procedure for consolidation.
Accommodating regulations
Open to foreign ownership / competition
Repatriation conditions not too onerous
M&A is accepted as a critical aspect of strategic planning and a key component of business strategy
execution.

ROLE OF STRATEGIC INVESTMENT


There can also be a possibility of Strategic Investments where traditional M&A is not possible.
Strategic Partnership occurs when majority or full ownership is not available. This could lead to
reduced initial financial commitment. There is also possibility of future expansion. This would also
give an opportunity to study the market i.e. get to know the local government and the domestic market.
A Strategic Partnership would also help to evaluate the target company better. For successful
partnerships there needs to good macroeconomic conditions and market conditions and also good deal
conditions viz reasonable market valuation, willing buyer and seller and also commercial standards in
the non-price business terms.
For serious buyers, acquiring a strategic stake is a viable alternative even though the ultimate aim is to
have full control and ownership.

Conditions for a Successful Partnership


A successful partnership requires market, business and deal features combined in a conducive and
deal-friendly fashion

1) Macroeconomic factors
Accommodating regulations & practical-minded government
Strong underlying economic growth
Workable business infrastructure (e.g. legal, communications & accounting framework)

2) Business Conditions
Market receptivity to foreign ownership of operating businesses
Critical mass of possible targets
Stable markets
Availability of funding

3) Deal Conditions
Willing Buyer + Willing Seller
Reasonable market valuation
Commercial (and international) standards in non-price business terms
Factor Analysis

Macroeconomic Factors

Business Conditions

Deal Conditions

Does India have what it takes to attract Investors?


7

Asia 10 Total

Total M&A Value, US$ bn

0
1990 1991

1992

1993 1994

1995

1996

1997 1998 1999

2000

2001

2002

2003 2004
YTD

Source: Presentation on Strategic Partnerships with foreign institutions: myth or reality


By P.Noel Kullavanijaya at FICCI conference on global banking, September 14, 2004

Note: Asia 10 refers to China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore,
South Korea, Taiwan and Thailand

2000

1,918

China Target Company


India Target Company

1800
1600
1400

Total M&A Value, US$ mn

1200
990

1000
800
600
400
200

132

115
12

0
1998

22
1999

7
2000

20
2001

200
139

72
2002

2003

2004 YTD

Source: Presentation on Strategic Partnerships with foreign institutions: myth or reality


By P.Noel Kullavanijaya at FICCI conference on global banking, September 14, 2004
Note: India data excludes Temasek Holdings acquisition of ICICI Bank stake via open market

The above figure clearly shows that in the year 2004, the Indian banking targets by foreign investors
or banks are clearly very less as compared to its Chinese counterparts. Indian banks primarily suffer
from the fact that they are not large in terms of its assets and also its wide reach. Not many private
sector banks have a pan India reach. As compared, the Chinese banks have had more than $1900 mn
m&a in value of deals that have happened in 2004. Moreover the Chinese banks are bigger in size as
compared to its Indian counterparts and also the regulatory norms and also the entire market
conditions are very favourable for the foreign banks or investors to enter the Chinese market and get
into the merger and acquisitions market over there.

The Indian banks in comparison to its Asian counterparts are highly overvalued and its valuation is
highly demanding. As shown in comparison chart below, the valuation in most of the countries in Asia
are less as compared to that of India and also the fact that most of the Indian banks are not so huge in
size as compared to many of the global banks and also its Asian counterparts as well. Apart from SBI
or State Bank of India none of the banks are in the top 100 list of The Banker. The list states top
1000 banks in terms of its assets size and only SBI is the top 100 list. So the high valuation of some of
these banks though justified is highly demanding and in some cases overvalued.

Valuation even if Justified is demanding

Median

Price to
Earnings

Price to
Book

Based on prices as at August 19, 2004

China
Hong Kong
Taiwan
Indonesia
Singapore
Malaysia
Thailand
Korea

19.8 x
13.7
11.1
8.0
14.4
13.2
7.6
9.4

3.51 x
1.82
1.71
1.61
1.58
1.48
1.46
1.39

Source: Presentation on Strategic Partnerships with foreign institutions: myth or reality


By P.Noel Kullavanijaya at FICCI conference on global banking, September 14, 2004
Note: Country data refer to median ratios of banks sampled by Citigroup. Price to Earnings ratio is
based on 2004E EPS from I/B/E/S; Price to Book ratio is based on reported FY2003 book value.

Mergers as a source of competitive advantage


In the changing economic and business environment characterized by speed, flexibility and
responsiveness to customers, size has a lot to contribute to staying ahead in the competition. It is in
this context that mergers and acquisitions (M & As) as a tool to gain competitive strength comes into
the forefront with Partnering for competitiveness being a recognized strategic argument for the same.
In fact, as Michael Porter (1985) states, the primary reason for M & As is to achieve synergy by
integrating two business units in a

combination that will increase competitive advantage. Competitive advantage accrues since through
M & As, firms seek strategic positioning, industry-wide consolidation, increased market share and
shareholder value, synergy through economies of scale, revenue enhancement, risk reduction, shared
cost of product development and improved access to markets and new technologies. However, it is
also a fact that many M &As have produced disappointing results with three out of four mergers and
acquisitions failing to achieve their financial and strategic objectives. While many reasons have been
advanced for the failure ranging from financial, organizational, to people related; it remains true that
M & As pose strategic challenges for both academicians and researchers.
While M & As have become a global trend, the resurgence in the Indian economy would provide a
momentum to such activity in the near future, driven by factors such as boom in the financial markets,
rising stock prices, persistently low interest rates, Specifically, sectors such as Banking, Pharma, and
Telecom are reported to drive the M & As as per an ASSOCHAM study.

The Indian banking industry is today witnessing a spate of mergers and acquisitions. This phenomenon
is indicative of a global trend wherein banking is witnessing the twin trends of consolidation and
convergence. This is driven by the need to acquire strength through bigger size and therefore be able
to compete on a global scale in a competitive and deregulated banking environment.

It is to be noted that the situation facing the Indian banking industry is in contrast to that prevailing
more than a decade back wherein the Indian banking sector was a monopoly dominated by the State
Bank of India. M & As in the banking sector were initiated through the recommendations of the

Narasimham Committee on banking sector reforms which suggested that 'merger should not be viewed
as a means of bailing out weak banks.

They could be a solution to the problem of weak banks but only after cleaning up their balance sheet.'
One of the first initiatives in this regard i.e. the HDFC-Times Bank merger in 1999 created history
since it signaled size as a competitive advantage, that mergers amongst strong banks can be both a
means to strengthen the base, and of course, to face the cut-throat competition. Prior to this private
bank merger, there have been quite a few attempts made by the government to rescue weak banks and
synergise the operations to achieve scale economics; unfortunately these proved futile. Subsequently,
we witnessed two more mega mergers in the history of Indian M & As, one the merger of Bank of
Madhura with ICICI Bank, and second that of Global Trust Bank with UTI Bank, (the new bank being
called UTI-Global bank).

The future outlook of the Indian banking industry is that a lot of action is set to be seen with respect to
M & As, with consolidation as a key to competitiveness being the driving force. Both the private
sector banks and public sector banks in India are seeking to acquire foreign banks. As an example, the
State Bank of India, the largest bank of the country has major overseas acquisition plans in its bid to
make itself one of the top three banks in Asia by 2008, and among the top 20 globally over next few
years. Some of the PSU banks are even planning to merge with their peers to consolidate their
capacities. In the coming years we would also see strong cooperative banks merging with each other
and weak cooperative banks merging with stronger ones.

While there would be many benefits of consolidation like size and thereby economies of scale, greater
geographical penetration, enhanced market image and brand name, increased bargaining power, and
other synergies; there are also likely to be risks involved in consolidation like problems associated
with size, human relations problems, dissimilarity in structure, systems and the procedures of the two
organizations, problem of valuation etc which would need to be tackled before such activity can give
enhanced value to the industry.

LIMITATION
S

SIZE,
CHALLENGES,
FINAL BALANCE
OF
OPPORTUNITIES
AND THREATS

IMPORTANCE OF
DEREGULATION
AND ITS IMPACT

INDIAN
SCENARIO
DEREGULATION

Size Challenges and Final balance of Opportunities and Threats


Many banks experience post merger profitability below the industry average. The reaction of the
related parties to the merger announcement is significantly negative. The success of mergers depends
on four factors, that is Profitability (ROA, ROE), Credit quality, Asset mix and control of operating
expenses. The performance and controllability pose a challenge to the management in the merger
process. Most retail banks try to obtain economies of scale by expanding-either by extending their
networks or widening their range of products and services. But there is not automatic link between
size and profitability. Sometimes, this attempt to expand can produce opposite effects. The
complexity of managing large operations can nullify the benefits, and losses related to top-heavy
organization are often underestimated. The lack of transparency of financial activities and fragmented
nature of debts and capital, especially mega banks prevent creditors, shareholders and regulators from

imposing discipline. Internet banking is also a challenge with which large banks have to contend.
Moreover, in the present framework, regulation is essential to avoid system failures that have
devastating consequences, as was the case in South East Asia in 1977.Hence big size poses challenges
to Government, ownership, management, and regulatory and regulatory bodies in management or
control of its operations. But the final balance of cost and benefits associated with mergers favour the
creation of universal banks. The possible benefits of scale or scope economies, the revenue
enhancement, and the added stability all favour the movement toward universal banks.

Importance of Deregulation and its Impact


Deregulation is a worldwide phenomenon and has covered the dismantling of interest rate
controls, the removal of barriers between banks and other financial intermediaries and lowering of
entry barriers both for domestic and foreign banks.

The United Kingdom was the earliest to remove interest rate controls in the seventies. The United
States commenced the process of elimination of interest rate ceilings on deposits in 1980 and
concluded it in the early eighties. Interest rate controls in France and Switzerland were removed
during the eighties. In Japan too, domestic deposit rate deregulation started in 1985. In the eighties
barriers between banks and securities markets were progressively
lowered in the United States giving freedom to banks to conduct trading and underwriting of domestic
securities. The Glass-Steagall act of 1993, which prohibited affiliations between securities firms and
banks was scrapped in 1999 (The Economist, October 30, 1999). Banks in Germany, Switzerland and
the United Kingdom always had greater freedom to conduct investment activities, the model of
banking followed in these countries being that of Universal Banking. The trend of liberalization has
been seen in other countries as well. Deregulation has had a widespread impact on financial markets
and institutions. Disintermediation is one by-product of deregulation. The trend towards disintermediation in Japan started in the late 1980s with the deregulation of the capital market. This
included the lifting of prohibitions on short-term Euro yen loans to domestic borrowers; gradual
removal of restrictions on corporate bond market and creation of a commercial paper market.
Following these developments, banks faced price competition with borrowers finding it cheaper to
borrow directly from the markets. This situation was further worsened by the fact that banks were not
permitted by regulators to underwrite securities when the bond market was booming. They were

allowed to set up subsidiaries to deal in securities in 1994 (Akihiro and Woo, 2000). The trend of disintermediation is also captured by data, which show that the share of banks borrowing and lending

business in the total financial services market is falling. In the United States of America bank assets
formed 28 percent of all financial assets in 1999, roughly half of what they were 20 years ago. Though
bank lending accounted for 55 percent of all financial assets in Britain and 75 percent in France and
Germany in 1999, these shares are showing a downward trend (The Economist, March 13, 1999).
These trends of dis-intermediation and competition resulting from deregulation have squeezed the
margins of banks. In the US regional banks had margins of more than 5.5 percent points in 1970s,
which fell to 4 percent in 1999. Margins for bigger money-center banks have fallen from 3 percent to
around 1.25 percent in the same time period (The Economist, April, 1999). At the same time banks
have had to approach capital markets themselves to raise capital in line with their risk weighted assets
owing to the Basel Committee's norms on capital adequacy. Investors in the share markets require
higher earnings per share from banks in return for contributing to their capital. The trends of
falling spreads and investor's demanding higher returns have pushed banks to generate additional
returns.

The Indian Scenario-Deregulation


The Indian banking industry is presently in a situation of great flux. There are various
developments, changes within the Indian economy and deregulations occurring that have the
potential to drastically change the way this industry functions in the future. As per the changes
envisaged by the Reserve Bank of India (RBI), a roadmap has been laid down to
gradually deregulate this sector to the foreign banks.

Some of these regulations include the following proposals:


Lifting the ceiling on voting rights in banks
Smoothen mergers and acquisitions of private banks
Permit foreign banks to set up subsidiaries in India.
A tentative nod to banks to permit trading in commodities and commodity derivatives

The major changes would be through removal of Section 12(2) of Banking Regulation Act,

allowing voting rights in proportion to the shareholding. This was not the case earlier and was a major
hindrance to the entry of foreign banks in India.

Traditionally, Indian banks have used very conservative risk managing strategies, shying away from
derivatives, commodities and real estate. However as the appetite for credit and newer banking
products are increasing, this sector is no longer limited to Private Sector banks (PSBs). This also
implies that there is a scope for consolidation, amongst various sectoral banks as well as financial
institutions so as to be able to provide these newer products and services to customers.
The fact that this sector is being deregulated has thrown up several issues, several of which have been
debated both by the financial and the political experts but keeping in mind the consolidation thats
happening in this sector and also with a view on the entry of foreign banks into the country an
important issue is the regulation pertaining to the foreign banks into the country.

This mainly deals with the permission to be extended to foreign banks to set up subsidiaries
and transact in bank buy-outs. Even though the FDI ceiling in a bank was raised to 74%, the ceiling of
10 per cent on voting rights irrespective of the shareholding in a bank was
preventing foreign banks from venturing into India. The RBI has now proposed to do away with this
ceiling on voting rights in banks, to smoothen mergers and acquisitions of private banks and to permit
foreign banks to set up subsidiaries in India.
Political View
The Left has claimed that these regulations shall benefit only those banks that intend to make a quick
buck by providing high-profile corporate service, as opposed to those who wish to intensify their rural
operations. They have further stated that since foreign players could on a yearly basis keep on
increasing their holding size in a particular bank, this would lead to an imbalance of power.

Their main concern is the effect on the domestic banks, especially the public sector

banks. They

have opposed the acquisition of domestic banks by foreign players, primarily since this would give
these new players a direct advantage in terms of an already existing banking structure, complete with a
national presence in terms of branches, ATM networks, and of course skilled personnel knowledgeable
of local needs and consumer behavior

The various benefits and pitfalls of RBIs decision can best be assessed by looking into the examples
of other countries that have undergone similar transformations by opening up this sector to the worl

THEORETICAL PERSPECTIVE
VALUE CREATED BY MERGER
COST AND BENEFIT OF MERGER
CROSS BORDER M&A IN BANKS
UNDERLYING THEORIES IN MERGER & ACQUISITIONS
STAGES OF MERGER & ACQUISITION INTEGRATION PROCESS
THE FOREIGN EXPERIENCE
THE EUROPEAN BANK EXPERIENCE
CONSOLIDATION

AND

HUMAN

RESOURCE

MANAGEMENT

Value created by Merger

A merger will make sense to the acquiring firm if its shareholders benefits. Merger will create an
economic advantage (EA) when the combined present value of the merged firms if greater than the
sum of their individual present values as separate entities. For example: if firm P and Q merge than
they are separately worth Vp and Vq, respectively and worth Vpq in combination, then the economic
advantage will occur if:

Vpq>(Vq+Vp)

And it will be equal to:

EA= Vpq-(Vq+Vp)

Suppose that firm Pacquires firm Q. After merger P will gain the present value of Q i.e. VQ, but it will
also have to pay a price (say in cash) to Q. Thus, the cost of merger of P is:

Cash paid-Vq

For P, the net economic advantage of merger (NEA) is positive if the economic advantage exceeds the
cost of the merging.

Thus

Net economic advantage = economic advantage-cost of merging

NEA = (Vpq-(Vq+Vp))

Represent the benefits resulting form operating efficiencies and synergy whentwo firms merge. If the
acquiring firm pays cash equal to the value of the acquiring firm value of the acquired firm.

i.e. cash paid-Vq=0.

Then the entire advantage of the merger will accrue to the shareholder of the acquiring firm. In
practice the acquiring firm and the acquired firm may share the advantage between themselves.

The acquiring firm can issue share to the target firm instead of paying cash. The effect will be the
same if the share are exchanged in the ratio of cash-to-be-paid to combined value of the merged firms.

COST AND BENEFIT OF MERGER


When a company A acquires another company sayB, then it is capital investment decision for
company A and it is capital disinvestment decision for company B. Thus, both the companies need
to calculate the Net Present Value (NPV) of their decision.
To calculate the NPV to company A there is a need to calculate the benefit and cost of the merger.
The benefit of the merger is equal to the difference between the value of the combined identity (PVab)
and the sum of the value of both firms as a separate enitity. It can be expressed as:
Benefit= (PVab)-(PVa+PVb)
Assuming that compensation to firm B is paid in cash, the cost of the merger from the point of view of
firm A can be calculated as

Cost = Cash-PVb
Thus,
NPV for A = Benefit-Cost = (PVab-(PVa+PVb))-(Cash-PVb)
The net present value of the merger from the point of view of firm B is the same as the cost of the
merger for A. Hence,
NPV to B = (Cash-PVb)
NPV of A and B in case the compensation is in stock
In the above scenario, we assumed that compensation is paid in cash. However in real life
compensation is paid in terms of stock. In that case, cost of merger needs to be calculated carefully. It
is explained with thr help of an illustration
Firm A plans to acquire Firm B. Following are the statistics of firms before the merger

Market price per


share
Number of Shares

Rs. 50

Rs. 20

5,00,000

2,50,000

If Market Value of Firm A is 25million


If Market Value of Firm B is 5 million
The merger is expected to bring gains, which have a PV of Rs. 5 million. Firms A offers 1,25,000
shares to the shareholders of firm B.
The cost in this case is defined as:
Cost = PVab-PVb
Where A represents the fraction of the combined entity received by shareholders of B. In the above
example, the share of B in the combined entity is:---Alpha = 1,25,000/(5,00,000+1,25,000) = 0.2
Assuming that the market value of the combined entity will be equal to the sum of present value of the
separate entities and the benefits of merger. Then,

PVab = PVa+PVb+Benefit = 25+5+5=Rs. 35 million


Cost = a PVab-PVb = 0.2*35-5=Rs. 2 million
Thus
NPV to A = Benefit-Cost = 5-2 = Rs. 3milliom
NPV to B = Cost to A = 2 million

Cross Border M&A in Banks


One more reason for M&A which has sprung up in the recent years is Indian Banks seeking
international presence. In the last two decades, there has been a jump in the Indian diaspora working
abroad. A new recent trend is the increase in the interest of foreign expats to work in India. Both these
communities seek banking products in remittances and other cross border retail products. Further firms
are looking for funds overseas for various purposes ranging from capital expenditure to leveraged
M&A financing. Hence, Indian banks are setting up branches and subsidiaries overseas and foreign
banks are expanding their operations in India. These bank branches (set up abroad) further target the
local population to be profitable and hence target local acquisitions. Evidently, this results in an M&A
opportunity for Foreign
banks to acquire an Indian bank and also Indian banks to acquire foreign banks. For example, ICICI
Bank has made an acquisition of a bank in Europe in 2006 to establish itself in a geographical area.

THEORIES IN MERGER AND ACQUISITION


Underlying
Theories
Anxiety
theory

Prolonged
anxiety
and
uncertainty

Social identity
theory

Sources
of
Problems
Uncertainty
and anticipated
negative
impact
on
career and job
Mental
and
physical
illness
Lack
of
motivation
Loss of old
organizational
Identity

Interacting
with other
Organizations
members

Intergroup bias
& conflict
Acts
of
noncompliance

Acculturation
theory

Contact with
or adjustment
to
different
organizational
culture
Ambiguous
and conflicting
roles

Role conflict
theory

Job
characteristics
theory
Organizational
justice theory

Changes
in
post-M&A
job
environments
Perceived fair
treatment of
surviving and
displaced
employees

Predicted Outcomes
Low productivity
Self-centered
behaviors

Related
Prescriptions
Top-down
communication

On-going
communication
Speeding up transition

Sense of loss, anger,


and grief
Denial and refusal of
change
Creating
a
new
identity
Fostering
crossorganizational
arrangements
and
activities
Acculturative stress &
resistance
Interorganizational
tension and
Conflict

Disengagement
efforts (grieving
meetings)

Low productivity
Low job satisfaction

Two-way
communication
Leadership of
role
clarification
Post-M&A job
redesign
Job-transfer
training
Fair
and
objective
human
resource
management
Equal
participation in
decision

Job satisfaction &


Commitment
Absenteeism/Turnover
Psychological
withdrawal Turnover

Fostering
multiculturalism
Facilitating
intercultural
learning

making

Descriptions of The Stages of Mergers and Acquisitions


Integration Process
Stages

Descriptions

Pre-merger stage

Consideration of possible M&A.


M&A related discussions are confined to top level
management.
Information leaks cause various rumors and
speculations.
The organizations are still relatively stable.

Initial
planning
and formal

The merger is officially announced.


Reason, vision, goal, direction of merger are clarified.
Decisions on management changes, staffing,
organizational structure are made.
Old organizational entities are dissolved and a new
organization is legally created.
Joint committees or teams are formed to develop
concrete guidelines and plans of the structural, procedural and
operational integration.

combination stage

Operational
combination stage

Organizations go through actual integration of


organizational functions and operations.
Interactions between the two organizational members
are extended to all work units.
Employees tasks, roles, bosses, and workplaces are
reassigned.
Employees learn new ways of doing things and new
cultural expectations.

Stabilization stage

Changes and adjustments are continued but gradually


diminished.
Norms and roles are stabilized, and new routines take
place.
Renewed expectation, cooperation, and inter-unit
tolerance.

Possibility of prolonged uncertainty, continual


drifting, and lack of directions.

The Foreign Experience


One of the primary reasons for allowing foreign banks to enter in a country is to improve the quality
and the efficiency of banking services and to bring more efficiency and transparency in the financial
sector. Across the world, the entry of foreign banks in a country has usually been found to benefit the
end consumers as it has led to increased credit availability, more efficient banking and a higher rate of
economic growth. The entry of foreign banks has especially benefited developing countries where the
foreign entrants are more efficient than the local banks and raise the overall level of competition.
However, the implications of foreign bank entry on the stability of the domestic banking sector has
been widely debated. This is especially the case for developing countries where the financial sector is
still not very robust and economic crisis have occurred in the past. Foreign banks are considered
detrimental to the stability of the economy because they expedite capital flight during troubled times
and worsen economic crisis scenarios. During the South East Asian crisis, these banks were the first to
withdraw from the market. They are also accused of cherry picking or choosing only the more
attractive clients for doing business with, leaving the domestic banks to deal with the more risky ones.
The examples of some countries are discussed in the following sub-sections.

1. South Africa
Before the entry of foreign banks, the four big local banks in South Africa, Standard, Nedcor, FNB
and Absa had 80-85% of the domestic market share. After the restriction on this entry were removed,
firms like Deutche, Meryll Lynch and ABN Amro entered the higher end of the market in corporate,
investment and private banking by acquiring local players in some cases and now, have become the

countrys top equity houses. The local banks have been relegated to the retail market which they still
dominate. The entire sector has become more competitive with incidences of mergers and the
emergence of niche players.
The local banks have been unable to compete with the foreign owned banks on price parameters
owing to the latters lower cost of funds and have also been forced to decrease their cost-income

ratios. At the same time, they have superior local knowledge and the advantage of an established
customer base and are still favored by some local corporates. To reduce their costs, the domestic banks
have started cutting down their branch networks and exploring alternative less-costly delivery channel
like phone banking and net banking. For instance, Nedcor has reduced its branched by 36 % and have
reduced their cost-income ratio to 58.7% form 70%. Absa has consolidated its operation and increased
focus on its core competencies instead of being all things to all people. The increase in competition
has also led to higher attrition rates of about 35% among the employee base of domestic banks.
Salaries of the employees with local experience are increasing as foreign banks offer their recruits esops and generous bonus.

2. Latin America
The entry of foreign banks in Latin American occurred in the post 1995 period when regulatory
limitations of foreign ownership were eased after a severe banking crisis. Today, foreign banks own a
majority of assets in almost all the Latin American countries (except Brazil). The entry of the foreign
banks also led to sector-wide financial reforms, better regulations and better accountability through
increased disclosure requirements.

Source: http://ideas.repec.org/a/fip/fednci/y2002ijannv.8no.1.html
By Mishra, Garima and Goyal, Rashi, IIM Ahemdabad
On The world and the Indian Banking, 26th August 2006

During 1995-2000, both the foreign and domestic private banks outperformed the state owned banks.
Also, the local banks that had been acquired by the foreign sector banks did not substantially
outperform the ones that were under domestic control. This indicates that both domestic and foreign
markets can co-exist in the market. However, in terms of other financial parameters, foreign banks had
more asset liquidity and a higher rate of loan growth than domestic banks. They also relied less on
deposit financing and had better loan recovery records, which made them more efficient then the latter.

3. South East Asia- Korea


Though foreign banks had entered the Korean market as early as1967, substantial foreign
investment in Korea however, began only in the mid-1990s after the relaxation of entry restrictions by
the government. By 2000, 43 banks from 16 countries had established Korean branches and the total
assets of these branches rose to 41.5 billion dollars in 2000 from a mere 6.5 million dollars in 1967.
According to a study by Byungyoon Lee, the entry of the foreign banks helped the domestic banks to
improve their cost efficiency due to competitive pressures, without affecting their profitability.

Figure 1
Source: By Mishra, Garima and Goyal, Rashi, IIM Ahemdabad
On The world and the Indian Banking, 26th August 2006

4. Central and Eastern Europe (CEEC)


In a study of short term effects of foreign bank entry in ten selected CEEC countries, theconsequences
of foreign bank entry were found to be dependent on factors like degree offoreign bank ownership,
development of the banking market and the economic development of the country. It was found that in
the short term, the competition in the banking sector increased and there was an associated decrease in
the before-tax profits, non-interest income, average loan interest rate and loan loss provisions of the
existing domestic sector banks. This decrease in income and loan loss provisions and increase in
overhead costs of the banks due to the entry of the foreign banks was more pronounced for the less
developed markets than for the more develop ones. Also, the impact of foreign bank entry in terms of
non-interest income and loan loss provisions was lesser on the domestic banks which had a greater
market share.

From the preceding examples, it is clear that allowing foreign entry is helpful if not essential for the
development and betterment of the financial markets. Though, in the short term the profitability of the
domestic banks takes a hit (as seen by the CEEC example) and there are incidences of mergers and
acquisition, in the long term, the domestic banks are able to effectively compete with the entrants.
Increased competition would only weed out the inefficiencies in the domestic sector and force the
incumbents to become more profitable either by cost cutting and consolidation or through a renewed
focus on their core competencies as is successfully being done by the South African banks.

The European Bank Experience


To understand better the consolidation and merger environment better, an analysis is done of a report
by the Centre for European Policy Studies. The figure below shows the main reasons why banks were
involved in mergers. One can observe the concentration in the assurance and universal banking
sections.

Source: Strategies of Mergers followed in Europe, Centre for European Policy Studies
Note on opportunities and imperatives in Indian Banking for M&A by Jay Mehta and Ram Kumar
Kakani, XLRI and S.P Jain Centre of Management, Nov 2006

In Europe, the motive for M&A is dependant on the environment of the bank. In countries where
concentration threshold admitted by the competition authorities is reached cross border consolidation
is motivated. Cavallo and Rossi (2001) use empirical work and point to a significant existence of
economies of scale and scope in European banking industries, after a merger being tagged along. The
reform of the European community merger regulation has also been motivating bank mergers in the
European Union (EU). Moreover, as global investment banking is highly concentrated it also drives
EU to help in creating a fewer players. The above discussion also hints to us that the primary drivers
of M&A in India are different from the primary drivers of M&A in Europe.

CONSODILATION AND HUMAN RESOURCE MANGEMENT


In order to meet the global standards and to remain competitive, banks will have to recruit specialists
in various field such as Treasury management, Credit, Risk Management, IT related services, HRM,
etc. in keeping with the segmentation and product innovation. As a complementary measure, fast
track merit and performance based promotion from within would have to be institutionalized to inject
dynamism and youthfulness in the workforce. To institutionalize talent management, the first priority
for the banking industry would be to spot, recognize and nurture the talent from within. Secondly the
industry has to attract the best talent from the market to maintain the required competitive edge among
global players. The critical issue is how talent is integrated and sustained in the bank. Therefore
proper system of talent management should be put in place by all the banks.

METHODOLOGY AND PROCEDURE OF WORK


A BIG MERGER ABOUT TO HAPPENIN THE INDUSTRY
MOTI VE OF MERGER AND ACQUISITION IN INDIAN BANKING
MANAGED TRANSITION
CURRENT INVESTMENT BANKING SCENARIO IN INDIA
MOST FAMOUS MERGER AND ACQUISITION IN INDIA
MERGER AND BETWEEN CENTURION BANK OF PUNJAB AND LORD KRISHNA BANK
MERGER BETWEEN CENTURION BANK AND BANK OF PUNJAB
HUTUCH-ESSAR GOES TO VODAFONE
CHANGE IN NAME: UTI, THEN AXIS NOW
WILL RELIANCE COMMUNICATION ACQUIRE CAPGEMINI TO BECOME INDIAS
LARGEST IT SERVICE PROVIDER
MEGA ACQUISITION BY INDIAN COMPANY CHANGING BRAND INDIA
MATRIS BID : FIGHT BETWEEN INFOSYS & WIPRO

A Big Merger about to happen in the Industry


Size matters in any business, more so if you are an Indian Bank preparing to ward off competition in
2009. Thats the year when India will allow foreign banks to take over local banks. After a brief lull in
the last few months, the consolidation buzz in the banking sector is back. This time, the two main
characters are two private sector banks.
HDFC Banks proposed merger of Centurion Bank of Punjab is to be looked in that context: An
opportunity to bulk up presented itself and the bank outdid arch rival ICICI bank to the marriage. One
can expect to hear more of such consolidation this financial year, especially between public sector
banks.

The biggest merger in Indian banking is about to happen. HDFC Bank will take over Centurion Bank
of Punjab (CBoP) in an all-stock deal. The share-swap deal, worth over Rs 10,000 crore, may be

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worked around the current market price of Rs 57 a share of CBoP. The Share-Swap ratio could be in
the region of 1:27-1:28. A CBoP shareholder would get one share of HDFC Bank for every 27-28
shares he/she holds.
In the pecking order, the merged entity will still be way below Indias biggest private sector bank
ICICI in terms of assets, but it will be significantly bigger than Axis Bank. On Wednesday, officials of
both the banks held marathon meetings with a leading investment banker to discuss the finer points.

This is the second time after almost six years that these two banks are discussing a merger. While last
time it fell through on valuation reasons, what has worked this time is the personal equation between
the top brass of the two banks. HDFC Bank MD Aditya Puri, CBoP chief executive Shailendra
Bhandari and CBoP chairman Rana Talwar are all ex-Citigroup bankers. Mr. Bhandari was also a part
of the core team that set up HDFC Bank in 94. Interestingly, Citigroup is also the single biggest
shareholder in HDFC - the mortgage giant and parent of HDFC Bank.

Centurion had 394 branches and HDFC Bank 754 branches as on Dec. 31 2007, the statement said.
However, the merged entity's total advances of about 870 billion rupees ($21.7 billion) are far lower
than ICICI's 2.2 trillion rupees. The merger will allow HDFC Bank to extend its reach in the country
before a central bank review next year that may allow foreign banks such as Citigroup and Standard
Chartered to buy Indian lenders. HDFC Bank has 754 branches and has received RBI permission for
another 250. The addition of 394 branches of CBoP will help the bank overtake ICICI Bank in terms
of branch presence. In the North, CBoP has 170 branches while HDFC Bank has around 250 while in
the South, CBoP has 140 branches and HDFC Bank has 150. At present, CBoP is active in home
loans. Can it continue?

The question will crop up since the mortgage biggie HDFC and HDFC Bank have an understanding
that the bank will not enter into home loans, the mainstay of the parent HDFC. HDFC Bank simply
sources the mortgage and passes it on to HDFC for a fee. On the other hand, 60% of CBoP loans are
retail, of which 32% (around Rs 2,887 crore) are home loans. Analysts view is that Centurions
branch network is a main draw for HDFC. Also Fee-based income has become crucial for banks as
margins in their core business of lending are on a decline due to competition and interest rate
pressures. Having a large branch network helps distribute more
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Products that bring in fee-based income, such as mutual fund schemes and insurance plans and
Centurion can afford as much as 30% commission on premiums.
HDFC will, in all likelihood, have to buy from the market or subscribe to a fresh issue of HDFC Bank
shares to preserve its shareholding in the bank, post-CBoP merger. HDFCs holding in HDFC Bank
may slip below 19% from 23.28%.
Unlike most other bank shares, the face value of CBoP shares is Re 1. The deal, which will be the
largest in the Indian banking sector, will be well over Rs 10,000 crore.

Banks ranked by Market Capitalisation


R
a
n
k
s
1
2
3
4
5
6
7
8
9
1
0

Banks

Rs. Crore

SBI
ICICI Bank
HDFC+Centurion BOP
Axis Bank
Kotak Mahindra Bank
Punjab National Bank
Bank of India
Bank of Baroda
Canara Bank
Union Bank (I)

133556
122320
62827
34709
28109
18250
18200
13854
11304
9496

Source: Dna.Sunday, Feb 24th 2008

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Motives for Mergers and Acquisitions in the Indian


Banking Sector
Recent reports on banking sector often indicate that India is slowly but surely moving from a regime
of 'large number of small banks' to 'small number of large banks'. The aim of this paper is to probe into
the various motivations for mergers and acquisitions in the Indian Banking sector. Thus, literature is
reviewed to look into the various motivations behind a banks' merger/ acquisition event. Given the
increasing role of the economic power in the turf war of nations, the paper looks at the significant role
of the state and the central bank in protecting customer's interests vis--vis creating players of
international size. While, gazing at the mergers & acquisitions in the Indian Banking Sector both from
an opportunity and as imperative perspectives, the paper also glances at the large implications for the
nation.`

Managed Transition
India may have to follow a managed transition model to ensure a stronger banking sector. This can be
achieved by undertaking the following route:

Encourage domestic acquisitions by strong local banks


Selectively open the banking sector to foreign competition
Increased dominance of 2-3 strong local players through acquisitions
Foreign banks begin to increase presence

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To achieve it one needs to resolve 3 issues.


1. Define overall market end-state structure
This would require the need to have a Micro-Market which would mainly comprise of niche players
like community banks or credit unions who would serve a particular rural market or a small set of
customers.

2. Define overall bank performance end-state


This is achieved by ensuring that there is capital stability, along with profitability i.e. the banks
would need to achieve an industry average ROA > 1 percent and ROE around the 10~15 percent range
through a greater profitability orientation. Also there is a need to ensure proper asset quality i.e.
Banks NPL/total loans ratios need to be 1~2 percent maximum, which is more in line with the
developed world.
3. Define cost management end-state
This can be achieved through:
Efficiency: Cost efficiency ratio of banks should move to the 30-40% percent range in line with more
developed countries in a few years through improving operationaleffectiveness.
Productivity of Payment System: Banks should focus more on electronic payment system. Create
industry-wide utilities to aid banks
Branch Structure for retail delivery: Improve branch productivity and realign distribution.

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Current Investment Banking scenario in India


Unlike Goldman Sachs, Merrill Lynch and Morgan Stanly, citygroup and JPMorgan do not have joint
ventures with local partners in Indias booming investment banking market. But they have climbed to
the top of league tables for mergers and acquisitions as well as stock deals on the back of strong
corporates ties.
The strength of the Citigroup platform is the 1,000 plus corporate relationships in India that we
have, said Pramit Jhaveri, head of investment banking in India for Citygroup.
Both groups are competing intensly for investment banking fees that are expected to grow by up to 40
percent this year, fueled by an economy growing at about 7 percent and foreign institutions flocking to
invest.
After a relative late launch of investment banking in India since 2000, citigroup has grown to be the
top M&A adviser for the last two years. JPMorgan, meanwhile, jumped to third in 2004 after not even
reaching the top 10 in 2003.
The story is similar for securities underwriting, citigroup has become the worlds largest securities
underwriter, withJPMorgan and Switzerlands UBS using their own relationships to build business.
To be sure, Goldman, Merrill and Morgan Stanley remain strong in India. They were the top three
underwriters of stock offering last year as equity issuance rose to $9.95 billion from $1.90 billion,
according to data firm Dealogic.

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One key advantage of their joint venture structure is retail distribution.

Morgan Stanley has teamed up with JM Financial Group, Goldman is aligned with Kotak Mahindra
Bank Ltd. And Merrill works with DSP Financial Consultants Ltd.
A year ago, the conventional wisdom in our industry was if a company wanted to raise $200 million,
they had to leave the country,said Rajeev Gupta, joint managing director for DSP Merrill. The
threshold for going overseas today is $2billion, not $200 billion.
The local network enjoyed by the joint ventures becomes more important as the domestic markets gets
bigger.
We can give (companies) a choice of which market fits their needs, said Gupta. They know you are
not giving them a recommendation linked to their limitations.
But the stand-alone banks are gaining momentum with deliberate expansions. In the 1990s, JPMorgan
ended a joint venture with ICICI Bank Ltd. In 1998 and set out on its own, taking many of the
ventures bankers with it.
By beefing up its investment banking staff, the bank has been able to win high-profile deals such as
the $1.17 billion IPO of Tata Consultancy Service Ltd.
Basically the (India) storys a great one, and its getting better,said JPMorgan senior country officer
Dominic Price. You cant ignore 7-percent plus growth.

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MOST FAMOUS MERGERS AND ACQUISITIONS IN INDIA


Indian companies continued their acquisition spree in 2007 also with nearly 210 M&A deals reported.
At this pace, the M&A numbers may touch 400 by the year 2010. India is now among the worlds
mosrt competitive producer of steel, auto component, pharmaceuticals, chemicals offering low-cost
high value products, and the future merger &acquisitation (M&A) activities between India and Europe
would concentrate around them. Cross-border deals by Indian firms during the year are expected to be
in the region of $35 billion, compared with $15 billion in 2006 and $4.3 billion in 2005.

This year, amongst the biggest overseas buys by an Indian company was the acquisition of AngloDutuch company Corus for $12.2 billion by Tata Steel. The deal is likely to catapult the combined
entity to among the worlds largest steel companies with a total capacity of about 24 million tones per
year.
The Tata Steel-Corus deals would be at No.5 among the top deals witnessed by the global steel
industry over the last couple of years. The highest rank goes to Arcelor-Mittal Steel deal of $32 billion
followed by the NKK Crop-Kawasaki Steel deal of $14.1 billion.

Hindalcos acquisition of Canadian company Novelis Inc for $5.9 billion is also one of the biggest
overseas acquisitions by an Indian company. Hindalco is Adtiya Birla Groups flagship company. The
all-cash transaction also makes Hindalco the worlds largest aluminium rolled products company. The
acquisition bodes well for both the entities. Novelis, processes primary aluminium to sell downstream
high value added products. This is exactly what Hindalco manufactures. This makes it a marriage
made in heaven.

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Suzlon Energy acquired German wind turbine maker REpower for $1.7 billion. Suzlon has taken
controlling stake in the company. French company Martifer already holds a 25 per cent stake in
REpower. Suzlon has the call option to acquire the 25 per cent stake that Martifer holds at a later date.
Similar to Suzlon, REpower is exclusively focused on the wind power business, but the two were not
competitors. REpowers growth plans fitted into Suzlons expansion plans for the near future.

Vijay Mallyas United Spirits bought out the Scotch major Whyte & Mackay for $1.11 billion, which
includes a payout to bridge a pension fund deficit in W&Ms pension Trust. Whyte & Mackay has an
array of brands including their USP W&M Sctoch Whisky, Dalmore Scotch Whisky, Isle Jura Single
Mlt and Vladivar Vodka. United spirits will look to promote these productsin India and several
markets overseas.

Essar Global Limited, through its wholly owned subsidiary Essar Steel Holdings Limited, acquired
majoritiy stake in Canadian company Algoma Steel Inc for an amount aggregating$1.74 billion. This
acquisition fits in with Essars global steel vision. Algoma provides an excellent platform for the
Canadian and North America markets. The Canadian companys revenues are derived primarily from
the manufacture and sale of rolled steel products including hot and cold rolled steel and plate. Essar
Sreet already operates a cold rolling complex in Indonesa and has now finalized plans to setup an
integrated steel plant for flat products in Trinidad and Tobago and a hot strip mill in Vietnam.

Acquisition by Indian pharmaceutical companies have also taken centre stage this year. Ranbaxy
Laboratories has acquired Be-Tabs, the South Aferican pharma major for a whopping $70 million.
This will make the company the fifth largest generic pharmaceutical company in South Africa. In
March, Glenmark pharmaceuticals acquired 90 per cent stake in Medicmenta, a pharma marketer and
manufacturer in Czech Republic for an undisclosed amount. Wockhardt bought out Negma
Laboratories of France for $265 million in May. In June 2007, Zydus Cadila acquired a privately
owned mid-sized Brazilian company, Nikkho, for $26 million. In July. Elder pharmaceuticals acquired
20 per cent stake in the Neuta Helath of UK for 5.63million pound.

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Merger between Centurion Bank of Punjab and Lord Krishna Bank


CENTURION BANK OF PUNJAB
Centurion Bank of Punjab is one of the leading new generation private sector banks in India. The bank
serves individual consumers, small and middle market businesses and large corporations with a full
range of unmatched financial products and services for investing, lending and advice on financial
planning. It holds leadership positions in the two-wheeler

loan and commercial vehicle loan segments, is a strong player in foreign exchange services, personal
loans, mortgages, education loans and agricultural loans, and has recently entered the credit cards
market. The bank also offers its customers an array of wealth management
products such as mutual funds and life and general insurance. Centurion Bank of Punjab operates on a
strong nationwide franchise of 249 branches and 402 ATMs across 123
locations, and has approvals from the Reserve Bank of India to open a further 30 branches before the
end of this fiscal year. Centurion Bank of Punjab is supported by over 5,000 employees. In addition to
being listed on the major Indian stock exchanges, the Banks shares are also listed on the Luxembourg
Stock Exchange. With strengths in the Retail, SME and Agriculture businesses the bank is well poised
to capture the opportunities that exist in the Indian market.

Centurion Bank of Punjab was actually Centurion Bank before it got merged with Bank of Punjab in
October 2005.

LORD KRISHNA BANK


Lord Krishna Bank is a leading old private sector bank headquartered at Cochin. Lord Krishna Bank in
the last decade has transformed itself from a regional bank to a pan-India bank having a branch
network of 112 branches and 44 ATMs. It has emerged as a modern, completely computerized,
technology driven entity that is redefining relationship banking with its customers and focusing on
retail and SME banking.
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Lord Krishna Bank had an unsuccessful attempt at merger with another South Indian banking major
Federal Bank. The deal didnt go through due to valuation problems.

Situation leading to Merger


Centurion Bank has taken the M&A route twice in one year. After the successful acquisition of The
Bank of Punjab and re-christening itself as Centurion Bank of Punjab (CBP), the bank is now ready to
acquire Lord Krishna Bank (LKB) in another part of the country. LKB on its part has been on the look
out for a suitable partner. Its merger talks with Federal Bank, another South-based bank, fell through
last year, but it has now negotiated a deal with CBP at good swap ratio. The deal size is tipped to be
worth around Rs 280-300 crore.
Its chief promoter and majority stakeholder Mohan Puri, who holds 65 per cent stake in the bank, has
been under pressure from the Reserve Bank of India (RBI) for some time now, to reduce his stake to
below 10 per cent as per the guidelines on private bank ownership.
According to CBP Managing Director Shailendra Bhandari, the deal is mutually beneficial. While
LKB, which is not a listed bank, gets some presence in North India, CPB, which is primarily based up
north, gets to expand its network southwards. "Growing by inorganic means is an important
component of our strategy, the proposed merger with LKB would further improve our franchise and
customer proposition across the country, particularly in North India, Karnataka, Kerala and
Maharashtra," he said.
The promoter Mr. Mohan Puri holds about 65 per cent stake in LKB, which reported a profit of Rs
3.68 crore last year against a loss of Rs 24 crore in the previous year.
Moreover, with Basel-II norms due for implementation by March 2007, many small banks will find it
unviable to run the business as they will need more capital to provide for market and operational risks
and implement modern technology. A merger of two profitable banks will help them both tide over
these problems because the capital adequacy ratio of CPB is presently 12 per cent and likely to
increase to over 14 per cent, keeping in view the capital requirements post merger.

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There is little overlap in the businesses of the two banks. Their respective branch networks are also
concentrated in different parts of the country. CBP needs the additional business to compensate for its
relatively higher cost structures. It can cross-sell its banking products through the LKB network,
including traditional banking products and fee-based services like wealth management products, to
affluent NRI customers.
However, LKB seems to be getting a valuation similar to that of large public sector bank. This may be
on account of its recovery from the red during the previous fiscal.

Centurion Bank had successfully merged the erstwhile Bank of Punjab with itself last year in a share
swap ratio of 4:9 that means 4 shares of BOP fetched 9 shares of Centurion. Bank of Punjab had a
strong regional franchise, good banking relationships with non-resident Indians, but a relatively high
level of net non-performing assets. LKB is in a relatively better position. While the NPA level in CBP
is at 1.6 per cent, the net NPA level is 3 per cent for LKB.
LKB on its part could not strike a deal with Federal Bank and GE last year. However, there wouldve
have been serious branch overlap given the Kerala roots of both LKB and Federal Bank.

Deal Value and expectation for Deal


The independent valuers appointed jointly by both banks to determine the swap ratio for the merger,
Deloitte Haskins & Sells and N M Raiji & Co have worked out the share swap ratio, which has been
fixed at 5:7 i.e. for every five shares of Lord Krishna Bank, its shareholders will receive seven shares
of Centurion Bank of Punjab. This translates into a swap ratio of 1:1.4 which means, for 9.3 crore
shares of LKB, 13.2 crore shares of CBP will be issued. There is no cash transaction in the merger.
Centurion Bank of Punjab proposes to issue 75 million fully paid up equity shares at Rs24.54 per
equity share for Rs184.05 crore to India Advantage Fund V and 95 million fully paid up equity shares
at Rs25 per equity share for Rs 237 crore to Bank Muscat (S A O G).
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If the merger takes place, the combined entity would have a nationwide network of 361 branches and
12 extension counters. While CPB has 249 branches, 402 ATMs, 5,000 employees and is listed on
major Indian bourses and Luxembourg Stock Exchange, LKB has 112 branches, 44 ATMs, mostly in
Kerala and south India. CPB has already applied for licenses to an additional 30 branches.
CBP's business (deposits and advances) stood at Rs 17,824.5 crore while LKB's business stood at Rs
3,699.8 crore till June 30 and March 31, 2006 respectively. The combined entity

is looking at a business figure in excess of Rs 20,000 crore which will help its standing among private
sector banks. The new entity is also hoping to grow at 35 per cent year-on-year. The merger will add
about Rs 2,500 crore to CBPs existing balance sheet size of Rs 12,500 crore.
Post merger, the foreign holding in the entity will come down to around 65 per cent and Bank Muscat
will have a 20 per cent shareholding. At present, the foreign holding in CBP is at 73.6 per cent.
As part of the integration of both banks, it is envisaged that there will be no retrenchment of staff of
either bank and there will be no closure of any rural branches. Additionally, the scheme of
amalgamation provides for a one-time increment to all existing employees of Lord Krishna Bank.

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Facts and Figures emerging from Deal

The Share Holding pattern in Centurion Bank of Punjab (CBOP) before the

deal:
Source: Company Presentation for investors

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The Share Holding Pattern after the deal

Source: Company Presentation for investors

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Branch Network (Pre LKB merger)

Source: Company Presentation for investors

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Branch Network (Post LKB merger)

Source: Company Presentation for investors

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It can be seen that before the merger Centurion Bank had vast presence in North India with around
56% of its branches situated in this region and only 18% in the Southern part of the country.
After the merger, it has a significant 35% branches in South India and it overall provides a Pan India
reach and thereby making it one of the larger private sector banks in the country and due to this the
customers will be better served with good retail banking products and also a good presence in the SME
segment.
Financial gains from Merger
Centurion Bank of Punjab (CBOP) has reported Rs398mn of net profit (consolidated for Lord Krishna
Bank (LKB)). Adjusted of losses of LKB, the net profit would have been higher at Rs439mn, which is
far ahead of expectations. The NII (gross of amortisation) has grown by 34.7% yoy to Rs1.8bn driven
by 70% growth in assets and better than expected NIMs.

The deteriorating asset quality continues to worry as the gross NPA stood at 3.5% of advances.
However, with prudent provisioning, the net NPA have been arrested at 1.6% of advances.

NII grows 34.7% helped by better than expected NIM.


CBOPs NII (gross of amortisation expenses) grew by 34.7% yoy to Rs1.9 driven by 70% growth in
advances and much lower than expected contraction in NIMs. Adjusted for LKB merger, the NII has
grown by 33% yoy.

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Rs mn
Reported
NII
Add: HTM
Amortisation

Adjusted NII
Adjusted NII

DIMENSIONS CONSULTING PVT. LTD.

Q2FY08

Q2FY07

Q1FY08

%
yoy
chg

1,704

1,262

1,394

35

22

115

89

113

29

1,819

1,351

1,507

35

21

Source: Company Presentation to Investors, Emkay Research Report on the bank

Source: Company Presentation to Investors, Emkay Research Report on the bank

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%
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chg

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The better than expected growth in NII was driven, much lower contraction in the NIMs.
The NIMs (adjusted for amortisation expenses) have contracted by 70bps (vis--vis our expectations
of 100bps). In fact on the sequential basis, the margins have expanded by 20bps. Also without the
LKB merger, the standalone NIMs would have been higher by 50bps qoq.

Yield

Analysis

(%)

yoy
Column1
Q2FYo8
Q2FY07
Q1FY08
chg(bps)
Yield on
advances
13.3
11.3
13.2
210
Yield on
assets
9.9
8.4
10
150
Cost
of
funds
6.8
4.6
7.1
218
NIM
3.4
4.1
3.2
-74
NIM

reported
3.7
4.7
3.6
-100
NIM

reported
(ex LKB)
4.1
4.7
3.6
-60
Source: Company Presentation to Investors, Emkay Research Report on the bank

qoq
chg(bps)
12
-8
-31
20
10

50

While the cost of funds has gone up by 218bps yoy for Q2FY08, the same has been fairly
compensated by expansion in advances yield thereby helping the bank to arrest the contraction in
NIMs.

115

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Advances growth driven by SME advances


CBOPs advances have grown n by 67% yoy driven mainly by SME portfolio which has grown 1.5x
over last year. The large corporates and others have grown by 65% yoy and retail portfolio has grown
by 55% yoy.

% yoy
Rs mn
Q2FY08
Q2FY07
change
Total advances
139,849
83,847
66.8
SME
23,050
9,570
140.9
Corp/Others
28,423
17,260
64.7
Retail
88,376
57,017
55
Personal
18,925
7,982
137.1
Mortgages
25,306
12,544
101.7
2-W/CV/CE
29,164
27,368
6.6
Source: Company Presentation to Investors, Emkay Research Report on the bank

Financial Highlights
31st
March,05

31st
March,06

31st
March,07

Paid-up
Capital(Rs.mn)
1013
1408
1567
Reserves
&
Surplus(Rs.mn)
4886
7769
12149
CAR (%)
21.42
12.52
11.05
Tier 1 CAR (%)
17.8
10.84
9.91
Tier 2 CAR (%)
3.62
1.68
1.14
Source: Company Presentation to Investors, Emkay Research Report on the bank

116

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Fee income continues to grow strong


Fee income has continued to be forte of the bank as the same has grown by 83.4% yoy and 9.8% qoq
to Rs1.6bn. The fee income/net income stood at 48% for the quarter compared with 40% in the same
quarter last year.
Prudent provisioning keeps NPA stable at net level
The gross NPA at 3.52% of gross advances are still higher than 2.8% reported for FY07. However, the
bank has used robust profit of Q2FY08 to make higher provisions for NPA thereby arresting the net
NPA at 1.6%, stable compared with Q1FY08. The provisioning during the current quarter is also
higher at the bank has started providing for NPAs of LKB.

Source: Company Presentation to Investors, Emkay Research Report on the bank

117

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Capital adequacy remains comfortable post QIP


The tier I Capital adequacy of the bank was at comfortable 12.0% as the bank has raised Rs5bn
through QIP issue in Q2FY08.

LKB merger adds muscle in southern area


CBOP has received the RBIs approval for LKBs merger with itself from August 29, 2007. With the
merger of LKB with itself, CBOP has now added 124 more branches to its network with dominant
presence in southern India.

Valuations

Y/E March
31
FY2007
FY2008E
FY2009E
FY2010E

Net
income
Rs mn
10,102
13,315
18,152
23,510

Net
profit
Rs mn
1,207
1,846
3,088
4,448

EPS
(Rs)
0.8
1
1.6
2.3

ABV
(Rs)
7.9
10.6
12.1
14.4

RoA
(%)
0.8
0.8
1.1
1.2

RoE
(%)
10.6
10.6
13.6
17

P/ABV
(x)
5.5
4
3.5
3

Source: Company Presentation to Investors, Emkay Research Report on the bank

118

PE (x)
67.8
44.3
26.5
18.4

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

CBOPs Financial Results

H1FY
08

H1FY
07

%
yoy
chg

3,098

2,407

28.7

Other Income

3,118

1,831

70.3

Fee income

3,003

1,817

65.3

Net income
Operating
expenses
Pre-provision
profit
Provisions
&
Contingencies
Profit before tax
Provision
for
Taxes

6,215

4,238

46.7

4,423

3,195

38.4

Q2FY
08
1,70
4
1,57
1
1,57
2
3,27
5
2,32
4

1,793

1,043

71.8

705
1,088

221
822

403

224

685

599

179
703

Net
income

interest

Net Profit
Exceptional
item
Reported net
profit

Q2F
Y
07

Q1FY % yoy
08
chg

% qoq chg

1,262

1,394

35.1

22.3

881

1,547

78.4

1.5

857

1,431

83.4

9.8

2,142

2,941

52.9

11.4

1,609

2,099

44.5

10.7

951

534

842

78

12.9

219.4
32.2

321
629

28
506

384
458

1,055.40 -16.4
24.4
37.4

80

231

195

172

18.6

34.6

14.4

398

311

286

179

599

17.4

416

Source: Company Presentation to Investors, Emkay Research Report on the bank

119

311

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

LORD KRISHNA BANK LTD.


Research Centre

Result

Annual

Statement

Balance sheet -- P&L -- Cash flow

More

Capital structures -- Ratio

Annual results in brief

Sales
Operating Profit
Interest
Gross Profit
EPS
(Rs)

Mar
'02
144.13
75.27
130.87
50.52

Mar '01
123.44
87.12
103.15
15.19

3.48

1.86

Mar
'02

Mar '01

75.32
0
0
0

21.04
0
0
0

0
0
0
0
0
38.06
30.81
0
0
19.71

0
0
0
0
0
26.14
10.18
0
0
5.01

Annual results in detail

Other Income
Stock adjustment
Raw Material
Power and fuel
Employee
expenses
Excise
Admin and selling expenses
Research and development expenses
Expenses capitalised
Other expenses
Provisions made
Depreciation
Taxation
Net profit/loss

120

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Extra
ordinary
item
Prior year adjustments
Equity capital
Equity
dividend
rate
Agg.of non-prom.shares (Lacs)
Agg.of non-promto Holding (%)
OPM
(%)
GPM
(%)
NPM
(%)

0
0
56.69

0
0
26.86

0
0
0

0
0
0

52.22

70.58

23.02

10.51

8.98

3.46

LORD KRISHNA BANK LTD.


Research Centre

Result

Annual

Statement

Balance sheet -- P&L -- Cash flow

More

Capital structures -- Ratio

Balance Sheet
Mar '06

Mar '05

Mar '04

R
M

94.45
0
0

94.45
0
0

56.69
0
0

5
0
0

88.39

87.46

82.55

Loan funds
Secured loans
Unsecured loans

0
2,278.88

0
2,176.13

0
2,311.22

0
1

Total

2,461.71

2,358.03
121

2,450.46

Sources of funds
Owner's Fund
Equity
share
capital
Share application money
Preference share capital
Reserve
&
surplus

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Uses of funds
Fixed assets
Gross block
less : revaluation reserve
less : accumulated depreciation
Net
Block
Capital work-in-progress

51.61
0
26.97

50.74
0
21.67

44.62
0
18.86

3
0
1

24.64
0

29.06
0

25.76
0

1
0

Investment

789.49

847.03

1,047.1

Net
current
assets
Current assets, loans & advances
less : current liabilities& provisions
Total net current asset

140.79
137.16
3.63

117.24
146.44
-29.2

64.84
153.47
-88.63

4
7
-2

Miscellaneous expenses not wirtten

Total

817.77

846.89

984.27

0
0

0
0

0
0

0
0

506.49
943.81

398.62
943.81

567.68
566.29

3
5

Notes :
Book value of unquoted investment
Market value of quoted investments
Contingent
liabilities
Number of equity shares outstanding (Lacs)

LORD KRISHNA BANK LTD.


Research Centre

Result

Annual

Statement

Balance sheet -- P&L -- Cash flow

More

Capital structures -- Ratio

Profit & Loss account


Mar
'06

Mar
'05

122

Mar
'04

Mar
'03

MERGER AND ACQUISITION

Income
:
Operating income
Expenses :
Material consumed
Manufacturing expenses
Personnel expenses
Selling expenses
Administrative expenses
Expenses capitalised
Cost of sales
Operating profit
Other recurring income
Adjusted PBDIT
Financial expenses
Depreciation
Other write offs
Adjusted PBT
Tax charges
Adjusted PAT
Non
recurring
items
Other non cash adjustments
Reported net profit
Earnings before appropriation
Equity dividend
Preference
dividend
Dividend tax
Retained earnings

DIMENSIONS CONSULTING PVT. LTD.

190.74

166.99

220.16

211.0

0
0
34.01
1.48
35.88
0
71.36
-10.26
12.94
2.68
129.63
5.3
0
-2.62
-19.45
3.70

0
0
26.33
1.59
44.35
0
72.26
-43.62
14.49
-29.13
138.35
2.81
0
-31.94
-33.97
-24.32

0
0
20.77
2.79
33.74
0
57.31
30.34
14.26
44.6
132.52
5.28
0
39.32
2.70
26.28

0
0
18.09
1.16
33.51
0
52.76
29.15
8.59
37.74
129.1
4.06
0
33.68
6.70
22.25

-0.01
0
3.69
-18.09
0

-0.09
0
-24.41
-21.76
0

0.07
0
26.35
27.05
5.66

0.01
0
22.31
23.81
10.19

0
0
-18.09

0
0.01
-21.78

0
0
21.39

0
1.31
12.31

123

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

LORD KRISHNA BANK LTD.


Research Centre

Result

Annual

Statement

Balance sheet -- P&L -- Cash flow

More

Capital structures -- Ratio

Cash flow
(Rs
crore)

Profit before tax

Mar
'06
3.69

Net cashflow-operating activity


Net cash used in investing activity
Net cash used in fin. Activity

96.92
1.64
0

Net inc/dec in cash and equivalent


Cash and equivalent begin of year
Cash and equivalent end of year

98.56
124.99
223.55

Mar
'05
-24.41
256.63
-6.2
38.90
223.93
348.92
124.99

Mar
'04
26.35

Mar
'03
23.05

109.68
-14.19
39.20

47.83
-3.61
-11.50

134.69
214.23
348.92

32.73
181.5
214.23

LORD KRISHNA BANK LTD.


Research Centre

Result

Annual

Statement

Balance sheet -- P&L -- Cash flow

More

Capital structures -- Ratio

Capital structure

(Rs. C
From
Year

To
year

Class
of

Authorized
Capital

Issued
Capital

124

Paid up
Shares

Paid
Up

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Share

2005

2006

2004

2005

2003

2004

2002

2003

2001

2002

2000

2001

1999

2000

1998

1999

1997

1998

1996

1997

1995

1996

1994

1995

Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share

(No)

Face
Value

300.00

94.38

94381342

10

300.00

94.38

94381342

10

100.00

56.63

56628805

10

100.00

56.63

56628805

10

100.00

56.63

56628805

10

50.00

27.00

26934116

10

50.00

27.00

26934116

10

50.00

27.00

12000000

10

50.00

27.00

14934116

50.00

27.00

12000000

10

25.00

12.00

12000000

10

25.00

12.00

12000000

10

Centurion Bank of Punjab Ltd.


Key Stats & Ratios

Net Profit
Margin
Operating
Margin
EBITD
Margin
Returns
on
Average
Assets
Return on Average Equity
Employees

Quarterly
(Dec.07)

Annual
{2007}

Annual
(TTM)

13.79%

12.45%

11.52%

21.09%

18.84%

18.27%

0
0
4,471

0.81%
10.43%
0

0
0
0
125

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Centurion Bank of Punjab

BSE: 532273

Industry

NSE: CENTBOP

ISIN: IN

Bank-Private
Sector

in Rs.
Cr.

Balance Sheet

Mar '03

Mar '04

Mar '05

12 mths

12 mths

12 mths

126

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Capital and Liabilities:

Total Share Capital

152.47

56.75

101.32

Equity Share Capital

152.47

56.75

101.32

Share Application Money

0.00

0.00

0.00

Preference Share Capital

0.00

0.00

0.00

Reserves

23.35

136.2

488.72

Revaluation Reserves

0.00

0.00

0.00

Net Worth

175.82

192.95

590.04

Deposits

2,834.71

3,028.79

3,530.38

127

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Borrowings

60.48

43.97

43.75

Total Debt

2,895.19

3,072.76

3,574.13

Other Liabilities & Provisions

314.46

283.16

447.51

Total Liabilities

3,385.47

3,548.87

4,611.68

Mar '03

Mar '04

Mar '05

12 mths

12 mths

12mths

Assets
128

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Cah & Balances with RBI

219.84

260.95

331.9

268.63

248.66

131.04

Advances

1,313.72

1,556.41

2,193.95

Investments

999.25

1,004.18

1,479.64

Gross Block

731.49

740.29

670.4

Accumulated Depreciation

501.15

555.61

533.97

Net Block

230.34

184.68

136.43

Capital Work In Progress

0.00

0.00

0.00

Other Assets

353.69

293.99

338.72

Balance with
Money at Call

Banks,
Money at Call

129

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Total Assets

3,385.47

3,548.87

4611.68

Contingent Liabilities

1,295.99

1,024.37

1,394.82

Bills for Collection

97.09

102.2

458.28

Book Value (Rs)

11.53

3.40

5.82

BSE:

532273

NSE:

CENTBOP

Reuters:

Source: Asian CERC


130

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Centurion Bank of Punjab


NSE:
CENTBOP

BSE: 532273

Industry

ISIN: INE484A01026

BankPrivate
Sector

Profit & Loss account

in Rs.
Cr.
Mar
'05

Mar '06

12mths

12mths

Mar
'03
12
mths

Mar
'04
12
mths

371.34
79.88
451.22

333.79
62.98
396.77

346.09
72.20
418.29

803.2
311.37
1,114.57

Interest Expected
Employee Cost
Selling and Admin Expenses
Depreciation
Miscellaneous Expenses
Preoperative Exp Capitalised
Operating
Expenses
Provisions & Contingencies

269.3
24.82
115.92
48.75
26.69
0.00

203.82
31.29
193.11
36.14
-0.50
0.00

168.21
42.7
126.11
29.73
21.39
0.00

404.43
139.27
282.77
51.48
114.14
0.00

209.84
6.34

284.57
-24.53

226.81
-6.88

577.71
9.95

Total Expenses

485.48

463.86

388.14

992.09

Income
Interest Earned
Other Income
Total Income
Expenditure

131

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Mar
'03
12mths

Mar
'04
12mths

Mar
'05
12mths

Mar '06
12mths

-34.26

-67.09

30.15

122.48

-1.00

2.70
131.39

0.00

-120.4

-38.05
155.66

Total

155.66

-260.8

-98.54

1.09

Preference
Dividend
Equity Dividend
Corporate Dividend Tax

0.00
0.00
0.00

0.00
0.00
0.00

0.00
0.00
0.00

0.00
0.00
0.00

-2.25

-1.18

0.30

0.87

0.00
11.53

0.00
3.40

0.00
5.82

0.00
6.61

15.11
121.39
0.00
121.39

-107.31

Balance c/f to Balance Sheet

0.00
155.66
0.00
155.66

129.41
131.39
0.00
131.39

Total

311.32

392.19

227.67

Net Profit for the Year


Extraordinary
Items
Profit
brought
forward

-121.39

Per share data (annualised)


Earning Per Share (Rs)
Equity Dividend
(%)
Book Value (Rs)
Appropriations
Transfer
to
Statutory
Reserves
Other
Reserves
Proposed Dividend/Transfer to Govt

BSE: 532273

NSE: CENTBOP

0.00
0.00
73.72

-33.59

Reuters: CENB.BO CENB

Source : Asian CERC

Centurion Bank of Punjab


NSE:
CENTBOP

BSE: 532273
Industry

Bank-

ISIN: INE484A01026
132

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Private
Sector
Half
Results

in Rs.
Cr.

Yearly

Sep
'05

Mar
'06

Sep
'06

Mar
'07

6 mths

6 mths

6 mths

6 mths

Sales Turnover
Other Income
Total Income

370.28
98.63
468.91

432.92
150.23
583.15

522.85
183.08
705.93

728.15
248.77
976.92

Total Expenses

248.74

374.29

341.56

458.77

Operating Profit
Profit on Sale of Assets
Profit on Sale of Investment
Gain/Loss On Foreign Exchange
VRS Adjustment
Other Extraordinary Income/Expenses
Total Extraordinary Income/Expenses
Tax on Extraordinary Items
Net Extra Ordinary Income/Expenses

121.54
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

58.63
0.00
0.00
0.00
0.00
0.00
62.51
0.00
0.00

181.29
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

269.38
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

Gross Profit

220.17

208.86

364.37

518.15

Interest
PBDT
Depreciation
Depreciation for Previous
Years Written Back/Provided
Dividend
Dividend Tax
Dividend (%)
Earning Per Share (Rs)
Book Vlue (Rs)
Equity
Reserves
Face Value (Rs.)

191.24
28.93
0.00

213.19
-4.33
0.00

282.13
82.24
0.00

416.82
101.33
0.00

0.00
0.00
0.00
0.00
0.37
0.00
104.45
0.00
1.00

0.00
0.00
0.00
0.00
0.00
0.00
140.83
776.93
1.00

0.00
0.00
0.00
0.00
0.40
0.00
147.82
0.00
1.00

0.00
0.00
0.00
0.00
0.39
0.00
156.69
0.00
1.00

BSE: 532273

NSE:
CENTBOP

Reuters: CENB.BO CENB

Source : Asian CERC

133

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Merger between Centurion Bank and Bank of Punjab

Bank of Punjab (BoP) and Centurion Bank (CB) have been merged to form Centurion Bank of Punjab
(CBP) in a share swap ratio of 9:4. This means, for every four shares of Rs 10 of Bank of Punjab, its
shareholders will receive nine shares of Re 1 of Centurion Bank.
Chairman of CB, Rana Talwar and MD Shailendra Bhandari will be the chairman and MD of the new
entity respectively. ED of BoP Tejbir Singh will be ED of CBP. The merger will be subject regulatory
and shareholder approvals.
After the merger, the paid up capital of the merged entity will be around Rs 128 crore and the net
worth will be Rs 692 crore. After the merger, the bank will have a total assets of Rs 9,395 crore and
deposits of Rs 7,837 crore. The merger will change the holding pattern in the bank. Bank Muscat,
which holds 31% in CB, will now hold 25% in the merged bank. The holdings of Capital Corporation
and Sabre Capital, which were 14% and 5.4% respectively in CB, will come down to 11% and 4.4%
respectively in the new bank. At the same time, 27% holding of Tejbir Singh in BOP, will come down
to 5% in the merged bank.

134

MERGER AND ACQUISITION

Column1
Net Profit
Operating
Profit
NIM
Total
Advances#
Net Retail
Advances#
Deposits
Low Cost
Deposits
(CASA)
Net NPA
Capital
Adequacy
Ratio***

DIMENSIONS CONSULTING PVT. LTD.

Quarter
Ended
Dec 05
223

Quarter
Ended
Dec 04*
71

349
4.80%

Y-O-Y
Chg
227.70%

Q-O-Q
Chg**
11.30%

73
6.10%

376.40%

28.80%

56948

19205

196.50%

11.40%

40582
85885

15612
29886

159.90%
187.40%

14.90%
6.40%

37.80%
2.60%

28.10%
3.40%

10.20%

10.20%

Source: Company Press Release, 12th Jan 2006

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Results for the quarter ended Dec 2004 are for Centurion Bank standalone and hence may not be

comparable with the Dec 2005 results of the combined bank


**

Q-O-Q change demonstrates a comparison between the 3rd Q FY06 and 2nd Q FY06 results of

Centurion Bank of Punjab post merger and are comparable


***

Capital Adequacy does not include the proposed Rs.3.84 Billion that will be raised through a

preferential allotment
#

Post Securitization

Hutch-Essar Goes To Vodafone @ $10.9 billion


Vodafone officially closed the deal. It would invest $2 billion within two years on the Hutuch-Essar
telecome venture to tap the rural market, expand infrastructure and improve teledensity in the country.

On Wednesday, May 09, 2007: Vodafone has completed the acquitision of controlling stake in
Hutuch-Essar from Hutchison Telecommunications International Limited(HTIL) for $10.9 billion.
Vodafone will pay $10.9 billion in cash to HTIL, reflecting retention and closing adjustments agreed
between Vodafone and HTIL.
Commenting on the transaction, Arun Sarin, Chief executive, Vodafone, said, I am delighted that,
having secured all the necessary regulatory approvals, we are now able to complete this important
transaction and move onto the process of integration.

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India is a tremendously exciting, fast-moving market and I am confident that the Hutuch Essar
business will make a major contribution to the Vodafone Group over the coming years, he added.

It has been decided that Ravi Ruia, vice chairmen, Essar would be chairman of the new joint venture
while Vodafones Sarin would be vice chairman.

Vodafone has said it would invest $2 billion within two years in the Hutuch-Essar telecom venture to
particularly tap the rural market, expand infrastructure and improve the tele-density in the coultry.

Vodafones Hutuch Purchase:


Vodafone has come out as a winner in acquiring the stake in Hutch held by HTIL, Hong Kong. HTIL
is a publicly listed company which invests in various telecom companies across the world. Main
shareholder of HTIL is Hutchison Whampoa group of Li-Ka Shing.

HTIL and Essar group of India have 67% and 33% respectively in Hutchison Essar Ltd. which runs
mobile phone services across India under the brand Hutch. Hutch is one of the leading mobile phone
companies in India, at the fourth position in terms of subscriber numbers after Bharti, Reliance and
govt. owned BSNL.

About three months back, HTIL surprisingly decided to pull out of the venture and put up its stake for
sale. The Indian operation amounts to a significant part of HTIL. Apparently HTIL felt that the
telecom investments were turning out to be quite high in the competitive Indian environment. I think
the main reason is HTIL's relationship with Essar which was going nowhere.

Hutchison Essar was supposed to go to the stock markets but that didn't happen because of internal
fight between HTIL and Essar. The required investment for further growth could have easily come
from the stock markets. The enterprise value at which Vodafone has acquired the stakes is about 18
billion USD or about Rs. 81,000 crores. A dilution of around 15% would have resulted in well over
10,000 crores from the markets for further investment. (This is the kind of number Vodafone is
indicating it will spend. Bharti too will be spending only of this order.)

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Essar is a difficult company to understand. Suddenly it seems to be flush with cash. It is


into shipping, steel, telecom and what not. Essar even suggested that it will buy the 67% from HTIL. It
still seems to claim it has matching rights to the stake held by HTIL, and if Vodafone doesn't agree to
certain terms for the new shareholder agreement, Essar may invoke the matching rights clause or fight
a legal battle. HTIL claims there is no matching rights clause in the shareholder agreement!

Vodafone may find dealing with Essar a difficult proposition. Essar does not seem to have a clear
telecom strategy or the money and capability to execute on plans. If at all possible, Vodafone should
try to buy out Essar completely, find some financial investors in India, and go IPO in Indian stock
markets (since there is a limit of foreign holding in telecom companies in India).

Besides Bharti and Reliance Infocomm which are listed, Idea (of Aditya Birla group) has just now
listed. Spice Telecom (operating in Karnataka and Punjab) has filed a draft red herring prospectus.
BSNL, after a merger with MTNL, may also list.

Vodafone's purchase would also mean a complete rebranding. Hutch as a brand will go completely out
of the country and Vodafone will enter India (and in my handset too!)

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Massive 24-hour campaign:

Vodafone launched a massive 24-hour nationalwide rebranding campaign. The UK telecom


major has used all the commercial airtime across the STAR India network.

The legendary pug (Chika) gets a new home. Chikas little master is unlikely to feature in
campaigns. Vodafone has retained the pug as he is synonymous with the brand.

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The acquisition of Hutchison stake by Vodefone in Hutuch-Essar has created history in India
mergers and acquisitions.

Why pink? seems to be the first question on everyones mind when Hutuch decided to get

rid of the brand name orange. "Pink is brave, confident and exuberant, and that goes with the product
itself," said Renuka Jaypal, President, Ogilvy One Worldwide - India. Ogilvy & Mather, which did the
re-branding for Hutch, decided to go with an unusual colour, because over 90 per cent of the brands in
India are either red, blue or green, according to Jaypal. Hutch's background now have a bit more
flexibility, sporting several optional shades of blue in addition to the traditional white background,
giving the backroom creative force a little bit more leeway.

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Vodafone Group plc

Type

Public
(LSE:
NYSE: VOD, FWB: VOD)

Founded

1983 as Racal Telecom, independent 1991

Headquarters

VOD,

Newbury, England, UK

Key people

Vittorio
Colao,
Sir
John
Bond,
John Buchanan, Deputy Chairman

Industry

Mobile telecommunications

Products

Mobile networks, Telecom services, Etc.

Revenue

35,478 million GBP (2008)

Net income

10,047 million GBP (2008)

Website

www.vodafone.com

CEO
Chairman

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Majorityowned

Minority-owned

No Ownership

Albania

France

Austria

Belgium

Czech Republic

Poland

Bulgaria

Channel Islands

Germany

Croatia

Cyprus

Greece

Denmark

Estonia

Hungary

Finland

Faroe Islands

Ireland

Iceland

Latvia

Italy

Lithuania

Luxembourg

Malta

Macedonia

Norway

Netherlands

Serbia

Slovenia

Northern Cyprus

Sweden

Switzerland

Portugal

Romania

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MERGER AND ACQUISITION

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Spain

Turkey

UK

Networks in Asia-Pacific

Majority-owned

Minority-owned

No Ownership

Australia

China mainland

Afghanistan

Hong Kong

India

Fiji

Indonesia

Japan

New Zealand

India

Malaysia

Samoa

Singapore

Sri Lanka

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Networks in the Middle East and Africa

Majority-owned

Minority-owned

Egypt

DR Congo

Kenya

Ghana

Lesotho

Mozambique

Qatar1

South Africa2

Tanzania

1
2

Network yet to be
Network 50% owned.

launched.

Details

No Ownership

pending

Bahrain

further

announcements.

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Networks in the Americas

Minorityowned

No Ownership

USA

Anguilla

Antigua
Barbuda

Barbados

&

Argentina

Aruba

Bermuda

Bonaire

Brazil

Cayman
Islands

Chile

Colombia

Curaao

Dominica

Ecuador

El
Salvador

French
West Indies

Grenada

Guatemala

Guyana

Haiti

Honduras

Jamaica

Mexico

Nicaragua

Paraguay

Peru

St Kitts &
Nevis

St Lucia

St Vincent &
the Grenadines

Trinidad and
Tobago

Turk
Caicos

Uruguay

&

145

MERGER AND ACQUISITION

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Chief Executives

Name

Between

Sir Gerald Whent

October 1988 - December 1996

Sir Christopher Gent

January 1997 - July 2003

Arun Sarin

July 2003 - July 2008

Vittorio Colao

July 2008 - present

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Profit
before
tax m

Profit
for the
year
m

Basic
eps
(pence)

Propo
rtiona
te
custo
mers
(m)

35,478

9,001

6,756

12.56

260

2007

31,104

(2,383)

(5,297)

(8.94)

206.4

2006*

29,350

(14,835)

(21,821)

(35.01)

170.6

2005

34,073

7,951

6,518

9.68

154.8

2004

36,492

9,013

6,112

8.70

133.4

Year
ended
31
March

Turnover
m

2008

Hutch becomes third largest operator


GSM operators added 50 lakh (5 million) subscribers in May, taking the all-India GSM subscriber
base to 13.06 crore (130 million).
Bharti Airtel = 18.51 lakh new, 4.07 crore total
BSNL=2.38 lakh new, 2.79 crore total
Hutch-Essar = 15.06 lakh new, 2.92 crore total
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Idea = 7.03 lakh new, 1.52 crore total


Aircel = 64.08 lakh total

Vodafone-Hutch update
Vodafone purchased Hutchison Telecommunications 67 per cent stake in Hutchison Essar for $11.1
billion (Rs 48,540 cr), which values the Hutch Essar at $18.8 billion, including debt.

Hindu Businessline quotes Sunil Mittal of Bharti Airtel saying that the company would up the ante
knowing that Vodafone would come hard to grab more market share.

Target Name

Acquiror Name

Deal Date

$
Value
of
Deal
(mil)

Conroe
Field,Houston,Texas

Denbury Resources
Inc (DNR)

08-21-2008

725.00

Liam Joint Venture

Hochschild
Corp

08-21-2008

33.30

Eurocastle Investment
Ltd

Eurocastle
Investment
Buyback

08-21-2008

28.30

Camillo Eitzen & Co


ASA

Camillo Eitzen & Co


ASA - Buyback

08-21-2008

27.80

Undisclosed
Quality
Assets

LSI Industries
(LYTS)

08-21-2008

23.00

High
Lighting

Mining

Ltd

Inc

Semelab PLC-Business

TT electronics PLC

08-21-2008

18.20

Pacific

Vislink PLC

08-21-2008
148

17.00

Microwave

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Research Inc
DiamondWare Ltd

Nortel
Networks
Corp (NT)

08-21-2008

9.40

Trevor R Howse &


Associates Pty Ltd

GreenCap Ltd

08-21-2008

8.90

Leeder Consulting Pty


Ltd

GreenCap Ltd

08-21-2008

8.00

Apex Philatelics Ltd

Noble
Investments(UK)PLC

08-21-2008

2.30

Clearford
Inc

SC
Stormont
Holdings Inc

08-21-2008

1.10

NCI Ltd

NCR Corp (NCR)

08-21-2008

n/a

RMM Global LLC

Mold-Tek
Technologies Ltd

08-21-2008

n/a

Changing
Vitamins Inc

Suggestion Box Inc

08-21-2008

n/a

Indo Internacional SA

Antoni Vila Casas

08-21-2008

n/a

IGA Ltd

WPP Group PLC

08-21-2008

n/a

Wally & Bernies

Tidalwave Holdings
Inc

08-21-2008

n/a

Kobenhavns Lufthavns
A/S

Macquarie European
Infrastructure Fund
III

08-21-2008

n/a

OAO
Tomskaya
Raspredelitelnaya
Kompaniya

OAO Holding MRSK

08-21-2008

n/a

Interval Leisure Group


Inc (ILLG)

Shareholders

08-21-2008

n/a

Spectrum
Mapping

Cardno Ltd

08-21-2008

n/a

OAO
Krasnoyarskenergosbyt

OAO RusHydro

08-21-2008

n/a

United States Bronze


Powders
Inc-Effect
Pigment Business

Altana AG

08-21-2008

n/a

Zhengzhou Quanwei
Foods Co Ltd

Zhengzhou Sanquan
Foods Co Ltd

08-21-2008

n/a

London Mining South


America Ltd

Arcelor Mittal NV
(MT)

08-20-2008

810.00

Industries

Times

Survey &

149

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Land Securities Group


PLC- Empress State
Building

Liberty International
Holdings
PLC(Liberty
Holdings/Liblife
Controlling)

08-20-2008

201.10

SoCal Portfolio

Pacific
Office
Properties Trust Inc
(PCE)

08-20-2008

195.00

X-Rite Inc (XRIT)

One Equity Partners


LLC

08-20-2008

100.10

AC/P33,Oliver Oilfield

Stuart Petroleum Ltd

08-20-2008

74.10

Regis Energi Indonesia


PT

Bintang
Mitra
Semestaraya Tbk PT

08-20-2008

53.90

InStranet Inc

SalesForce.com
(CRM)

08-20-2008

31.50

Global
Microwave
Systems Inc

Cobham PLC

08-20-2008

26.00

Adriana Resources Inc

Arcelor Mittal NV
(MT)

08-20-2008

23.60

Unicircuit Inc

Anaren Inc (ANEN)

08-20-2008

22.50

Hami Hexin Mining


Co Ltd

Xinjiang
XinXin
Mining Industry Co
Ltd

08-20-2008

13.90

Metro Petrol Urunleri


Sanayi ve Ticaret Ltd

Van
Et
Ticari
Yatirimlar
Gida
Sanayi Turizm Ic ve
Dis Tic AS

08-20-2008

10.60

Astmax Co Ltd

Astmax Co Ltd Buyback

08-20-2008

7.60

Cia Minera Viento


Norte-Valle Hermosa
Project

Red
Dragon
Resources Corp

08-20-2008

7.50

SmartyHost Pty Ltd

MYOB Ltd

08-20-2008

6.10

Metro Turizm Otelcilik


ve Petrol Urunleri
Ticaret AS

Van
Et
Ticari
Yatirimlar
Gida
Sanayi Turizm Ic ve
Dis Tic AS

08-20-2008

5.50

Gay
International
Ltd

Asian
Harvest
Enterprise Ltd

08-20-2008

3.10

08-20-2008
150

3.00

OAO

Giano
Group

Inc

OJSC Magnitogorsk

MERGER AND ACQUISITION

DIMENSIONS CONSULTING PVT. LTD.

Bashmetalloptorg
Innovative
Technologies
America Inc

Iron & Steel Works


of

NuVim Inc

08-20-2008

2.30

Zeki Gumussu

Van
Et
Ticari
Yatirimlar
Gida
Sanayi Turizm Ic ve
Dis Tic AS

08-20-2008

1.20

JAC Japan Co Ltd

JAC Japan Co Ltd Buyback

08-20-2008

0.80

E40/212,Western
Australia

Lumacom Ltd

08-20-2008

0.20

Laksana Kemas Sdn


Bhd

IOI Corp Bhd

08-20-2008

0.20

Republic
Financial
CorpIntellectual
Property Portfolio

Attitude Drinks Inc

08-20-2008

n/a

ST-NXP Wireless SA

STMicroelectronics
NV

08-20-2008

n/a

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Change in Name: UTI Then, Axis Now

UTI Bank decided to change it's name to Axix Bank.


REASONS : The change in the bank's name follows a year-long tiff between UTI Mutual Fund and
the bank over the use of the brand name. UTI brand was given in 1994 by its promoters and UTI Bank
could use the brand only till January 2008 as per Govt directives. Many unrelated shareholder entities
like UTI Technological Services, UTI Investor Services and UTI Securities were carrying the UTI
brand. The board feels that the need for the change of name has arisen from the brand confusion that
the UTI brand generates

NEW LOGO: The bank has retained the burgundy colour, but has changed the logo. The logo uses
the alphabet 'A' from the word Axis. The logo depicts a strong growth path for the bank supported by a
strong base, indicating that the bank is moving on from a position of strength. Earlier, the bank's logo
used the letters U, T and I.
The bank is likely to spend around Rs50 crore in the re-branding exercise.

UTI Bank: Now Axis Bank

The name of the country's third largest private sector lender UTI Bank has been officially changed to
the Axis Bank Ltd with effect from 31st July,2007. Some reasons for change in name of 'UTI Bank to
Axis Bank' - are :

1) The UTI brand is owned by UTI Asset Management Company.

2) UTI Bank to shed its brandname after the split of the erstwhile UTI. Though UTI was a government
instutition, its subsidiary UTI Bank has been categorised as a private sector bank, according to RBI
guidelines.

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3) UTI Bank was started as a part of the entire UTI (Unit Trust of India) Group. But, when there were
losses incurred by UTI ( due to failure of US 64 scheme probably ) because of other reasons, it was
decided by RBI that UTI Bank should be separated as private sector bank, as several unrelated
entities were using the UTI brand.

4) The change of name to Axis Bank has been cleared from shareholders and regulators.

5) The government still has a 26% stake in UTI Bank. This stake is up for sale.

Regarding the re-branding strategy, Executive director (corporate strategy) of the bank R Ashok
Kumar said the bank had hired advertising firm O&M to help in creating awareness of the new brand
across the country. The bank would change logo and colour of logo, he had said, adding, the bank is
likely to spend around Rs 50 crore (Rs 500 million) in the re-branding exercise
These were some reasons I could find for the change of name of UTI bank to Axis Bank.

I will look into further details as well. I would like to know if I am proceeding in the right
direction or not.

I tried to find out the reason for UTI Bank changing its name from UTI to AXIS bank. My findings
are as follows:-

Axis Bank is born out of the pressure on UTI Bank to shed its brandname after the split of the
erstwhile UTI. Though UTI was a government instutition, its subsidiary UTI Bank has been
categorised as a private sector bank, according to RBI guidelines.

The name change to Axis Bank means that UTI Bank will have to undergo a rebranding exercise soon.
The rebranding process is expected to be complete by September 2007.

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After the split of UTI, entities like UTI Securities, UTI MF and UTI Bank were all allowed to retain
the UTI brand name for a while. Now that it is time for UTI Bank to shed the brand name, it has opted
to go for the more modern-sounding Axis Bank.

Axis Bank is born out of the pressure on UTI Bank to shed its brand name after the split of the
erstwhile UTI. Though UTI was a government institution, its subsidiary UTI Bank has been
categorized as a private sector bank, according to RBI guidelines.
Axis Bank was the first of the new private banks to have begun operations in 1994, after the
Government of India allowed new private banks to be established. The Bank was promoted jointly by
the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance
Corporation of India (LIC) and General Insurance Corporation Ltd. and other four PSU companies, i.e.
National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance
Corporation and United Insurance Company Ltd.
The name change to Axis Bank means that UTI Bank will have to undergo a rebranding exercise soon.
The rebranding process is expected to be complete by September 2007.
After the split of UTI, entities like UTI Securities, UTI MF and UTI Bank were all allowed to retain
the UTI brand name for a while. Now that it is time for UTI Bank to shed the brand name, it has opted
to go for the more modern-sounding Axis Bank.
The name has been changed to Axis Bank due to existence of several shareholders-unrelated entities
were using UTI Brand name, resulting in brand confusion.
The name has been changed after the approval of shareholders, Reserve Bank of India and Central
Government of India.

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I have the following findings:-

UTI brand was given in 1994 by its promoters and UTI Bank could use the brand only till January
2008 as per Govt directives.

Many unrelated shareholder entities like UTI Technological Services, UTI Investor Services and UTI
Securities were carrying the UTI brand thereby leading to confusion of the "BRAND UTI".

Axis Bank brand aims to portray the bank as modern and innovative

The Bank has decided to create a distinct brand identity for itself as for instance ICICI Infotech
rebranding itself as "3i Infotech".Rebranding provides an opportunity to communicate elements of
personality, values and vision, which are specific to the Bank.
This rebranding becomes more important as the Bank takes its initial steps in establishing a global
footprint.
LIC eyeing UTI bank

Life Insurance Corporation (LIC), the public sector life insurer, wants the government to provide it the
first right to purchase the 27.47 per cent stake held by Specified Undertaking of Unit Trust of India
(SUUTI) in UTI Bank, a mid-sized private sector bank. A senior LIC official said LIC should be given
the first right (to buy SUUTI's stake) as it was the co-promoter of the bank." LIC already holds 10.39
per cent stake in UTI Bank.

LIC's interest in the deal is obvious: it can merge UTI Bank and Corporation Bank(27% stake) in due
course and become a force in the banking sector. But it is unlikely to get the government's nod. UTI
Bank is a "private bank" originally promoted by UTI, a public sector entity. Ever since UTI ran into
problems, it has become more of a private entity with only notional control by the government directly
or indirectly. The pay scales, for instance, are totally private sector- the CMD gets a package that
public sector bank chairmen cannot dream of.

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I guess that the government would like it to stay that away. It is not able to privatise public sector
banks; the least it would like to do is not to add to the public sector stable, which would be the
result if LIC took it over. That is part of the reason the government has prised UTI Bank away from
UTI, its promoter.

The chances are government will offer SUUTI's stake to a combination of domestic and overseas
investors through a public offer. That means UTI Bank will emerge as a professionally-run bank with
a diversified base of investors like ICICI Bank.So may be rebranding has been done deliberately to
favour this and thwart the chances of LIC taking over UTI.

On investigating I have found out that a conflict of brand name between UTI mutual fund and
UTI Bank resulted in UTI Bank changing its name to Axis Bank.
Following is a brief description.

HISTORY:

UTI Mutual Fund

The setting up of the Unit Trust of India (UTI) in 1963 heralded the birth of the Indian mutual fund
industry. The fund's sponsors are public sector financial giants like Life Insurance Corporation, SBI,
Bank of Baroda and Punjab National Bank. The sponsors hold equal stakes in the asset management
company, UTI Asset Management Company Private Limited. UTI Mutual Fund remains the largest
fund in the country with assets of over Rs.35,028 crore under management as of Aug 2006.

In 2003, UTI was divided into two parts, UTI Mutual Fund (UTI MF) and a specified undertaking of
UTI or UTI-I. UTI MF was brought under SEBI regulations while UTI-I was kept under direct
government control since its schemes offered guaranteed returns.

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UTI Bank

UTI Bank began its operations in 1994 when the Government of India allowed new private banks
to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of
the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance
Corporation Ltd. and its associates viz. National Insurance Company Ltd., The New India Assurance
Company, The Oriental Insurance Corporation and United Insurance Company Ltd.

The Conflict Of Brand UTI:

According to a deal between the government and the fund's four sponsors State Bank of India, Life
Insurance Corporation, Bank of Baroda and Punjab National Bank UTI's nine subsidiaries could
use the brand name for free till January 2008.

After the period ended, UTI Bank, UTI Securities, UTI Technology Services and UTI Investor
Advisory Services had to pay royalty to the fund house.

UTI Bank was offered to keep the brand name beyond 2008 without any royalty payment. But UTI
MF wanted a non-compete clause to be built in besides insisting on investing jointly in brand
promotion.

But last year, UTI Bank decided to set up an asset management company to operate a venture capital
fund and get into the private equity business. That's when UTI MF objected to the use of a common
brand name since it already had a Bangalore-based subsidiary UTI Ventures.

The year long conflict ended when UTI Bank finally decided to change its name to Axis Bank.
Chairman and CEO of UTI bank Mr P J Nayak told thatthe decision to re-brand the Bank emanated

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MERGER AND ACQUISITION

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from the need to move out of a scenario of brand confusion that is created by several shareholderunrelated entities using the UTI brand.

--The usage of the UTI brand by several shareholder-unrelated entities was becoming untenable

--With this re-branding the bank plans to diversify into other financial services and restructure its
corporate banking.

--The re-branding becomes more important as the bank takes its initial steps in establishing a global
footprint

--The bank has offices in Singapore, Hong Kong, Shanghaiand Dubai. It seeks to expand further its
international presence to become a multinational bank

--The name Axis is chosen as it is simple and it conveys a sense of solidity and a sense of maturity. It
also has a universal appeal.

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Will Reliance Communications acquire Capgemini to become Indias largest IT services


provider?

Anil Ambani is firing all cylinders in the quest to become Indias largest group (and Richest Indian),
the coveted place currently held by his elder brother Mukesh. Close to the heels of Reliance Power - a
$2.8 billion mammoth IPO, Anil has already announced his intentions of going public with his
entertainment division.
Now another big news has started making rounds. Anil Ambani run Reliance Communications is in
talks with up-for-grabs French IT consulting firm Capgemini.
Times Online reports:
Capgemini, the French IT services group, has held early-stage talks with Reliance Communications, of
India, that could result in the first acquisition of a significant Western IT house by one of Indias fastgrowing competitors.
Reliance Communications interest confirms Mr Ambanis hopes to build a significant IT business.
A move on Capgemini would give it access to a client base in continental Europe and catapult it
among the worlds top ten IT groups by market share.
Mr Ambani, Indias second-richest man after his estranged brother Mukesh, has already suggested that
he aims to be among the worlds five biggest video games developers.

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Mega Acquisitions by Indian companies changing brand India !


The giant positive strides that Brand India has taken in last few years are nothing less than astonishing.
Indian Businessmen and Entrepreneurs are set out to revamp Indian image that will be boasting
worlds biggest corporations in near future. All the sectors, be it Steel, manufacturing, Information
technology,

Auto

and

FMCG

are

all

buzzing

with

Mega

Indian

acquisitions.

The latest and probably the most talked about after Mittals buy-out of Arcelor, is Jaguar- Land Rover
bid by Tata group.

MarketRX Bid: Fight between Infosys and Wipro

The trends of Indian companies buying US based companies is becoming increasingly common. In
2007 itself, more than 15 acquisitions have been made by Indian software companies. Like I have
mentioned before on this blog, these kind of deals are the best ways for Indian companies to grow
aggressively. It helps them on multiple levels, primarily fighting resource crunch, increasing global
client based and addition of Intellectual property not easily available in open market.

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ANALYSIS OF DATA

TOOLS FOR DATA COLLECTION

BIG ACQUISITIONS BY INDIAN COMPANIES IN NEAR FUTURE

INDIAN MERGER & ACQUISITION : THE CHANGING FACE OF INDIAN BUSINESS

REDIFF TAKEOVER : RUMOUR OR REALITY?

INDIAN MERGER & ACQUISITION ARE GROWING EXPONENTIALLY

DATA :Data to know various factors affecting the merger and acquisition is collected from various websites.

TOOLS OF DATA COLLECTION :Secondary and primary data has been used in this research in this project the data has been collected
from various sites ,book, journal and newspaper and various analysts.

Big acquisitions by Indian Software companies in near future.

Being in I.T Industry, I do understand the importance of these kinds of deal by Indian companies. It
not only helps the Indian software firm to gain a strong foothold with local presence, but it provides
with an added advantage of resourcing. As all of you know, the US government has a cap of 65000
H1B visas, which unfortunately will not be increased in near future. With such small number of visas
available, it is
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extremely difficult for Indian software houses to expand aggressively. So the route of these
acquisitions gives Indian companies added advantage of securing existing people from acquired
company and also providing Indian people as part of Intra company transfers, which circumvent the
requirement of getting the H1B visa for the person traveling to US.

Indian Mergers and Acquisitions: The changing face of Indian Business

Indian outbound deals, which were valued at US$ 0.7 billion in 2000-01, increased to US$ 4.3 billion
in 2005, and further crossed US$ 15 billion-mark in 2006. In fact, 2006 will be remembered in Indias
corporate history as a year when Indian companies covered a lot of new ground. They went shopping
across the globe and acquired a number of strategically significant companies. This comprised 60 per
cent of the total mergers and acquisitions (M&A) activity in India in 2006. And almost 99 per cent of
acquisitions were made with cash payments.

Rediff Takeover: Rumor or Reality ?

This is not a confirmed news, still in rumor stages, but because Hindustan times has published this
news, it needs to be taken note of. According to the news Google and Yahoo are eyeing Rediff, one of
the Indias most popular consumer portals. I am actually surprised that this has not happened earlier.
Rediff now for sometime has been forefront capturing good market share of Indian Internet Readers.

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The Indian mergers and acquisitions are growing exponentially.


Not only that, Indian corporations currently loaded with excess cash are on acquisitions spree. I have
earlier written about how hot the scenario was last year, but 2007 seems to have already reached that
mark in less than 6 months.
ICICI banks private research division has come out with a Global Investment Outlook report, which
says the total equity deals struck by Indian companies have crossed 50 billion USD in 2007. In the
same timeframe last year the equity deals stood at 13.5 billion USD.

Indias new-found confidence: Global Acquisitions !


Most of the Americans may have never heard of these Indian companies: Reliance Gatewaynet,
VSNL, Scandent and GHCL - but these are growing number of Indian companies who have recently
acquired US firms. The news of Indian company

Bank mergers a pipedream


The Union Finance Minister, Mr. P.Chidambaram, wants the boards of public sector banks to push for
mergers when these banks (hence the boards) are owned by the Government, with the minimum stake
being 52 percent in State Bank of India.
Excepting SBI which comes under the SBI Act, others come under the acts governing nationalized
banks, which some believe do not provide for mergers. Banks have to be brough under the Companies
Act to coming together, say others and could take time as the approval of Parliament will be necessary.
It is hard to see bank boards moving on their own as bank chairmen may not be enthusiastic for
obvious reasons. At one time, the Government thought of setting up a committee to study the subject
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in detail, including the legal and operational tangles; currently, the Indian Banks Association (IBA) is
having a look in.
At around the same time, the Deputy Governor of RBI, Ms K.J.Udeshi, has favoured consolidation of
old private banks, a ploy which anearlier RBI deputy governor, MR. S.P.Tlawar, worked on and met
with resistance form the community-based banks in Kerala and Tamil Nadu.
She is proper in arguing for a move from a large no of small banks to a small no of large banks as
most, if not all, old private sector banks do not have the financial stamina to last a long game. On their
own it is hard to see Federal Bsnk, South Indian Bsnk, Lord Krishna Bank and Catholic Syrian Bank
becoming a single entity.
Mergers of private banks could be a rare happening with the many RBI circulars on the subject. On
January 22, 1993, the RBI issued guidelines on the entry of new private sectior banks to be registered
as public limited companies under the Companies Act, 1956. The three-page press note did nit have a
word on ownership.
On January 3,2001, an RBI press note specifically barred large industrial houses from setting up a
bank but allowed companies linked to a corporate house to hold a maximum of 10 percent stake in the
bank sans controlling interest.
On February 26,2002, a third RBI press note set a limit of 49 percent on FDI under the automatic route
in the banking sector without being sufficiently clear on the status of FII holding in private banks.
However, it said FDI and portfolio investment in nationalized banks were subject to overall statutory
limits of 20 percent as provided under Section 3(2D) of the Banking Companies (Acquisition &
Transfer of Undertakings) Act, 1970/80. The same ceiling would apply to SBI and its associate banks,
the press note added.
The point was also made that transfer of shares of 5 percent and more of the paid-up capital of a
private banking company, requires prior acknowledgement of RBI.
On January 29,2004, in a detailed note to clarify its position to potential domestic and foreign
investors, the RBI said as hitherto, the acknowledgement from RBI for acquisition/transfer of shares
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will be required, for all cases of acquisition of shares which will take the aggregate holding of an
individual or group to equivalent of 5 percent or more of the paid-up capital of the bank. RBI while
granting acknowledgement may require such acknowledgement to be obtained for subsequent
acquisition at any higher threshold as may be specified.
On March 5,2004, the Department of Industrial Policy &Promotion, Ministry of Commerce (not RBI,
a mystery indeed), came out with rules upping FDI stake in private sector banks to 74 percent
including FII. But this key circular shut out foreign bank may operate in India private banks by stating
a foreign bank may operate in India through only one of the three channels:

Branches

A wholly
owned
subsidiary

A subsidiary
with
aggregate
foreign
investment in
to a
maximum of
74 percent

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The RBI notification on July 2, 2004 implictly ruled out any merger or acquisition of any colour
among private banks by laying the 5 percent and 10 percent caps. Does this not conflict with the
earlier norm of 74 percent for FDI and FII.

RBI says it is going by international norms. Agreed. But from where will banks raise fresh capital? Dr.
Rakesh Mohan, Deputy Governor, RBI, contends funds are aplently for banks to tap. Public sector
banks have little scope to raise fresh capital, as Government stake cannot go below 51 percent.

Private sector banks will have problems, as they will not be able to command huge premiums and also
tackle various RBI circulars. The banking industry is stuck. Will bank boards have diversified or
fragmented holdiongs? It looks it may be fragmented holdings? It looks it may be fragmented enough
to hobble bank board from performing.

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FINDING INFERENCES &


RECOMMENDATIONS
The conclusion shows that the merger and acquisition is becoming more important in day to day life
from the point of view of the loss running business and for those enterprenure who wants to expand
their business by selling a unit or buy purchasing a unit or the entire empire.
Regular increase in competition has made merger and acquisition a necessity.
Some Companies depend on the risk and return and give tips to their companies to make flexibility in
the market.

And it is highly recommended to take in view the following policies before a merger and acquisition:

COMPETITION LAW & POLICY MERGER &ACQUISITIONINDIAN PERSPECTIVE

Basic objectives of Competition Act, 2002


To prevent practices having adverse effect on competition.
To promote and sustain competition in markets.
To protect the interest of consumers; and
To ensure freedom of trade carried on by other participants in markets.

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ROADMAP TO MERGER AND ACQUISITION

Section 6 of the Act provides for regulation of combination having an adverse effect on competition
by Competition Commission.

Combination includes acquisition of enterprises by persons, the acquisition of control by


enterprises, and the merger or amalgamation of enterprises when the asset value and turnover involved
both in India and ourside certain thresholds.
Combination taken place outside India or party to it outside India also covered under the purview of
the Act.
Factors such as actual and potential level of competition, degree of consolidation in the market and
degree of countervailing power are taken into account when determining whether a combination has
an adverse effect on competition.
Reporting of such combination by parties to the Comission under Section 6 optional and not
mandatory.
Enterprises with a lower asset value and turnover than threshold are excluded from the purview of the
Act.
Share subscriptions, financing facilities and acquisitions by public financial institutions, foreign
institutional investors, bank and venture capital funds exempted from purview of the Act.
Combinations that are found to have a negative impact on competition are to be rendered void ab initio
by the Commission.
Unlike abuse of dominance, which demands evidence of actual abuse, combinations that are merely
likely to have an adverse effect on competition are prohibited.
No enquiry by the Commission after expiry of one year from the date on which such combination has
taken effect.
Modification to combination permissible during inquiry before the Commission.

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CRITICAL ISSUES

Bar to initiate inquiry after expiry of one year from effect of a combination.

Likely logistical limitations of the Commission to be able to take cognizance of every violate
combination

Overlapping of powers with that of High Courts and Securities & Exchange Board of India
(SEBI) as regarded merger/acquisition.

Across-border combination specifically involving Multinational Corporations

Time bound disposal as provided does not seem realistic in view of likely workload

No residuary provision available to the Commission to inquire into a combination not falling
within laid down criteria but giving rise to appreciable adverse effect on compeititon in the relevant
market.

No provision empowering the Commission to seek co-operation and co-ordination directly


from their counter parts abroad.

Trained/Skilled professional manpower

Infrastructure support system

Access to update data-base, information, international developments etc.

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CONCLUSION
Mergers and Acquisitions (M&A) have immensely evoked and still continue to capture scholars
interests. More so, M&A in the banking sector evokes high interest simply for the fact that after
decades of strict regulations, easing of the ownership & control regulations has led to a wave of M&A
in banking industry throughout the world.

Considering the changed environment conditions, we believe that M&A in the Indian
Banking are an important necessity. The reasons include (a) fragmented nature of the Indian banking
sector resulting in poor global competitive presence and position; (b) large intermediation costs and
consequent probability in increasing its risk profile; and (c) meet the new stringent international
regulatory norms. While a fragmented Indian banking structure may very well be beneficial to the
customers (given increased competition due to lower market power of existing players), at the same
time this also creates the problem of not having any critical mass to play the game at the global
banking industry level. This has to be looked at significantly from the states long-term strategic
perspective. Given that economic power is increasingly used as a tool by nations to defend their
position, to signal power, to signal intent, and to establish their supremacy over others hence owning
and managing large powerful global banks would be an obvious interest for every country.

Consolidation through M&A may be requirement of future. M&A of future should aim at creation of
strong entity and to develop ability to withstand the market shocks instead of protecting the interests of
depositors of weak banks. The M&As in the banking sector should be driven by market related
parameters such as size and scale; geographical and distribution synergies and skills and capacity. The
emerging market dynamics like falling interest rate regime which makes the spread thinner; increasing
focus on retail banking, enhanced quest for rural credit, felt need for increasing more profits especially
from operations, reduction of NPA's in absolute terms, need for more capital to augment the
technology needs, etc are the major drivers for mergers and acquisitions in the banking sector.
M&As are no substitute for poor assets quality, lax management, indifference to technology up
gradation and lack of functional autonomy and operational flexibility. The banking system will have
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to be managed by competent and independent people having adequate power and full operational
autonomy.
With increasing globalisation, attaining size advantages will become critical for Indian banks.
Combined with the need to attain higher capital standards under Basel II Accord, consolidation in the
Indian Banking industry will become imminent. However, the issues that need to be addressed include
maximizing synergies in terms of regional balance, network of branches, HR culture, and asset
commonality and legacy issues in respect of technology. In the present scenario, we must develop
small number large banks of global size instead of large number of smaller banks as we are having
now.

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SUMMARY
Mergers and Acquisitions in Banking Sector
Mergers and acquisitions in banking sector have become familiar in the majority of all the countries in
the world. A large number of international and domestic banks all over the world are engaged in
merger and acquisition activities. One of the principal objectives behind the mergers and acquisitions
in the banking sector is to reap the benefits of economies of scale.

With the help of mergers and acquisitions in the banking sector, the banks can achieve significant
growth in their operations and minimize their expenses to a considerable extent. Another important
advantage behind this kind of merger is that in this process, competition is reduced because merger
eliminates competitors from the banking industry.

Mergers and acquisitions in banking sector are forms of horizontal merger because the merging
entities are involved in the same kind of business or commercial activities. Sometimes, non-banking
financial institutions are also merged with other banks if they provide similar type of services.

Through mergers and acquisitions in the banking sector, the banks look for strategic benefits in the
banking sector. They also try to enhance their customer base.

In the context of mergers and acquisitions in the banking sector, it can be reckoned that size does
matter and growth in size can be achieved through mergers and acquisitions quite easily. Growth
achieved by taking assistance of the mergers and acquisitions in the banking sector may be described
as inorganic growth. Both government banks and private sector banks are adopting policies for
mergers and acquisitions.

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In many countries, global or multinational banks are extending their operations through mergers and
acquisitions with the regional banks in those countries. These mergers and acquisitions are named as
cross-border mergers and acquisitions in the banking sector or international mergers and acquisitions
in the banking sector. By doing this, global banking corporations are able to place themselves into a
dominant position in the banking sector, achieve economies of scale, as well as garner market share.

Mergers and acquisitions in the banking sector have the capacity to ensure efficiency, profitability and
synergy. They also help to form and grow shareholder value.

In some cases, financially distressed banks are also subject to takeovers or mergers in the banking
sector and this kind of merger may result in monopoly and job cuts.

Deregulation in the financial market, market liberalization, economic reforms, and a number of other
factors have played an important function behind the growth of mergers and acquisitions in the
banking sector. Nevertheless, there are many challenges that are still to be overcome through
appropriate measures.

Mergers and acquisitions in banking sector are controlled or regulated by the apex financial authority
of a particular country. For example, the mergers and acquisitions in the banking sector of India are
overseen by the Reserve Bank of India (RBI).

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Major Mergers and Acquisitions in the Banking Sector of the United States
Following are some of the important mergers and acquisitions that took place in the banking sector of
the United States:
The merger of Chase Manhattan Corporation with J.P. Morgan & Company. The name of the new
company formed as a result of the merger is J.P. Morgan Chase & Company.
The merger of Firstar Corporation with U.S. Bancorp. The name of the resultant entity is U.S.
Bancorp.
The merger of First Union Corporation with Wachovia Corporation. The name of the newly formed
company is Wachovia Corporation.
The merger of Fifth Third Bancorp with Old Kent Financial Corporation. The name of the merged
company is Fifth Third Bancorp.
The merger of Summit Bancorp with FleetBoston Financial Corporation. The new company is named
FleetBoston Financial Corporation.
The merger of Golden State Bancorp, Inc. with Citigroup Inc. The name of the newly formed company
is Citigroup Inc.
The merger of Dime Bancorp, Inc. with Washington Mutual and the name of the merged entity is
Washington Mutual.
The merger of FleetBoston Financial Corporation with Bank of America Corporation. The newly
formed entity is Bank of America Corporation.
The merger of Bank One with J.P. Morgan Chase & Company. Name of the new company is J.P.
Morgan Chase & Company.
The merger of SunTrust with National Commerce Financial and the newly formed entity is also named
SunTrust.
The merger of Hibernia National Bank with Capital One Financial Corporation and the merged entity
is known as Capital One Financial Corporation.
The merger of MBNA Corporation with Bank of America and the resultant entity is known as Bank of
America Card Services.
The merger of AmSouth Bancorporation with Regions Financial Corporation and the name of the
newly formed entity is Regions Financial Corporation.
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The merger of LaSalle Bank with Bank of America and the new entity formed is called as Bank of
America.
The merger of Mellon Financial Corporation with Bank of New York Company, Inc. and the newly
merged entity is known as Bank of New York Mellon.

Merger waves

The economic history has been divided into Merger Waves based on the merger activities in the
business world as:

Period

Name

Facet

1889 - 1904

First Wave

Horizontal mergers

1916 - 1929

Second
Wave

Vertical mergers

1965 - 1989

Third Wave

Diversified conglomerate mergers

1992 - 1998

Fourth
Wave

Congeneric
mergers;
Corporate Raiding

2000 -

Fifth Wave

Cross-border mergers

Hostile

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Cross-border M&A
In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A deals
cause the domestic currency of the target corporation to appreciate by 1% relative to the acquirers.

The rise of globalization has exponentially increased the market for cross border M&A. In 1997 alone
there were over 2333 cross border transactions worth a total of approximately $298 billion. This rapid
increase has taken many M&A firms by surprise because the majority of them never had to consider
acquiring Due to the complicated nature of cross border M&A, the vast majority of cross border
actions have unsuccessful anies seek to expand their global footprint and become more agile at
creating high-performing businesses and cultures across national boundaries.[7]

Even mergers of companies with headquarters in the same country are very much of this type (crossborder Mergers). After all,when Boeing acquires McDonnell Douglas, the two American companies
must integrate operations in dozens of countries around the world. This is just as true for other
supposedly "single country" mergers, such as the $29 billion dollar merger of Swiss drug makers
Sandoz and Ciba-Geigy (now Novartis).

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Major M&A in the 1990s


Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:

Rank

Year

Purchaser

1999

2
3
4

1999
1998
1998

1999

1999

Vodafone Group

7
8

1998
1998

1999

Bell Atlantic[12]
BP[13]
Qwest
Communications

10

1997

Vodafone
Airtouch PLC[8]
Pfizer[9]
Exxon[10][11]
Citicorp
SBC
Communications

Worldcom

Purchased

Transaction
value (in mil.
USD)

Mannesmann

183,000

Warner-Lambert
Mobil
Travelers Group
Ameritech
Corporation
AirTouch
Communications
GTE
Amoco

90,000
77,200
73,000

US WEST

48,000

MCI
Communications

42,000

63,000
60,000
53,360
53,000

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Major M&A in the 2000s


Top 10 M&A deals worldwide by value (in mil. USD) from 2000 to 2009:

Rank

Year

2000

2000

2004

2006

2001

2009

Purchaser
Fusion:
America
Online
Inc.
(AOL)[14][15]
Glaxo
Wellcome
Plc.
Royal
Dutch
Petroleum Co.
AT&T Inc.[16][17]
Comcast
Corporation
Pfizer Inc.

Purchased

Transaction
value
(in
mil. USD)

Time Warner

164,747

SmithKline
Beecham Plc.
Shell Transport &
Trading Co
BellSouth
Corporation
AT&T Broadband
& Internet Svcs
Wyeth

75,961
74,559
72,671
72,041
68,000
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2000

Spin-off:
Networks
Corporation

Nortel

2002

Pfizer Inc.

Pharmacia
Corporation

59,515

2004

JP Morgan Chase &


Co[18]

Bank One Corp

58,761

10

2008

Inbev Inc.

Anheuser-Busch
Companies, Inc

52,000

59,974

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Mergers and acquisitions in United Kingdom law


Competition regulator
Control premium
Corporate advisory
Data site
Divestiture
Factoring (finance)
Fairness opinion
International Financial Reporting Standards
IPO
List of bank mergers in United States
Management control
Management due diligence
Merger control
Merger integration
Merger simulation
Second request
Shakeout
Tulane Corporate Law Institute
Venture capital
Vermilion Partners Ltd

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MDM Bank
MDM Bank

Type

JSC

Industry

Finance and Insurance

Founded

1993

Headquarters

Moscow, Russia[1]

Products

Financial Services

Website

www.mdmbank.com

MDM Bank (Russian: ) is a Russian Joint Stock commercial bank, one of Russia's largest
private banks based in Moscow. As of August 2009, the bank completed a merger with Novosibirskbased URSA Bank. The new bank will operate under MDM Bank brand name, but the merger is
actually structured as an acquition of MDM by URSA. The new corporate headquarters will be bases
in Novosibirsk. The merger was announced in December 2008;[2] MDM and URSA estimated that the
new MDM Bank would have capital of 2.5 billion and total assets of 18.7 billion US dollars, although
in practise the numbers ended up being somewhat lower.[3]
Igor Kim, chairman and shareholder of URSA, has been the new bank's chief executive officer during
the transition period; Oleg Vyugin chairs the board of the bank's holding company and the former
MDM CEO Igor Kuzin is chief executive of the holding company.[2]
MDM Bank was founded in December 1993 and holds a General Banking License issued by the
Central Bank of Russia (#2361 dated 13 February 2003, which will be voided as the bank migrates
under URSA Bank license #323).[4] It had one of the highest credit ratings among privately-owned
Russian banks Standard & Poor's (BB, stable), Fitch Ratings (BB, stable) and Moody's (Ba1, stable)
and is the only Russian financial organization that has been given a public corporate governance
rating by Standard & Poor's (6+).
URSA Bank was founded in 1990 as Sibakadembank by the Siberian Branch of Russian Academy of
Sciences. It was restructured from a privately held bank to a joint-stock bank in 1997. After a series of
mergers with local Siberian banks, in 2006 Sibakadembank merged with Yekaterinburg-based
Uralvneshtorgbank (established 1991) and assumed the new name, URSA Bank.

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ANNEXURES

PROPOSAL

REFERENCE

LIST OF
FIGURES,
CHARTS
LIST OF
,
TABLES
DIAGRAMNS

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References
http://www.evalueserve.com/Media-And-Reports/WhitePapers.aspx#
http://www.coolavenues.com/know/fin/rachna_4.php3
http://www.indianmba.com/Faculty_Column/FC397/fc397.html
http://iimk.ac.in/GCabstract/Shilpa%20Surana.pdf
bank mergers-possibilities and preparation by meera Sharma.pdf
http://ssrn.com/abstract=1008717 jay Mehta and ram kumar kakani motives for m&a
www.mckinsey.com/locations/india/mckinseyonindia/pdf/India_Banking_2010.pdf
www.ficci.com/.../banking/Session%20III/Presentation%20to%20FICCI%20on%20M&Adraft%
20version-v7final.ppt
www.crisil.com/crisil-young-thought-leader-2006/dissertations/Nitin-Dhawan_Dissertation.pdf
http://medcindia.org/cgi-bin/Sept06/Banking%20&%20Finance.HTM
www.rediff.com
www.indiastat.com
www.rbi.org.in
www.hindubusinessline.com
http://mpra.ub.uni-muenchen.de/1266/
http://www.indianexpress.com/story/13847.html
Centurion bank investor presentation.pdf
Press release by centurion bank on 12th Jan 2006
myiris.com/shares/research/ESSBL/CENBANK_20071031.pdf
http://sify.com/finance/fixedincome/fullstory.php?id=14288405
http://economictimes.indiatimes.com/Banking/Centurion_Bank_of_Punjab_to_merge_with_HDFC_B
ank/articleshow/2802712.cms
times of india.indiatimes.com/articleshow/1156032.cms
www.vodafone.com

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Mergers and Acquisitions in Banking Sector


Mergers and acquisitions in banking sector have become familiar in the majority of all the countries in
the world. A large number of international and domestic banks all over the world are engaged in
merger and acquisition activities. One of the principal objectives behind the mergers and acquisitions
in the banking sector is to reap the benefits of economies of scale.

With the help of mergers and acquisitions in the banking sector, the banks can achieve significant
growth in their operations and minimize their expenses to a considerable extent. Another important
advantage behind this kind of merger is that in this process, competition is reduced because merger
eliminates competitors from the banking industry.

Mergers and acquisitions in banking sector are forms of horizontal merger because the merging
entities are involved in the same kind of business or commercial activities. Sometimes, non-banking
financial institutions are also merged with other banks if they provide similar type of services.

Through mergers and acquisitions in the banking sector, the banks look for strategic benefits in the
banking sector. They also try to enhance their customer base.

In the context of mergers and acquisitions in the banking sector, it can be reckoned that size does
matter and growth in size can be achieved through mergers and acquisitions quite easily. Growth
achieved by taking assistance of the mergers and acquisitions in the banking sector may be described
as inorganic growth. Both government banks and private sector banks are adopting policies for
mergers and acquisitions.

In many countries, global or multinational banks are extending their operations through mergers and
acquisitions with the regional banks in those countries. These mergers and acquisitions are named as
cross-border mergers and acquisitions in the banking sector or international mergers and acquisitions
in the banking sector. By doing this, global banking corporations are able to place themselves into a
dominant position in the banking sector, achieve economies of scale, as well as garner market share.
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Mergers and acquisitions in the banking sector have the capacity to ensure efficiency, profitability and
synergy. They also help to form and grow shareholder value.

In some cases, financially distressed banks are also subject to takeovers or mergers in the banking
sector and this kind of merger may result in monopoly and job cuts.

Deregulation in the financial market, market liberalization, economic reforms, and a number of other
factors have played an important function behind the growth of mergers and acquisitions in the
banking sector. Nevertheless, there are many challenges that are still to be overcome through
appropriate measures.

Mergers and acquisitions in banking sector are controlled or regulated by the apex financial authority
of a particular country. For example, the mergers and acquisitions in the banking sector of India are
overseen by the Reserve Bank of India (RBI).

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Major Mergers and Acquisitions in the Banking Sector of


the United States
Following are some of the important mergers and acquisitions that took place in the banking sector of
the United States:
The merger of Chase Manhattan Corporation with J.P. Morgan & Company. The name of the new
company formed as a result of the merger is J.P. Morgan Chase & Company.
The merger of Firstar Corporation with U.S. Bancorp. The name of the resultant entity is U.S.
Bancorp.
The merger of First Union Corporation with Wachovia Corporation. The name of the newly formed
company is Wachovia Corporation.
The merger of Fifth Third Bancorp with Old Kent Financial Corporation. The name of the merged
company is Fifth Third Bancorp.
The merger of Summit Bancorp with FleetBoston Financial Corporation. The new company is named
FleetBoston Financial Corporation.
The merger of Golden State Bancorp, Inc. with Citigroup Inc. The name of the newly formed company
is Citigroup Inc.
The merger of Dime Bancorp, Inc. with Washington Mutual and the name of the merged entity is
Washington Mutual.
The merger of FleetBoston Financial Corporation with Bank of America Corporation. The newly
formed entity is Bank of America Corporation.
The merger of Bank One with J.P. Morgan Chase & Company. Name of the new company is J.P.
Morgan Chase & Company.
The merger of SunTrust with National Commerce Financial and the newly formed entity is also named
SunTrust.
The merger of Hibernia National Bank with Capital One Financial Corporation and the merged entity
is known as Capital One Financial Corporation.
The merger of MBNA Corporation with Bank of America and the resultant entity is known as Bank of
America Card Services.

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The merger of AmSouth Bancorporation with Regions Financial Corporation and the name of the
newly formed entity is Regions Financial Corporation.

The merger of LaSalle Bank with Bank of America and the new entity formed is called as Bank of
America.
The merger of Mellon Financial Corporation with Bank of New York Company, Inc. and the newly
merged entity is known as Bank of New York Mellon.

Merger waves
The economic history has been divided into Merger Waves based on the merger activities in the
business world as:
Period
1889 1904
1916 1929
1965 1989
1992 1998
2000 -

Name

Facet

First Wave

Horizontal mergers

Second Wave

Vertical mergers

Third Wave

Diversified conglomerate mergers

Fourth Wave
Fifth Wave

Congeneric mergers; Hostile takeovers; Corporate


Raiding
Cross-border mergers

Cross-border M&A
In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A deals
cause the domestic currency of the target corporation to appreciate by 1% relative to the acquirers.

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The rise of globalization has exponentially increased the market for cross border M&A. In 1997 alone
there were over 2333 cross border transactions worth a total of approximately $298 billion. This rapid

increase has taken many M&A firms by surprise because the majority of them never had to consider
acquiring Due to the complicated nature of cross border M&A, the vast majority of cross border
actions have unsuccessful anies seek to expand their global footprint and become more agile at
creating high-performing businesses and cultures across national boundaries.[7]
Even mergers of companies with headquarters in the same country are very much of this type (crossborder Mergers). After all,when Boeing acquires McDonnell Douglas, the two American companies
must integrate operations in dozens of countries around the world. This is just as true for other
supposedly "single country" mergers, such as the $29 billion dollar merger of Swiss drug makers
Sandoz and Ciba-Geigy (now Novartis).

Major M&A in the 1990s


Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:

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Rank

Year

Purchaser

Purchased

Transaction
value
(in
mil. USD)

1999

Vodafone Airtouch
PLC[8]

Mannesmann

183,000

1999

Pfizer[9]

Warner-Lambert

90,000

1998

Exxon[10][11]

Mobil

77,200

1998

Citicorp

Travelers Group

73,000

1999

SBC
Communications

1999

Vodafone Group

Ameritech
Corporation
AirTouch
Communications

1998

Bell Atlantic[12]

GTE

53,360

1998

BP[13]

Amoco

53,000

1999

Qwest
Communications

US WEST

48,000

10

1997

Worldcom

MCI
Communications

42,000

63,000
60,000

Major M&A in the 2000s


Top 10 M&A deals worldwide by value (in mil. USD) from 2000 to 2009:
Rank

Year

Purchaser

Purchased

Transaction value
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(in mil. USD)


Fusion:
America
Online
Inc.
(AOL)[14][15]
Glaxo
Wellcome
Plc.
Royal
Dutch
Petroleum Co.

2000

Time Warner

164,747

2000

2004

2006

AT&T Inc.[16][17]

2001

Comcast
Corporation

SmithKline
Beecham Plc.
Shell Transport &
Trading Co
BellSouth
Corporation
AT&T Broadband
& Internet Svcs

2009

Pfizer Inc.

Wyeth

2000

Spin-off:
Networks
Corporation

2002

Pfizer Inc.

Pharmacia
Corporation

59,515

2004

JP Morgan Chase &


Co[18]

Bank One Corp

58,761

10

2008

Inbev Inc.

Anheuser-Busch
Companies, Inc

52,000

75,961
74,559
72,671
72,041

68,000

Nortel
59,974

Mergers and acquisitions in United Kingdom law


Competition regulator
Control premium
Corporate advisory
Data site
Divestiture
Factoring (finance)
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Fairness opinion
International Financial Reporting Standards
IPO
List of bank mergers in United States
Management control
Management due diligence
Merger control
Merger integration
Merger simulation
Second request
Shakeout
Tulane Corporate Law Institute
Venture capital
Vermilion Partners Ltd

MDM Bank
MDM Bank

Type

JSC

Industry

Finance and Insurance

Founded

1993

Headquarters

Moscow, Russia[1]

Products

Financial Services

Website

www.mdmbank.com

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MDM Bank (Russian: ) is a Russian Joint Stock commercial bank, one of Russia's largest
private banks based in Moscow. As of August 2009, the bank completed a merger with Novosibirskbased URSA Bank. The new bank will operate under MDM Bank brand name, but the merger is
actually structured as an acquition of MDM by URSA. The new corporate headquarters will be bases
in Novosibirsk. The merger was announced in December 2008;[2] MDM and URSA estimated that the
new MDM Bank would have capital of 2.5 billion and total assets of 18.7 billion US dollars, although
in practise the numbers ended up being somewhat lower.[3]
Igor Kim, chairman and shareholder of URSA, has been the new bank's chief executive officer during
the transition period; Oleg Vyugin chairs the board of the bank's holding company and the former
MDM CEO Igor Kuzin is chief executive of the holding company.[2]
MDM Bank was founded in December 1993 and holds a General Banking License issued by the
Central Bank of Russia (#2361 dated 13 February 2003, which will be voided as the bank migrates
under URSA Bank license #323).[4] It had one of the highest credit ratings among privately-owned
Russian banks Standard & Poor's (BB, stable), Fitch Ratings (BB, stable) and Moody's (Ba1, stable)
and is the only Russian financial organization that has been given a public corporate governance
rating by Standard & Poor's (6+).
URSA Bank was founded in 1990 as Sibakadembank by the Siberian Branch of Russian Academy of
Sciences. It was restructured from a privately held bank to a joint-stock bank in 1997. After a series of
mergers with local Siberian banks, in 2006 Sibakadembank merged with Yekaterinburg-based
Uralvneshtorgbank (established 1991) and assumed the new name, URSA Bank.

References
1. ^ HQ moves to Novosibirsk in the process of merger with URSA Bank
2. ^ a b "Russias MDM, Ursa Merge as Credit Crisis Deepens". Bloomberg. 2008, December 3.
http://www.bloomberg.com/apps/news?pid=20601085&sid=atC5jgxI4SN4&refer=europe. Retrieved
2009-06-18.
3. ^ "Capital from MDM-Bank, URSA merger to reach $2.5 bln". RIA Novosti. 2008, December 3.
http://en.rian.ru/business/20081203/118663584.html. Retrieved 2009-06-18.
4. ^ "MDM Bank EGM Approves Merger with URSA Bank". MDM Bank. 2009, May 8.
http://www.mdmbank.com/articles/42924/2326/news-material. Retrieved 2009-06-18.

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