MBA-201, NAME: SUSMITA CHAKRABORTY

Q.1 What is the motive behind the acquisition of these organizations by ICICI
Bank?

Motive behind each acquisition was different:

1. Amalgamation of SCICI: The business combination resulted in negative

goodwill of Rs. 3.1 billion (US$ 65 million) as the purchase price was less than
the fair value of the net assets acquired. Of this amount, Rs. 600 million (US$
13 million) was set-off against certain property and equipment and an amount
of Rs. 253 million (US$ 5 million) was accrued to income in each of the years
for fiscal 1997 to fiscal 2001.

2. Amalgamation of ITC Classic Finance Ltd: As far as ICICI was concerned, it

was totally a ‘win’ proposition. The biggest benefit and opportunity for ICICI
was ITC Classic’s retail network, which comprised 8 offices, 26 outlets, 700
brokers, and a depositor-base of 7 lakhs investors. ICICI planned to use this to
strengthen the operations of ICICI Credit (I- Credit), a consumer finance
subsidiary that ICICI had floated in April 1997. It was rightly stated by the then
ICICI managing director and CEO, K. V. Kamath said that the merger would give
them a fantastic retail base as ITC Classic had an investor base of over seven
lakhs. Besides, there would be a synergy in business profile as on the asset side
the ITC outfit is into leasing, hire, purchase, and bill discounting as they had a
common corporate clientele.

3. Amalgamation of Anagram Finance: Anagram was primarily engaged in

retail financing of cars and trucks. Between 1992 and 1998, Anagram has built
a strong retail franchise, a distribution network of more than 50 branches,
which were located in the prosperous states of Gujarat, Rajasthan, and
Maharashtra, and it has a depositor base of 250,000 customers.

4. Amalgamation of Bank of Madura: With a view to expanding its assets,

client base and geographical coverage, ICICI Bank was scouting for private
banks for merger. In addition to that, its technological up gradation was
inching upwards at snail’s pace. In contrast, BoM had an attractive business per
employee figure of Rs. 202 lakh, a better technological edge, and a vast base in
southern India as compared to Federal Bank. While all these factors sound
good, a tough and challenging task in terms of cultural integration and human
resources issues lay ahead for ICICI Bank.

5. Merger of ICICI Personal Financial Services Ltd. and ICICI Capital Services
Ltd.: Following the approval of shareholders, the High Court of Gujarat at
Ahmedabad and the High Court of Judicature at Bombay, the Reserve Bank of
India approved the amalgamation of ICICI, ICICI Personal Financial Services,
and ICICI Capital Services with and into ICICI Bank on April 26, 2002.

6. Takeover of Standard Chartered Grindlays Bank’s Two Branches: ICICI Bank

acquires Shimla and Darjeeling Branches from Standard Chartered Grindlays
Bank Ltd. in these two most sought after tourist destinations in the Himalayas.
In a telephonic conversation, ICICI Bank ED Chanda Kochhar told to Economic
Times from Mumbai that the bank has been planning to grow its network
countrywide, and "this acquisition is one step in that direction and a
continuation of our strategy to expand our brand of technology banking".

7. Amalgamation of Sangli Bank: The proposed amalgamation was expected to

be beneficial to the shareholders of both entities. ICICI Bank would seek to
leverage Sangli Bank’s network of over 190 branches and existing customer
and employee base across urban and rural centres in the rollout of its rural and
small enterprise banking operations, which were key focus areas for the Bank.
The amalgamation would also supplement ICICI Bank’s urban distribution
network. The amalgamation would enable shareholders of Sangli Bank to
participate in the growth of ICICI Bank’s strong domestic and international
franchise. The amalgamation also provided new opportunities to Sangli Bank’s
employees, and gives its customers access to ICICI Bank’s multi-channel
network and wide range of products and services.

8. Amalgamation of the Bank of Rajasthan Ltd: The objectives and benefits of

this merger are clearly mentioned in the scheme of this merger by ICICI Bank
its customer centric strategy that places branches as the focal points of
relationship management, sales, and service in geographical micro markets. As
it is evident that the BoR had deep penetration with huge brand value in the
State of Rajasthan where it had 294 branches with a market share of 9.3% in
total deposits of scheduled commercial banks.
Q.11 Enumerate the differences between a friendly and hostile takeover?

Hostile vs. Friendly Takeovers: An Overview

Companies often grow by taking over their competitors, acquiring a hot

startup, or merging with the competition. Public companies need the approval
of their shareholders and board of directors in order to get a deal done.
However, if managers are against an acquisition, the acquiring company can
still make efforts to win the deal through so-called hostile measures.

Hostile Takeovers

A hostile takeover occurs when one corporation, the acquiring corporation,

attempts to take over another corporation, the target corporation, without the
agreement of the target corporation’s board of directors.

In a hostile takeover, the target company's directors do not side with the
acquiring company's directors. In such a case, the acquiring company can offer
to pay target company shareholders for their shares in what is known as a
tender offer. If enough shares are purchased, the acquiring company can then
approve a merger or simply appoint its own directors and officers who run the
target company as a subsidiary.

Hostile attempts to take over a company typically take place when a potential
acquirer makes a tender offer, or direct offer, to the stockholders of the target
company. This process happens over the opposition of the target company’s
management, and it usually leads to significant tension between the target
company’s management and that of the acquirer.

There are several strategies that a company can put in place to stave off a
hostile takeover including poison pills, greenmail, and a white knight defense. 2

Friendly Takeovers

A friendly takeover occurs when one corporation acquires another with both

boards of directors approving the transaction. Most takeovers are friendly, but
hostile takeovers and activist campaigns have become more popular lately
with the risk of activist hedge funds.
In a friendly takeover, both shareholders and management are in agreement
on both sides of the deal. In a merger, one company, known as the surviving
company, acquires the shares and assets of another with the approval of said
company's directors and shareholders. The other ceases to exist as an
independent legal entity. Shareholders in the disappearing company are given
shares in the surviving company.

Special Considerations: Proxy Fights

A hostile takeover is usually accomplished by a tender offer or a proxy fight. In

a tender offer, the corporation seeks to purchase shares from outstanding
shareholders of the target corporation at a premium to the current market
price. This offer usually has a limited time frame for shareholders to accept.

The premium over the market price is an incentive for shareholders to sell to
the acquiring corporation. The acquiring company must file a Schedule TO with
the SEC if it controls more than 5% of a class of the target corporation’s
securities.Often, target corporations acquiesce to the demands of the
acquiring corporation if the acquiring corporation has the financial ability to
pull off a tender offer.

In a proxy fight, the acquiring corporation tries to persuade shareholders to

use their proxy votes to install new management or take other types
of corporate action. The acquiring corporation may highlight alleged
shortcomings of the target corporation’s management. The acquiring
corporation seeks to have its own candidates installed on the board of
directors.

By installing friendly candidates on the board of directors, the acquiring

corporation can easily make the desired changes at the target corporation.
Proxy fights have become a popular method with activist hedge funds in order
to institute change.

Q.10 What are the different forms in which an acquisition can take place?

Types of Acquisition:

Mergers and Acquisitions are considered key for growth in the market in a

short span of time in today’s corporate world. The standalone entity that can
achieve in the period of a few years can be achieved even in one or two years,
just by acquiring the entity or merging its own entity with the better entity.
The following acquisition types provide an outline of the most common
acquisitions. Each type of acquisition states the topic, the relevant reasons,
and additional comments as needed.

The top 4 acquisition types are as follows –

Horizontal Acquisition

Vertical Acquisition

Congeneric Acquisition

Conglomerate Acquisition

 Horizontal Acquisition Type

Horizontal acquisition:

In the market, the biggest factor that is to be factored while drafting any
business formula is competition. If the entity has to grow in the market, it will
have to constantly strive and try to maximize its share in the market. In the
market, entity, which is thriving at the same stage of production, capacity, and
serving the same class of customers, will be considered as the competitor. In
order to cover the market, either entity will have to serve better quality of
products or try to eliminate the competition. Competition can be easily
eliminated by acquiring the competitor. This is termed a horizontal acquisition.

Example of Horizontal Acquisition

Company A and Company B produce a cell phone in the market. Now if

Company A acquires Company B, then company A will be able to serve the
customer base of Company B also under own brand name. This will help in
penetrating the market and as a result, will act as the market leader. Presently,
such types of acquisitions are highly visible in the Information Technology
sectors. Where tech giant companies keep on acquiring technology startup and
will leverage the Customer base covered by them. This allows them to cover
the uncovered area and try to make their presence feel across the globe.

Vertical acquisition:

To have all the activity related to any business gives synergy benefit to any
entity. A vertical acquisition can be done by either backward
integration or forward integration. Any wholesaler who is having a monopoly
in the trading, it acquires any manufacturing unit producing the same
commodity will be considered as backward integration. This will help in
obtaining the inventories at highly reasonable rates. If the same wholesaler
acquires retail stores, it will be considered as forwarding integration. This will
give direct customer-facing, which will help in earning the retail level profit.
The above process is termed a vertical acquisition.

Example of Vertical Acquisition

The company named Target Corporation is the best example of vertical

acquisition. The company is one of the largest retail chain holders in the USA. It
has its own manufacturing unit, own distribution channels, own wholesale, and
retail stores which covers a large number of customer base and helps itself by
removing any kind of intermediary.

Congeneric acquisition:

Modern society is highly lacking in time. People prefer a one-stop-shop and try
to optimize time for shopping by acquiring all the necessities from the same
roof. Due to this only, shopping malls have thrived in the market. This helps
individuals to satisfy their various needs from the same vendor, which will not
only save time but will also put pressure on them to ensure the better quality
of the products. Moreover, an entity will be in a position to charge premiums
from the customer to offer the various products together, which will help in,
satisfy the single need of the customer. It helps acquirer to enjoy the different
areas of the same industry, which will be served to the same customer.

Example of Congeneric Acquisition

Citi Group is the global Banking Corporation. Its core business focuses it to
provide banking services to the customers. The major crunch of it is large
corporates whose presence is there across the globe. Such large corporates
have executives who are frequently traveling throughout the world for
business meetings. For such executives, there is a huge need to take travel
insurance. Citi Group identified this requirement of travel insurance and
acquire Travelers Insurance Company. With the help of this, Citi group is now
able to same large corporate clients even travel insurance along with banking
services.

Conglomerate acquisition:

Under these types of acquisition, Conglomerate Acquisition occurs in between

the entity that is a completely indifferent product line, different geographies,
and different customer base and has a completely different business model.
This means, such firms will be having nothing common in them and they plan
to undertake such acquisition to diversify their risk and try to cover the new
market. Such types of acquisition will help to provide the existing products to
the customers of the newly acquired company and vice versa. Such
diversification strategy helps both the firm in the diversification of business,
Synergy benefits, increasing customer base, and to achieve better economies
of scale.

Example of Conglomerate Acquisition

The best example of a conglomerate, the merger is between Pay Pal and eBay.
Around 2002, Pay Pal was not in a position to maintain its market repute. At
that time, e-commerce giant acquired Pay pal just by paying around a billion
dollars. However, presently eBay is having a market value of a hundred billion
dollars. PayPal had been totally spanned off by eBay after its acquisition and as
a result of the same, PayPal has revolutionized the payment system and
challenged the traditional method of payment. These types of acquisitions are
considered as a benchmark step for bringing the modern change in Silicon
Valley.
Q.5 What are the benefits of ICICI Bank in acquisition of Bank of Rajasthan, a
comparatively smaller bank?

BoR has a market capitalisation of Rs 1,600 crore compared with ICICI Bank’s
Rs 99,000 crore. It reported a net loss of Rs 44.7 crore for the quarter ended
December 2009 on a revenue of Rs 344.83 crore.

In terms of assets, ICICI Bank is around 25 times as large as BoR. In terms of

branch network, BoR with 463 branches, is less than one-fourth of ICICI Bank’s
network.

Benefits are-

1.Analysts said the takeover would help ICICI Bank in expanding its footprint
further, which is in line with its new-found branch-focused strategy. As most of
BoR branches are concentrated in northern India, ICICI Bank would gain deeper
access in these markets.

2.Since 1997, when it acquired ITC Classic, ICICI Bank has periodically merged
banks with itself to increase its reach.

3.P K Tayal, the main promoter of BoR said the deal was a win-win solution for
everyone and the agreement with ICICI Bank envisaged that the bank’s
employees would get the same position in the merged entity.

4.While analysts do not expect an adverse impact of the merger on ICICI Bank,
they were worried about the lack of clarity on the legal liabilities of BoR.They,
however, said that based on December numbers, bad debts appeared to be
under control for BoR.

5.The objectives and benefits of this merger are clearly mentioned in the
scheme of this merger by ICICI Bank its customer centric strategy that places
branches as the focal points of relationship management, sales, and service in
geographical micro markets.

6. As it is evident that the BoR had deep penetration with huge brand value in
the State of Rajasthan where it had 294 branches with a market share of 9.3%
in total deposits of scheduled commercial banks. It was presumed that the
merger of BoR in ICICI Bank will place the Transferee Bank among the top three
banks in Rajasthan in terms of total deposits and significantly augment the
Transferee Bank’s presence and customer base in Rajasthan and it would
significantly add 463 branches in branch network of ICICI Bank along with
increase in retail deposit base. Consequently, ICICI Bank would get sustainable
competitive advantage over its competitors in Indian Banking.

Q.8 What are the differences between a development bank and a

commercial bank? Why India recquired development banks at post-
independence period?

BASIS FOR
COMMERCIAL BANK DEVELOPMENT BANK
COMPARISON

Meaning Commercial Banks are Development Banks are the

the banks that provide
basic banking and
financial services to
individuals and
corporates.
banks which are set up to
provide finance for
infrastructural and
economic development.

Nature Reactive Proactive

Set up Set up under the Set up under specialized act.

Companies Act, as
Banking Companies.

Source of funds Raise funds from Borrowing, grants and

accepting public deposits. selling of securities.

Loans provided Short and Medium-term Medium and Long term

loans loans

Orientation Profit oriented Development oriented

Purpose To make a profit by To achieve social profit, by

lending money at a high providing funds for
rate of interest. developmental projects.
 BASIS FOR
COMMERCIAL BANK DEVELOPMENT BANK
COMPARISON

Services offered Legal, Business advice Counselling and Advisory

and Credit Investigation service are provided for the
service are provided for a development and
definite fee. promotion of the enterprise.

Clients Individuals, and Business Government

Entities

Development banks post-independence:In the context of the Great

Depression in the 1930s, John Maynard Keynes argued that when business
confidence is low on account of an uncertain future with low-interest rates,
the government can set up a National Investment Bank to mop up the society’s
savings and make it available for long-term development by the private sector
and local governments.

Following foregoing precepts, IFCI, previously the Industrial Finance

Corporation of India, was set up in 1949. This was probably India’s first
development bank for financing industrial investments. In 1955, the World
Bank prompted the Industrial Credit and Investment Corporation of India
(ICICI) — the parent of the largest private commercial bank in India today, ICICI
Bank — as a collaborative effort between the government with majority equity
holding and India’s leading industrialists with nominal equity ownership to
finance modern and relatively large private corporate enterprises. In 1964, IDBI
was set up as an apex body of all development finance institutions.

As the domestic saving rate was low, and capital market was absent,
development finance institutions were financed by (i) lines of credit from the
Reserve Bank of India (that is, some of its profits were channelled as long-term
credit); and (ii) Statutory Liquidity Ratio bonds, into which commercial banks
had to invest a proportion of their deposits. In other words, by sleight of
government hand, short-term bank deposits got transformed into long-term
resources for development banks. The missing capital market was made up by
an administrative fiat.
Q.4 Explain the different phases of merger as applicable to these mergers.

PHASE I –

STRATEGIC PLANNING Stage

1 Develop or Update Corporate Strategy To identify the Company’s strengths,

weaknesses and needs

a. Company Description

b. Management & Organization Structure

c. Market & Competitors

d. Products & Services

e. Marketing & Sales Plan

f. Financial Information

g. Joint Ventures

h. Strategic Alliances Stage

2 Preliminary Due Diligence

a. Financial

b. Risk Profile

c. Intangible Assets

d. Significant Issues Stage

3 Preparation of Confidential Information Memorandum

a. Value Drivers

b. Project Synergies

c. EBIDTA Adjustments

PHASE II – TARGET/BUYER IDENTIFICATION & SCREENING Stage

4 Buyer Rationale
a. Identify Candidates

b. Initial Screening Stage

5 Evaluation of Candidates

a. Management & Organization Information

b. Financial Information (Capabilities)

c. Purpose of Merger or Acquisition Merger & Acquisition

PHASE III – TRANSACTION STRUCTURING Stage 6 Letter of Intent Stage

7 Evaluation of Deal Points

a. Continuity of Management

b. Real Estate Issues

c. Non-Business Related Assets

d. Consideration Method

e. Cash Compensation

f. Stock Consideration

g. Tax Issues

h. Contingent Payments

i. Legal Structure

j. Financing the Transaction Stage

8 Due Diligence

a. Legal Due Diligence

b. Seller Due Diligence

c. Financial Analysis

d. Projecting Results of the Structure Stage

9 Definitive Purchase Agreement

a. Representations and Warranties

b. Indemnification Provisions Stage

10 Closing the Deal

PHASE IV – SUCCESSFUL INTEGRATION

a. Human Resources

b. Tangible Resources

c. Intangible Assets

d. Business Processes

e. Post Closing Audit

Q.3 What are different types of mergers? To which type of merger do these
mergers belong?

Types of Mergers

There are five basic categories or types of mergers:

Horizontal merger: A merger between companies that are in direct

competition with each other in terms of product lines and markets

Vertical merger: A merger between companies that are along the same supply
chain (e.g., a retail company in the auto parts industry merges with a company
that supplies raw materials for auto parts.)

Market-extension merger: A merger between companies in different markets

that sell similar products or services

Product-extension merger: A merger between companies in the same markets

that sell different but related products or services

Conglomerate merger: A merger between companies in unrelated business

activities (e.g., a  clothing company buys a software company)
The mergers of ICICI Bank belong to:

1.Amalgamation of SCICI: Conglomerate merger

2.Amalgamation of ITC Classic Finance Ltd.: product extension merger

3.Amalgamation of Anagram Finances: product extension merger

4.Amalgamation of Bank Of Madura: Horizontal merger

5.Merger of ICICI Personal Financial Services Ltd. And ICICI Capital Services Ltd.:
Market extension merger

6.Takeover of Standard Chartered Grindlays Bank’s two branches: horizontal

merger

7.Amalgamation of Sangli Bank: Horizontal merger

8.Amalgamation of the Bank Of Rajasthan Ltd.: Horizontal merger

Q.6 What type of takeovers happened in these cases? Was it friendly or

Hostile? How can a company save themselves from hostile takeover?

Mainly ICICI was in favour of hostile takeovers. The takeovers were either
against the target company’s management or the employee union.

Antitakeover Defenses

In response to these hostile takeover techniques, targets usually devise the

following defenses:

1. Stock repurchase

Stock repurchase (aka self-tender offer) is a purchase by the target of its own-
issued shares from its shareholders. This is an effective defense that
successfully passed such prominent antitakeover defense cases
as Unitrin and Unocal  v. Mesa Petroleum Co.

2. Poison pill

Poison pill (aka shareholder rights plan) is a distribution to the target’s

shareholders of the rights to purchase shares of the target or the merging
acquirer at a substantially reduced price.
What triggers an execution of these rights is an acquisition by an acquirer of
certain percentage of the target’s shareholding.

If exercised, these rights can considerably dilute the acquirer’s shareholding in

the target and thus can deter a takeover.

The poison pill is one of the most powerful defenses against hostile takeovers.

The pills can be flip-in, flip-over, dead hand, and slow/no hand.

Flip-in poison pill can be “chewable,” which means that the shareholders may
force a pill redemption by a vote within a certain timeframe if the tender offer
is an all-cash offer for all of the target’s shares. The poison pill can also provide
for a window of redemption. That is a period within which the management
can redeem the pill. This window hence determines the moment when the
management’s right to redeem terminates.

“Dead hand” pill creates continuing directors. These are current target’s

directors who are the only ones that can redeem the pill once an acquirer
threatens to acquire the target. While the earlier court decisions restricted use
of dead hand and no hand pills, the more recent decisions uphold such pills.

“No hand” (aka “slow hand”) pill prohibits redemption of the pill within a
certain period of time, for example six months.

3. Staggered board

Staggered board is a board in which only a certain number of directors, usually

one third, is reelected annually. It is a powerful antitakeover defense, which
might be stronger than is commonly recognized. For the reason of being too
strong and reducing returns to the target’s shareholders, the latter happened
to resist this type of defense.

4. Shark repellants

Shark repellants are certain provisions in the target’s charter or bylaws

deterring an acquirer’s desirability of a hostile takeover. This defense typically
involves a supermajority vote requirement regarding a merger of the target
with its majority shareholder. This defense also includes other takeover
deterrent provisions in the target’s certificate of incorporation or bylaws.
5. Golden parachutes

Golden parachutes are additional compensations to the target’s top

management in the case of termination of its employment following a
successful hostile acquisition. Since these compensations decrease the target’s
assets, this defense reduces the amount the acquirer is willing to pay for the
target’s shares. This defense may thus harm shareholders. It, however,
effectively deters hostile takeovers.

6. Greenmail

Greenmail is a buyout by the target of its own shares from the hostile acquirer
with a premium over the market price, which results in the acquirer’s
agreement not to pursue obtaining control of the target in the near future. The
taxation of greenmail used to present a considerable obstacle for this defense.
Plus, the statute may require a shareholder approval of repurchase of a certain
amount of shares at a premium.

7. Standstill agreement

Standstill agreement is an undertaking by the acquirer not to acquire any more

shares of the target within certain period of time. A standstill agreement is an
additional defense that usually accompanies the greenmail described above.

8. Leveraged recapitalization

Leveraged recapitalization (aka corporate restructuring) is a series of

transactions designed to affect the equity and debt structure of a corporation.
Recapitalization usually involves such transactions as (i) sale of assets, (ii)
issuance of debt, and (iii) distribution of dividends.

9. Leveraged buyout

Leveraged buyout is a purchase of the target by the management with the use
of debt financing. This defense burdens the target with the debt. In such a
case, the management becomes a bidder and competes with a hostile acquirer
for control over the target.
10. Crown jewels

Crown jewels are options under which a favored party can buy a key part of
the target at a price that may be less than its market value.

11. Scorched earth

Scorched earth is a self-tender offer by the target that burdens the target with
debt.

12. Lockups

Lockups are defensive mechanisms in friendly mergers and acquisitions

designed to deter hostile bids. The lockups include (i) no-shop covenant, (ii)
termination/bust-up fee, (iii) option to buy a subsidiary, (iv) expense
reimbursement etc.

13. Pacman

Pacman is a target’s tender offer for the acquirer’s shares.

14. White knight

White knight is a strategic merger that does not involve a change of control
and relieves the target’s management of the responsibility to seek the best
price available. An example is the case of Paramount Communications, Inc. v.
Time Inc.

15. White squire

White squire is giving by the target to a friendly party of a certain ownership in

the target. This defense is effective against acquisition by the hostile party of a
complete control over the target by “freezing out” of minority shareholders.

16. Change of control provisions

Change of control provisions is target’s contractual arrangements with third

parties that burden the target in the case of a change in its control.

17. “Just say no”

On top of all, the “just say no” approach is a board’s development and
implementation of a long-term corporate strategy which enables the board
simply to reject a proposal of any potential acquirer who would fail to prove
that his acquisition strategy matches that of the target.