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Analysis of Merger and Acquisition eals of Major Indian

Banks: An Event ased ^tudy
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https://dx.doi.org/10.33601/effulgence.rdias/v16/iSpl2/2018/82-120
Dr. Anjala Kalsie1

Dr. Ashima Arora (Corresponding Author)2
Abstract
The paper studies the Merger and Acquisition phenomenon on both the acquiring and the target bank's stock prices of six major
domestic bank M&As, in a period spanning from 2004 to 2014. It compares the short-term impact of acquirer and target share
prices around the announcement period. Two different methods – Market Model and Market Adjusted Models were used to find
the impact of merger announcement on stock prices. The paper studies the phenomenon, from a time 10 days prior to the merger
announcement date, to 10 days post the merger announcement. The paper finds that in case of distressed asset takeover or where
the merger was forced by the RBI, both the acquirer and target entities lost value around the day of announcement. Among the
six target banks, abnormal returns are marked by large standard deviations, with returns, around the announcement date,
ranging from a large -70% to +50%. The study did find significant abnormal returns at four-days post the merger
announcement. However, no significant abnormal returns are found for any of the event windows. The paper also finds that
abnormal returns gradually vanish, few days after the announcement, supporting the efficient market hypothesis of Fama et al.
(1969).
Keywords:
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1. Assistant Professor, Faculty of Management Studies, University of Delhi, kalsieanjala@gmail.com

2. Shaheed Sukhdev College of Business Studies, University of Delhi, ashima.arora@sscbs.du.ac.in
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7 Cumulative Analysis of the above 6 M&As
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7.1 Analysis of Acquiring Banks
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%DQN,&,&,%DQNDQG.RWDN0DKLQGUD%DQN

Prior to the merger announcement
:HILUVWDQDO\VHXVLQJWKHPDUNHWPRGHODVVXPSWLRQV²
Days post the Average Abnormal Std Deviation t-stat value Signifant at
Merger Returns 95%
announcement Confidence
Interval?
1R
1R

1R

1R

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Days post the Average Std Deviation t-stat value Signifant at

Merger Abnormal 95%
announcement Returns Confidence
Interval?

1R

1R
1R

1R

1R

1R
1R
1R
1R
1R

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DVVXPSWLRQ+HQFHQRQHRIWKHGD\VYLRODWHGWKHQXOOK\SRWKHVLV
Day of merger announcement
8VLQJWKHPDUNHWPRGHODVVXPSWLRQ²
Average Abnormal Std Deviation t-stat value Signifant at 95%

Returns Confidence
Interval?
1R
8VLQJWKHPDUNHWDGMXVWHGPRGHODVVXPSWLRQ²

Returns Confidence
Interval?
1R
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Post the merger announcement

Merger Returns 95%
Interval?
1R
1R
1R
1R
1.40% 1.58% 2.17 Yes
1R
1R
1R
-1.88% 2.30% -2.00 Yes
1R
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Merger Abnormal 95%
Interval?
1R
1R
1R
1R
1.37% 1.61% 2.08 Yes
1R
1R
1R
1R
1R

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Event Based Study
1RZZHGRDFXPXODWLYHDQDO\VLVRIDOOWKHDFTXLULQJEDQNVDVSHUWZRPRGHOV
Market Model

Period CAAR% Std Deviation t-stat Significant?
1R
1R
1R

1R

1R

1R

Market Adjusted Model
Period
CAAR%
Std Deviation t-stat Significant?

1R
1R

1R
1R
1R
1R

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7.2 Target Banks Analysis
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%DQN%DQNRI5DMDVWKDQ8QLWHG:HVWHUQ%DQNDQG,1*9\DVD%DQN
Prior to the merger announcement
:HILUVWDQDO\VHXVLQJWKHPDUNHWPRGHODVVXPSWLRQV²
Merger Returns 95%
Interval?
1R
1R
1R
1R
1R
1R
1R
1R
1R
1R
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7KLVPRGHOVDVVXPHVWKHYDOXHRIaDVDQGbDV

Merger Abnormal 95%
Interval?
1R
1R
1R
1R
1R

1R

1R
1R
1R
1R
7KHUHVXOWVDUHYHU\PL[HGIURPERWKWKHPRGHOVDQGQRWKLQJVLJQLILFDQWREVHUYDWLRQLVLPSOLHG
Day of merger announcement
8VLQJWKHPDUNHWPRGHODVVXPSWLRQ²

Returns Confidence
Interval?
1R

Returns Confidence
Interval?
1R
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3RVWWKHPHUJHUDQQRXQFHPHQW
Merger Returns 95%
Interval?
1R
1R
1R
1R
1R
1R
<HV
1R
1R
1R

:HVHHWKDWWKHUHVXOWVDUHSRVLWLYHO\VLJQLILFDQWGD\VSRVWWKHDQQRXQFHPHQW2QWKHRWKHUGD\VKRZHYHU
:HQRZORRNDWWKHFXPXODWLYHYDOXHVXVLQJPDUNHWDGMXVWHGPRGHODVVXPSWLRQRIWKHWDUJHWEDQNV
7KLVPRGHODVVXPHVWKHYDOXHRIaDVDQGbDV

Merger Abnormal 95%
Interval?
1R
1R
1R
1R
1R
1R
4.37% 5.16% 2.08 Yes
1R
1R
1R
7KHUHVXOWVIURPERWKWKHPRGHOVDUHVLPLODUKRZHYHUZLWKVOLJKWYDULDWLRQLQQXPEHUV7KHUHVXOWVDUHYHU\
PL[HGDQGQRWKLQJVLJQLILFDQWREVHUYDWLRQLVLPSOLHG7KHVHFRQGPRGHOVKRZVVLJQLILFDQWDEQRUPDOUHWXUQ
GD\VDIWHUWKHDQQRXQFHPHQW
Event Based Study

1RZZHGRDFXPXODWLYHDQDO\VLVRIDOOWKHWDUJHWEDQNVDVSHUWZRPRGHOV
Market Model Assumption

1R
1R
1R
1R
1R
1R

Market Adjusted Model

1R
1R
1R
1R
1R
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,661 2 ,661 3 

Analysis of Merger and Acquisition eals of Major Indian

Dr. Anjala Kalsie1

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1. Assistant Professor, Faculty of Management Studies, University of Delhi, kalsieanjala@gmail.com

Acquiring Bank Target Bank Announcement Deal Details

1 Methodology Regressive Analysis between the stock and

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Background and macro analysis of the deal

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Particulars (in Rs.crores) OBC GTB Merged Entity

Region OBC GTB Combined

Event Based Analysis of the OBC stock price

Day from Merger Abnormal Returns Abnormal Returns (Market

Day from Merger Abnormal Returns Abnormal Returns (Market

Abnormal Returns Abnormal Returns (Market

Event Window CAR%(market Model) CAR%(market Adjusted Model)

Event Based Analysis of the GTB stock price

Day from Merger Abnormal Returns Abnormal Returns (Market

Day from Merger Abnormal Returns Abnormal Returns (Market

Abnormal Returns(Market Model) Abnormal Returns (Market

Event Window CAR%(market Model) CAR%(market Adjusted Model)

2 IDBI and IDBI Bank

Background and macro analysis of the deal

Event Based Analysis of the IDBI stock price

Day from Merger Abnormal Returns Abnormal Returns (Market

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Day from Merger Abnormal Returns Abnormal Returns (Market

Abnormal Returns Abnormal Returns (Market

Event Window CAR%(market Model) CAR%(market Adjusted Model)

Event Based Analysis of the IDBI Bank stock price

Day from Merger Abnormal Returns Abnormal Returns (Market

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Abnormal Returns Abnormal Returns (Market

3 IDBI and United Western Bank

Background and macro analysis of the deal

Event Based Analysis of the IDBI stock price

Day from Merger Abnormal Returns Abnormal Returns (Market

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Day from Merger Abnormal Returns Abnormal Returns (Market

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Abnormal Returns Abnormal Returns (Market

Event Window CAR%(market Model) CAR%(market Adjusted Model)

Event Based Analysis of the United Western Bank stock price

Day from Merger Abnormal Returns Abnormal Returns (Market

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,6612,6613

Analysis of Merger and Acquisition eals of Major Indian

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