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CAPSTONE PROJECT 2015-2017

A MANAGEMENT RESEARCH PROJECT ON


MERGERS AND ACQUISITIONS IN INDIAN
BANKING SECTOR

SUBMITTED BY:

NITESH A JAIN

VAD2015MBA018

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STUDENT DECLARTAION (ANNEXURE-I)

I hereby declare that the CAPSTONE PROJECT REPORT entitled merger


and acquisition in Indian banking sector is my work submitted in partial
fulfillment of the requirement for the master business administrator from ITM
VOCATIONAL UNIVERSITY, VADODARA and not submitted for the award
of any degree fellowship or any similar titles or prizes.

DATE: NITESH A JAIN

PLACE: VADODARA 4TH SEMESTER

ID NUMBER: VAD2015MBA018

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CERTIFICATE FROM THE GUIDE

This is to certify that the project work titled ________________________________________


(title) is a bonafide work carried out_____________________________________(name of
the student), a student of MBA program 2015 2017 of the faculty of management,
economics & commerce, ITM VOCATIONAL UNIVERSITY, VADODARA Gujarat under
the guidance and direction,

Signature of guide: date:

Name: place:

Designation:

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ABSTRACT
The project aims to understand the various mergers and acquisitions in Indian
banking sector. 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 acquisition in the banking sector is to reap the benefits of economies of scale. In the recent
times , there have been numerous reports in the media on the Indian banking industry report have
been on a variety of the topics. The topics have been ranging from issues such as user
friendliness of Indian banks, preparedness of bank to meet the fast approaching Basel II deadline,
increasing foray of Indian banks In the overseas markets targeting inorganic growth.

Mergers and acquisitions is the only way for gaining competitive advantage
domestically and internationally and as such the whole range of industries are looking to
strategic acquisitions within India and abroad. In order to attain the economies of scale and also
to combat the unhealthy competition within the sector besides emerging as a competitive force to
reckon with in the international economy. Consolidation of Indian banking sector through
mergers and acquisitions on commercial considerations and business strategies- is the essential
pre-requisite. Today, the banking industry is counted among the rapidly growing industries in
India. It has transformed itself from a sluggish business entity to a dynamic industry. The growth
rate in this sector is remarkable and therefore, it has become the most preferred banking
destinations for international investors in the last two decade, there have been paradigm shift in
Indian banking industries. The Indian banking sectors is growing at an astonishing pace. A
relatively new dimension in the Indian banking industries is accelerated through merger and
acquisitions. It will enable banks to achieve world class status and throw greater value to the
stakeholders.

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ACKNOWLEGMENT
First of all I would like to take this opportunity to thank my collage for having projects as a part
of the curriculum.

I wish to express my heartfelt gratitude to the following individuals who have played a crucial
role in the research for this project. Without their active cooperation the preparation of this
project could not have been completed within the specified time limit.

The first person I would like to acknowledge is my mentor PROFESSOR, MR GULSAN


KUMAR, of ITM VOCATIONAL UNIVERSITY, who support me throughout this project with
utmost co-operative and patience. I am very much thankful to you sir, for sparing your precious
and valuable time for me and helping me in doing this project.

Finally, to all my friends who helped me in making this project. I want to thank for all their help,
support, interest and valuable hints.

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INDEX

TABLE OF CONTENT Page no


TITLE PGE 1
STUDENT DECLARTION 2
COMPLITION CERTIFICATE 3
ABSTRACT 4

ACKNOWLEGMENT 5

CHAPTER -1 INTRODUCTION 8-22


1.1 INTRODUCTION TO MERGER AND ACQUSITIONS
1.2 BREAKING DOWN MERGER AND ACQUISITONS
1.3 WHAT IS MERGER
1.4 WHAT IS ACQUISTIONS
METHOD OF ACQUISTIONS
1.5 PURPOSE OF MERGERS AND ACQUISITONS
1.6 BENEFITS OF MERGER AND ACQUISTIONS
1.7 PROBLEM OF M&A
1.8 TYPES OF MERGERS AND ACQUSITIONS
1.9 REASONS BEHIND MERGERS AND ACQUISITIONS
1.10 MOTIVE BEHIND MERGERS AND ACQUSITIONS
1.11 IMPECT OF M&A
1.12 SCOPE OF STUDY
CHAPTER -2 LITERATURES REVIEW 23-24

CHAPTER -3 RESEARCH METHODOLOGY 25-


3.1 METHOD OF DATA COLLECTION
3.2 SAMPLE SIZE
3.3 DATA ANALYSIS TECHNIQUES

CHAPTER 4 DATA COLLECTION, ANALYSIS & 26-39


INTERPRETAION
4.1 ICICI BANK LTDMERGED WITH BANK OF
RAJASTHAN
4.2 WHY ICICI BANK MERGE WITH BANK OF RAJASTHAN
4.3 WHICH TYPE OF MERGER AND ACQUISITION
4.4 PROCESS OF MERGER AND ACQUSITION
4.5 DATA OF MERGER OR ACQUISITIONS IN SOME BANK
2000 TO 2010
4.6 ABOUT BANK OF RAJSTHAN LTD AND ICICI BANK LTD

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4.7 DATA ANALYSIS OF ICICI BANK & BANK OF
RAJASTHAN
4.8 FINANCIAL PERFORMANCE OF ICICI BANK PRE &
POST MERGER WITH BANK OF RAJASTHAN
4.9 post merger analysis of ICICI bank

CHAPTER -5 RECOMMANDATIONS & CONCLUSION


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REFERENCES 41

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CHAPTER 1 INTRODUCTION

1.1 INTRODUCTION TO MERGER AND ACQUISATION?


Mergers and acquisition (M&A) and corporate restructuring are a big part of the corporate
finance world. Every day, Wall Street investment bankers arrange M&A transaction, which bring
separate companies together to form larger ones. When theyre not creating big companies from
smaller ones, corporate finance deals do the reverse and break up companies through spinoffs,
carve-outs or tracking stocks.

Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or
even billons, of dollars. They can dictate the fortunes of the companies involved for years to
come. For CEO, leading an M&A can represent the highlight of a whole career. And it is no
wonder we hear about so many of these transaction; they happen all the time. Next time you flip
open the newspapers business section. Odds are good that at least one headlines will announce
some kind of M&A transaction.

Sure, M&A deals grab headlines, but what does this all mean to investor? To answer this
question, this tutorial discusses the forces that drive companies to buy or merger with other, or to
splits- off or sell parts of their own business. Once you know the different ways in which these
deals are executed, youll have a better idea of whether you should cheer or weep when a
company you own buys another company- or is bought by one. You will also be aware of the tax
consequences for companies and for investors.

1. 2 BREAKING DOWN MERGER AND ACQUISTIONS-


M&A can include a number of different transactions, such as merger, acquisition, consolidations,
tend offers, purchase of assets and management acquisitions. In all cases, two companies are
involved, where an acquiring company makes an offer to buy the other company in its entirety or
purchase some of its assets.

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1.3 WHAT IS A MERGER?
Merger is define as combination of two or more companies into a single company where one
survives and the other lose their corporate existence. The survivor acquires all the assets as well
as liabilities of the merged company or companies. Generally, the surviving company is the
buyer , which retains its identify, and the extinguished company is the seller. Merger is also
defined as amalgamation. Merger is the fusion of two or more existing companies. All assets,
liabilities and the stock of one company stand transferred to.

Transferee Company in consideration of payment in the form of:

Equity shares in the transferee company,


Debentures in the transferee company,
Cash or a mix of the above modes.

1. 4 WHAT IS ACQUISITION?
Acquisition in general sense is acquiring the ownership in the property. In the context of business
combinations, an acquisition is the purchase by one company of a controlling interest in the share
capital of another existing company.

METHOD OF ACQUISITION:

An acquisition may be affected by:-

Agreement with the persons holding majority interest in the company management like
member of the board or major shareholder commanding majority of voting power;
Purchase of share in open market;
To make takeover offer to the general body of shareholder;
Purchase of new shares by private treaty;
Acquisition of share capital through the following forms of considerations viz.. means of
cash, issuance of loan capital, or insurance of share capital.

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1. 5 PURPOSES OF MERGERS AND ACQUISITIONS
The purpose for an offer or company for acquiring another company shall be reflected in the
corporate objectives to be achieved through acquisition. The basic purpose of merger or business
combination is to achieve faster growth of the corporate business. Faster growth may be had
through product improvement and competitive position. Other possible purposes for acquisition
are short listed below:-

1) Procurement of supplies:
1. To safeguard the source of supplies of raw materials or intermediary product;
2. To obtain economies of purchase in the form of discount, savings in transportation
costs, overhead costs in buying department, etc..;
3. To share the benefits of suppliers economies by standardizing the materials.
2) Revamping production facilities:
1. To achieve economies of scale by amalgamating production facilities through
more intensive utilization of plant and resources;
2. To standardize product specification, improvement of quality of product,
expanding.
3. Market and aiming at consumer satisfaction through strengthening after sale
services;
4. To obtain improved production technology and know-how from the offered
company.
5. To reduce cost, improve quality and produce competitive products to retain and
improve market share.
3) Market expansion and strategy:
1. To eliminate competition and protect existing market;
2. To obtain a new market outlets in possession of the offered;
3. To obtain new product for diversification or substitution of existing product and to
enhance the product range;
4. Strengthening retain outlets and sale the goods to rationalize distribution;
5. To reduce advertising cost and improve public image of the offered company;
6. Strategic control of patents and copyright.
4) Financial strength:
1. To improve liquidity and have direct access to cash resource;
2. To dispose of surplus and outdated assets for cash out of combined enterprise;
3. To enhance gearing capacity, borrow on better strength and the greater assets
backing;
4. To avail tax benefits;
5. To improve EPS (Earning per share).

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5) General gains:
1. To improve its own image and attract superior managerial talents to manage its
affairs;
2. To offer better satisfaction to consumers or users of the product.
6) Own development plans:

The purpose of acquisition is backed by the offered companys own developmental plans.
A company thinks in terms of acquiring the other company only when it has arrived at its
own development plan to expend its operation having examined its own internal strength
where it might not have any problem of taxation, accounting, valuation, etc but might
feel resource constraints with limitations of funds and lack of skill managerial
personnels. it has to aim at suitable combination where it could have opportunities to
supplement its funds by issuance of securities, secure additional financial facilities,
eliminate competition and strengthen its market position.

7) Strategic purpose:
The acquirer company views the merger to achieve strategic objective through alternative
type of combinations which may be horizontal, vertical, product expansion, market
extensional or other specified unrelated objective depending upon the corporate
strategies. Thus, various types of combination distinct with each other in nature are
adopted to pursue the objective like vertical or horizontal combination.
8) Corporate friendliness:
Although it is rare but it is true that business houses exhibit degrees of cooperative spirit
despite competitiveness in providing rescues to each other from hostile takeover and
cultivate situations of collaborations sharing goodwill of each other to achieve
performance heights through business combinations. The corporate aim at circular
combination by pursuing the objective.

9) Desired level of integration:


Mergers and acquisition are pursued to obtain the desired level of integration between the
two combining business houses. Such integration could be operational or financial. This
gives birth to offer or companies go a long way in selecting a suitable partner for merger
or acquisition in business combinations.

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1. 6 BENEFITS OF MERGERS AND ACQUISATIONS:

Scale:
A bank merger helps your institution scale up quickly and gains a large number of new
customers instantly. Not only does an acquisition give your bank more capital to work with when
it comes to lending and investments, but it also provides a broader geographic footprint in which
to operate. That way, you achieve your growth goals quicker.

Efficiency:
Acquisition also scales your bank more efficiently, not just in terms of your efficiency ratio, but
also in terms of your banking operations. Every bank has an infrastructure in place for
compliance, risk management, accounting, operations and It- and now that two banks have
become one, youre able to more efficiently consolidate and administer that operational
infrastructure. Financially, a larger bank has a lower aggregated risk profile since a larger number
of similar-risk, complimentary loans decrease overall institutional risk.

Business gaps filled:

Bank mergers and acquisitions empower your business to fill product or technology gaps.
Acquiring a smaller bank that offers a unique revenue model or financial product is sometimes
easier than building that business unit from scratch. And, from technology perspective, begin
acquired by a larger bank might allow your institution to upgrade its technology platform
significantly.

Talent and term upgrade:

While not a factor on the balance sheet, every bank benefits from a merger or acquisition because
of the increase in talent at leaderships disposal. An acquisition presents the possibility of
bolstering your sales term or strengthening your team of top managers, and this human element
should not be ignored or downplayed.

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1. 7 PROBLEM OF BANK MERGER AND ACQUISITION:
Poor culture fit:

Plenty of prospective bank mergers and acquisitions only look at the two banks on paper-without
taking their people or culture into account. Failure to assess culture fit(not just financial fit) is
one reason why many bank mergers ultimately fail. Throughout the merger a and acquisition
process, be sure to thoroughly communicate and double-check that employees are adapting to the
change.

Not enough commitment:

Execution risk is another major danger in bank mergers. In some cases, banking executive dont
commit enough time and resources into bringing the two banking platforms together- and the
resulting impact on their customer causes the newly merged bank to fail completely. Avoid this
mistake by dedicating enough resources for a full integration of the two financial institutions.

Customer impact and perception:

While undergoing an M&A event at your bank, its critical that you pay attention to the impact it
has on your customers. Especially with smaller community bank, customer often respond very
emotionally to a bank acquisition- so its essential that you manage customer perception with
regular, carful communication. And once the merger or acquisition is fully underway, remember
to consider the impact on your customer at every stage: anything from changing technology
platforms to financial products could impact your customers negatively if you dont pay
attention.

Compliance and risk consistency:

A final danger to consider during your next merger or acquisition is the risk and compliance
culture of each bank involved. Every financial institution handles banking compliance and
federal banking regulations differently, but its important that the two merging bank agree on
their approach moving forward. When two mismatched risk cultures clash during a bank merger,
it negatively affects the profitability of the business down the road if they havent come to a
working solution.

Bank mergers and acquisitions are complex procedures with the possibility of extraordinary
payoff-or extraordinary peril-so its important that you handle your upcoming M&A event with
care. Keep these benefits and dangers in mind as you combine the processes of each different
bank, and youll be on your way to a successful merger or acquisition.

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1. 8 TYPES OF MERGERS AND ACQUISITIONS:
MERGERS AND ACQUISITIONS
A merger takes place when two companies combine together as equals to form an entirely new
company. Mergers are rare, since most often companies are acquired by other companies, and it
is more of absorption of operation of the target company. The term merger is more often used to
show deference to employees and former owners when another company is taken over. Mergers
and acquisition are a means to a long-term business strategy. New alliances, mergers or takeovers
are usually based on company vision and mission statements, and they have to truly reflect
company corporate strategy in terms of what it wants to achieve with the strategic move in the
industry. The process of acquisition or a merger calls for a disciplined approach by the decision
makers at the company. Three important considerations should be taken into account:

Company must be willing to take risk, and make investment early-on to benefit fully from the
merger, competitors and the industry takes heed and start to merger or acquirer themselves.
In order to reduce and diversify risk, multiple bets must be made, since some of the initiatives
will fail, while some will prove fruitful.
The management of the acquiring firm must learn to be resilient, patient and able to emulate
change owing to ever-changing business dynamics in the industry.

1. Horizontal Mergers:
Horizontal mergers happen when a company merges or takes over another company that
offers the same or similar product lines and services to the final consumers, which means
that it is in the same industry and at the same stage of production. Companies, in this
case, are usually direct competitors. For example, if a company producing cell phones
merges with another company in the industry that produces cell phones, this would be
termed as horizontal merger. The benefit of this kind of merger is that it eliminates
competition, which helps the company to increase its market share, revenues and profits.
Moreover, it also offers economies of scale due to increase in size as average cost decline
due to higher production volume. These kinds of merger also encourage cost efficiency,
since redundant and wasteful activities are removed from the operations i.e. various
administrative departments or departments suchs as advertising, purchasing and
marketing.

2. Vertical Mergers:
A vertical merger is done with an aim to combine two companies that are in the same
value chain of producing the same good and service, but the only difference is the stage
of production at which they are operating. For example, if a clothing store takes over a
textile factory, this would be termed as vertical merger, since the industry is same, i.e.
clothing, but the stage of production is different: one firm is works in territory sector,
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while the other works in secondary sector. These kinds of merger are usually undertaken
to secure supply of essential goods, and avoid disruption in supply, since in the case of
our example, the clothing store would be rest assured that clothes will be provided by the
textile factory. It is also done to restrict supply to competitors, hence a greater market
share, revenues and profits. Vertical mergers also offer cost saving and a higher margin of
profit, since manufacturers share is eliminated.

3. Concentric Mergers:
Concentric mergers take place between firms that serve the same customers in a
particular industry, but they dont offer the same products and services. Their products
may be complements, product which go together, but technically not the same products.
For example, if a company that produces DVDs mergers with a company that produces
DVD players, this would be termed as concentric merger, since DVD players and DVDs
are complements products, which are usually purchased together. These are usually
undertaken to facilitate consumers, since it would be easier to sell these products
together. Also, this would help the company diversify, hence higher profits. Selling one of
the products will also encourage the sale of the other, hence more revenues for the
company if it manages to increase the sale of one of its product. This would enable
business to offer one-stop shopping, and therefore, convenience for consumers. The two
companies in this case are associated in some way or the other. Usually they have the
production process, business markets or the basic technology in common. It also includes
extension of certain product lines. These kinds of mergers offer opportunities for
businesses to venture into other areas of the industry reduce risk and provide access to
resources and markets unavailable previously.

4. Conglomerate Merger:
When two companies that operates in completely different industry, regardless of the
stage of production, a merger between both companies is known as conglomerate merger.
This is usually done to diversify into other industries, which helps reduce risks.

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1. 9 REASONS BEHIND EACH TYPE OF M&A:
There are various reasons as to why a company might to decide to merge or acquire
another company, although there has to be a strategic reasoning or logic behind the merger. All
the successful mergers and acquisitions have a specific, well thought-out logic behind the
strategic move. Mergers and acquisitions usually create value for the company in different ways,
some of which are listed below

Improve the companys performance

this involves improving the performance of the target company, as well as the company itself. It
is one of the most important reasons of value-creating strategies of M&A. If another company is
taken over, its performance can be radically improves, due to economies of scale. Also, the two
companies combined would have a greater impact in the market as they are more likely to
capture a greater market share, hence higher revenue and profits. Operating-profit margins can be
significantly improved under the new management if wastage and redundancies are removed
from the operations.

Remove Excess capacity

in many cases, as industries grow, there comes a point of maturity, which leads to excess capacity
in the industry. As more and more companies enter the industries, the supply continues to
increase, which brings the prices considerably down. Higher production from existing companies
and entry of new companies in the industry disrupts the balance as supply increases more than
demand, which lead to a fall in price. In order to correct this, companies merge with or acquire
other companies in the industry, hence getting rid of excess capacity in the industry. Factories
and plants can be shutdown, since it is no longer profitable to sell at that low a prices. Usually
least productive plants or factories are retired in order to bring the balance back to the industry.
Reducing excess capacity has a lot of benefits as it extends less tangible forms of capacity in the
industry. It makes companies rethink their strategy, and nudges them to work towards improving
quality rather than quantity.

Accelerate growth

Mergers and acquisitions are often undertaken to increase the market share. If Competitor
Company is taken over, its share of sales is also absorbed. As the result, the acquirer gets higher
sales, revenues and consequently higher profits. Some industries have a mix of very loyal

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customers, which means that it is very difficult to attract customers from competition by other
means, as the industry is highly competitive and consumers are disinclined to make the switch.
In such circumstances, merger or acquisition are highly beneficial, since they provide an
opportunity to drastically increase market share. It also allows economies of scale, as per unit
cost decrease due to higher volume. Smaller players in the market are sometimes taken over to
penetrate the market further, where big companies fail to make an impact. Controlling smaller
firms in the industry can greatly accelerate sales of those smaller companies products and
services, since a big name is now attached to them. The acquirer also brings in its expertise and
experience to bring efficiency to the operations of the target company. The combined company
also benefit from exposure to various segments of the industry, which were previously unknown
to the acquirer. The new combined company could help introduce new products tailored for the
unchartered markets, hence finding new consumers for the same products and services.

Acquire skills and technology

Companies often acquire or merge with other companies in hopes to acquire skills and/or
technology of the target company. Some companies control certain technologies exclusively, and
it is too costly to develop these technologies from scratch. This means that it is easier to take
over a company with the desired technology. A merger / an acquisition provides an opportunity
for both companies to combine their technological progress and generate greater value from the
sharing of knowledge and technology. These kinds of merger usually lead to innovation and
entirely new products and services, hence are beneficial not only to the companies themselves,
but to the industry as well. Same goes for skills, which are in certain cases exclusive, and can
only be sought out, if the said company is taken over.

Roll-up strategies

some firms are too small in the market and are highly fragmented, which means they experience
higher costs, and it is not feasible for them to keep up operations because there are no economies
of scale due to a very small volume. An acquisition is such case is more common and can be
hugely beneficial to the target company, as it could keep on operating only with an element of
economies of scale. It would also help an acquirer, since it would be able to penetrate smaller
fractions of the market, as smaller companies have access to these markets. Hence this kind of
merger creates value for both companies, and promises greater efficiency in the operational
activities. Advertising campaigns can be coordinated together in order to increase revenues and
save on costs.

Encourage competitive behavior

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many companies decide to take over other companies in an attempt to improve the overall
competitive behavior in the industry. This is done by eliminating price competition, which leads
to improvement in rate of internet return of the industry. If the competition is kept at bay, and
new entrants are not allowed, firms dont have to compromise on quality as price is no longer a
competing factor. Smaller businesses can only gain share through offering at lower prices, but
price competition reduces overall profits for the industry. In order to restore the balance, and
invest all effort an energy on quantity, mergers and takeovers are initiated to improve the overall
competitive environment in the industry.

Legal terminology

Mergers and acquisitions are highly complex, and they most often require authorization from
central government organization like competition commissions. There are various legal
terminologies used when companies decide to merge as listed below:

Sale of Majority of Assets

In a merger / acquisition of one by another company, one company buys out the majority of
assets of the other company. The control is transferred to the acquirer after approval of majority
of shareholders of the target company. The acquirer usually only takeover liabilities that are
attached to the purchased assets, which means that other liabilities are retained by the target
company and paid off by them through their own means. Acquirer may, at times, decides to take
up liabilities too. Shareholders have the same rights after the merger, since they are entitles to a
divided, which is usually higher after the merger.

Stock for Assets

In this type of transaction, one entity buys outs the other one for a certain number of shares. The
target company dissolves, passing all its assets to the acquirer. The control is established after
approval from acquirer Companys management. For the target company, vote of approval from
majority shareholders is required for the dissolution. All the liabilities attached to the assets of
Target Company are passed on to the acquirer company, while all other liabilities are retained by
the target company unless acquirer volunteers to take them on as well. Shareholders after the
merger are likely to receive a higher dividend.

Stock for Stock

Stock for stock transaction involves two companies, where one entity buys shares in another

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company from its shareholders. The targets companys assets are passed on to the acquirer,
while the target company is run as a subsidiary of the acquirer. A new stock has to be created for
this kind of merger, which means that the majority of the acquirer companys shareholders are
required to approval the merger. The shareholders of the target company are able to individually
decide whether they want to participate or not. The merger entails limited liabilities for the
acquirer in terms of targets company liabilities. If shareholders decide not to sell their shares,
they might be frozen out.

Merger/Consolidation

This kind of transaction requires the presence of two companies. One company purchased the
other, or alternatively both dissolve and become a new company. In this case, both companies
require approval from majority of shareholders. The company or the acquirer takes up all rights
and all liabilities, some of which are unknown to both corporations. Shareholders retain the right
to receive dividends, in addition to retaining dissenters appraisal rights. This is the most
common sort of merger, which basically means that one company is absorbed into the other one.
Assets are taken over, while liabilities are cleared at the time of the merger or takeover the
acquirer.

Dissolution

Dissolution involves only one corporation, since the company is being dissolved. If the company
wants to dissolve voluntarily, it needs the majority vote by shareholders in addition to filing with
the state. At times, courts order involuntary dissolution in certain cases such as a deadlock
situation. The control is usually held by majority vote by shareholders. In the case of dissolution,
all liabilities must be cleared, although any future liability is absolved. Dissolution usually means
that the company does not exist anymore, which means its operations are wrapped up during the
process dissolution.

Freeze-Out

In this case, the majority shareholders attempt to buyout the shares of the minority of
shareholder. Only one company is involved, and control is defined by the majority through board
approval. The liabilities in this case remain with the company as there is no other party involved.
This is mostly done to reaffirm control by the majority shareholders over the operations of the
company, since they face no obstacles once the deal goes through.

Tender Offer

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This merger is similar to stock for stock, the only difference being the shareholders are offered
money in exchange for their shares, after which the target company is dissolved, merged or run
as a subsidiary. Management approval is needed since the acquirer usually borrows to finance the
merger. While individual shareholders of Target Company may sell at their will, although a
controlling percentage of target companys shared is required for this mergers. After the purchase
of shares, the acquirer has limited liability in terms of targets company financial obligations.
After the merger, shareholders can expect a higher dividend, while shareholders of target have no
right, since they are no hold shares.

Triangular Merger

As the name suggests, this merger involves three companies. The first step involves the acquirer
company forming a subsidiary, whose only assets are shares of the parent company. The newly
formed subsidiary then does a stock for assets or stock for stock as explained above with the
target company. Consequently, the target company mergers or completely dissolves.

1. 10 MOTIVE BEHIND MERGER AND ACQUISITION:


Economies of large scale business:
Large scale business organization enjoys both internal and external economies.
Elimination of competition:
It eliminates server, intense and wasteful expenditure by different competing
organizations.

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Desire to enjoy monopoly power:
M&A leads to monopolistic control in the market.
Adoption of modern technology:
Corporate organization requires large resources.
Lack of technical and managerial talent:
Industrialization, Scarcity of entrepreneurial, managerial and technical talent.

1. 11 IMPACT OF MERGER AND ACQUISITIONS:


Employees:
Mergers and acquisitions impact the employees or the workers the most. It is well known
fact that whenever there is a merger or an acquisition, there are bound to be layoffs.

Impact of merger and acquisitions on top level management:


Impact of merger and acquisition on top level management may actually involve a clash
of the egos. There might be variations in the cultures of the two organizations,

Shareholders of the acquires firm:


The shareholders of the acquired company benefit the most. The reason being it is seen in
majority of the acquiring company usually pays a little excess than it what should. Unless
a man lives in a house he has recently bought, he will not be able to know its drawback.

Shareholders of the acquiring firm:


Hey are most affected, if we measure the benefits enjoyed by the shareholders of the
acquired company in degree to which they were benefited, by the same degree, these
shareholders are harmed.

1. 12 SCOPE OF MERGERS AND ACQUISTIONS:

In todays globalised economy banks all around the world are opting for consolidation by means
of mergers and acquisitions in order to tackle the increasing competition, obtain economies of
scale and to diversify into new areas. As the international banking system is primarily in the
hands of sizeable players, there exists an imminent requirement for a considerable number of
well established larger banks in India which could participate in the emerging stage of
universalisation of banking. Indian banks form alliances with international players in order to
open doors to various across the globe in the areas of investment, mobilisation of funds, credit
facilities and the rendering of financial facilities to a wider customer base. Tax rebates as well as

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synergy in the form of cost cutbacks and revenue augmentation serve as a promoter of mergers
and acquisitions.

The advantages of using mergers and acquisitions as an instrument of enlargement in the banking
sector outweigh the drawbacks. Mergers and acquisitions help banks expand their presence over
a large geographical area and reduces their operational and financial costs. Banks which deal
with complementary businesses can use mergers as a tool to reach the platform of competition in
the market. Mergers in the banking sector are horizontal mergers as the two merging banks are
involved in similar business or commercial activities. Banks which possess excessive capital
reserves can enter a different market by acquiring smaller banks which have established regional
presence in that market. Furthermore, M&As may be used as an instrument of supervisory
involvement by the RBI to compel the merger of weaker banks.

The most recent merger in the Indian banking sector is that of Kotak Mahindra Bank and ING
Vysya Bank. After receiving approval from the RBI the merger came into effect from April 1,
2015. The merged entity assumes the name Kotak Mahindra Bank. ING Vysya Bank has been a
respected name in Indian banking, with a sterling legacy spanning eight decades. In less than
thirty years, Kotak Mahindra Group has built a comprehensive financial services conglomerate
that truly serves all its customers needs under the same roof. The two banks possess
complementary customers, branch grids, products and schemes which further facilitated the
smooth course of this merger.

CHAPTER -2 LITERATURES REVIEW

kannan R. (2008) In this study The impact of mergers and acquisition on private sector
banks on global economy have studied that Mergers and Acquisition have been a very
important market entry strategy as well as expansion strategy. This present era is known
as competition, goes for merger, and enjoys sometimes monopoly. Liberalisation and
technological advances are increasingly pushing the banking sector towards greater
globalization to improve the operational flexibility of banks, which is crucial in the
competitive environment that banks operate in. The government also proposes to

22
recapitalise weak banks. The recapitalization of weak banks has not yielded the expected
results in the past and hence should be linked to a viable and time bound restructurinplan.
The process of merger and acquisition is taken in many banks in India like- Times bank
merged with HDFC Bank, Bank of Madura with ICICI bank, etc. The researcher has
made an attempt to measure the changes in the profitability and financial position of the
above banks and has calculated several ratios and tested them in the light of T-Test, to
know the acceptance and rejection of the formulated hypothesis. The researcher has
found that overall the merger and acquisition does not effect the financial position of
banks except when weaker and non-viable banks are merged with a financially sound and
profit making bank in such case the profitability of the later bank will be affected.
Kaushik K.P. and Sinha Neena(2010) in his study Measuring Post Merger and
Acquisition Performance: An Investigation of Select Financial Sector Organizations in
India examines the impact of mergers and acquisitions on the financial efficiency of the
selected financial institutions in India. The analysis consists of two stages. Firstly, by
using the ratio analysis approach, they calculate the change in the position of the
companies during the period 2000-2008. Secondly, they examine changes in the
efficiency of the companies during the pre and post merger periods by using
nonparametric Wilcoxon signed rank test. While we found a significant change in the
earnings of the shareholders, there is no significant change in liquidity position of the
firms. The result of the study indicate that M&A cases in India show a significant
correlation between financial performance and the M&A deal, in the long run, and the
acquiring firms were able to generate value. 2.3 Pasha Tisman Ahmad(2010), in his study
Effect of Merger on Management : Case Study of Bank examines that Merger of
organizations is a major change thats why it is necessary to focus the effects of this
merger. Organizations are built and show their performance by the human resource and
thus, it is important to find out the impact of merger on the employees. The present study
aims to study such impact in the form of motivation, satisfaction and performance of the
employees. 2.4 Bhatnagar Baxi Abhinn & Sinha Nitu(2012) in the study Strategic Move
of ICICI Bank: A Case of ICICI Bank & Bank of Rajasthan states that changing is the
regulation of nature. Any business organization undergoes change on a continuous basis,
technically termed as Corporate Restructuring. It can be defined as a strategy to achieve
faster growth, desired capital structure and change in the ownership and control of
company. The reasons behind change may be external or internal factors. In the present
scenario, business organization undertakes changes to increase their cutting edge over the
competition and enhance their leadership positions. It is a fundamental fact of finance
that growth and capital employed are two basic drivers of the value of an organization.
On the other hand neither growth nor improvement in ROCE is possible unless the
company is under the control of competent, progressive and visionary management. The
present paper is an attempt to understand the strategic move of ICICI bank. The case
study will reveal the motives behind and synergies from such M&A activities. 2.5 Goyal
K.A & Joshi Vijay (2012) in his study Merger & Acquisition in Banking Industry: A

23
case of ICICI Bank Ltd states that to keep the head high in globalized economy one has
to follow the path of growth, which contains various challenges and issues; one has to
overpower these challenges and issues to become a success story. It considers a case of
ICICI Bank Ltd., the largest private sector bank in India, which has acquired nine
financial firms to make the steps of the ladder of success. Therefore, the aim of this
article is to study the growth of ICICI Bank Ltd. through mergers, acquisitions, and
amalgamation. This article is divided into four parts. The first part includes introduction
and conceptual framework of mergers and acquisition. The second part discusses the
historical background of ICICI Bank Ltd. and followed by review of literature. The third
part discusses all the mergers, acquisitions, and amalgamations in detail. Finally, the
article concludes that a firm must devise a strategy in three phases i.e. Pre-merger phase,
acquisition phase and post-merger phase.

CHAPTER 3 RESEARCH METHODOLOGY

3.1 Method of data collection:


The study is on the basis of secondary data collection. Secondary data was collected from
the annual report of bank and various other sources. Research may be defined as the research
for knowledge through an objective. The ratios taken by researcher in our research are
analyzed by using paired T- test to investigate any significant difference.
Business magazines
Internet sources
Finance book

RESEARCH OBJECTIVE:

To study the pre and post merger impact of bank.


To understand the financial performance and differences.

24
To understand the importance of merger in bank.
To study the purpose of merger and acquisitions in the banking sector.
To study the changes in the Indian banking scenario.
Case study on the merger of ICICI bank and bank of Rajasthan.

3.2 Sample size:


The study used judgmental sampling technique to select two (2) banks from the population.
Banks that were selected are those banks that retain their identities prior to and after the
merger and acquisition activities. To this end, only two banks satisfied the criterion and were
selected as the sample size for the study as shown in Table.

S/N Banks
1. ICICI Bank Ltd.
2. Bank of Rajasthan Ltd.

3.3 Data Analysis Techniques:

Data for the study were quantitatively retrieved from the annual reports and account of the
studied banks. Descriptive and T-test statistics were used to analyze the data obtained from from
the annual reports and accounts of the sampled banks via SPSS.

CHAPTER-4 DATA COLLECTION, ANALYSIS &


INTERPRETATION

4.1 ICICI BANK LTDMERGED WITH BANK OF RAJASTHAN

ABOUT ICICI BANK

ICICI bank (industrial credit and Investment Corporation of India) is an Indian multinational
banking and financial services company headquartered in Mumbai, Maharashtra, India, with its
registered office in Vadodara. In 2014, it was the second largest bank in India in terms of assets
and third in term of market capitalization. It offers a wide range of banking product and financial
services for corporate and retail customer through a variety of delivery channels and specialized

25
subsidiaries in the area of investment banking, life insurance, non-life insurance, venture capital
and assets management.

The bank has a network of 4,450 branches and 14,404 ATMs in India, and has a presence in 19
countries including India.

In the 1990s ICICI transformed its business from a development financial institution offering
only project finance to a diversified financial services group, offering a wide variety of products
and services, both directly and through a number of subsidiaries and affiliates like ICICI bank, in
1999, ICICI become the first Indian company and the first bank or financial institution from non-
Japan Asia to be listed on the NYSE. In 2000, ICICI bank became the first Indian bank to list on
the new York stock exchange with its five million American depository shares issue generating a
demand book 13 times the offer size.

The ICICI bank web site is www.icicibank.com the Icici bank ltd credit cards, consumer
banking, corporate banking, finance and insurance, investment banking, mortgage loans, private
banking, wealth management, personal loans, payment solutions.

ABOUT BANK OF RAJASTHAN

Bank of Rajasthan It was set up at Udaipur in 1943with initial capital of Rs. 10.00 lacs. An
eminent industrial late Seth shri govind ram seksaria was the founder chairman and late shri
dwarka Prasad gupata was the first general manager. It was classified as the scheduled bank in
1948. The bank also established a rural (gramin) bank mewar anchik gramin bank in Ahmadabad
district in Gujarat on 26 January 1983. The bank of Rajasthan is private sector bank. They
headquarters in Ahmadabad BORs motto is the nation banks on us. They revenue of 15.07
billion in INR (us$240 million, year ended march 2009). Net income of BORS 1.777 billion
INR (March 2009, us$17 million).

Bank of Rajasthan, with its stronghold in the state of Rajasthan, has a nationwide presence,
serving its customers with a mission of together we prosper engaging actively in commercial
banking, merchant banking, consumer banking, deposit and money placement services, trust and
custodial services, international banking, priority sector banking.

At march 31 2009, bank of Rajasthan had 463 branches and 111 ATMS, total assets of rs.
172.24 billion, deposits of rs. 151.87 billion and advances of rs. 77.81 billion. It made a net profit
of rs. 1.18 billion in the year ended march 31, 2009 and a net loss rs. 0.10 billion in the nine
months ended December 31, 2009.

The bank of Rajasthan product is loans, savings, investment vehicle, etc. the bank of Rajasthan
web site is http://www.bankofrajasthan.com the bank of Rajasthan industry banking loan, capital
market and allied industries.

26
4.9 WHY ICICI BANK MERGE WITH BANK OF RAJASTHAN
ICICI BANK LTD. Indian largest private sector bank. Said it agreed to acquire smaller
rival bank of Rajasthan ltd to strength its presence In northern and western India.
Deal would substantially enhance its branch network and it would combine bank of
Rajasthan branch franchise with its strong capital base.
The deal, which will give Icici a sizeable presence in northwestern desert of Rajasthan,
values the small bank at 2.9 times its book value, compared with an Indian banking sector
average of 1.84.
Icici bank may be killing two birds with one stone through its proposed merged of the
bank of Rajasthan. Besides getting 468 branches, Indias largest private sector bank will
also get control of 58 branches of regional rural bank sponsored by BoR.
It saved Icici bank about three years time to market.
Market capitalization per branch on an average in Rs. 6.5 cr. And thats what we have
paid.
It added to the network of Icici bank ltd.
Icici bank did due diligence on the banks books and it had given Icici bank pretty
satisfactory report.

4.3 WHICH TYPE OF MERGER AND ACQUISITION:

This is a horizontal acquisition in related functional area in same industry (banking) in order to
acquire assets of a non-performing company and turn it around by better management; achieving
inorganic growth for self by access to 3 million customers of BOR and 463 branches.

4.4 PROCESS OF MERGER AND ACQUSITION:


Haribhakti & co. was appointed jointly by both the banks to assess the valuation.
Swap ratio of 25:118(25 shares of ICICI for 118 for bank of Rajasthan) i.e. one ICICI
bank share for 4.72 BoR shares.
Post-merger acquisition, ICICI banks branch network would go up to 2,463 from 2000.
The NPAs record for bank of Rajasthan is better than ICICI bank. For the quarter ended
dec 09, bank of Rajasthan recorded 1.05% of advances as NPAs which is far better than
2.1% recorded by ICICI bank.
The deal, entered into after the due diligence by dolomite was found satisfactory in
maintained of accounts and no carry of bad loans.

27
28
4.5 DATA OF MERGER OR ACQUISITIONS IN SOME BANK 2000 TO 2010

Date of merger Merger and Target bank Assets of target Number of


and acquisition acquisition bank as % of branches of
bank merger & target bank
acquisition
banks assets
August 2010 ICICI BANK Bank of 0.05 463
Rajasthan
FEB 2008 HDFC BANK Centurion bank 20 394
of Punjab
AUG 2007 Centurion bank Lord Krishna 11 110
of Punjab bank
APR 2007 ICICI BANK Sangali bank 0.5 190
MAR 2007 Indian overseas Bharat overseas 6 102
bank bank
OCT 2006 IDBI bank United western 8 230
bank
SEP 2006 Federal bank Ganesh bank 1 32
kurundwad
OCT 2005 Centurion bank Bank of Punjab 106 136
Aug 2004 Oriental bank of Global trust bank 17 104
commerce
Feb 2003 Punjab national Nedungadi bank 2 173
bank
March 2001 ICICI BANK Bank of Madura 36 350
Feb 2000 HDFC bank Times bank 75 39

29
4.6 ABOUT BANK OF RAJSTHAN LTD AND ICICI BANK LTD

S.NO KEY RATIONALE ICICI BANK BANK OF RAJSTHAN


1 Type Private sector Private sector
2 Industry Banking financial services Banking, loan, capital, market
and ailed industries
3 Year of incorporation 1994(promoted by Icici) 1943, Udaipur
4 Traded as NSE:ICICIBANK NSE:BANKRAJAS
BSE:532174 BSE:500019
NYSE:IBN
NASDAQ:IBN
5 Products Finance and insurance Corporate & wholesale
Retail banking banking
Commercial banking Personal banking
Mortgages Commercial banking
Credit cards Retail banking
Private banking Finance and insurance
Assets management Investment banking
Investment banking Auxiliary services
Merchant banking
Trust and custodial
services.
6 Business presence 19 countries All over India
7 Number of offices 1717* 478*
8 Numbers of employees 35256* 3983*
9 Total income 33,999.98** 1,489.48**
10 Profit 4,024.98** 102.13**
11 Total assets 3,63,399.71** 17,300.06**
12 CRAR(capital to risk assets 19.41* 7.52*
ratio)
13 Net NPA ratio 2.12* 1.60*

30
4.7 DATA ANALYSIS OF ICICI BANK & BANK OF RAJASTHAN:

PRE AND POST MERGER BALANCE SHEET OF ICICI BANK 2009 TO


2010

in (Rs.cr)

PARTICULR March2011 March2010


Total Share Capital 1,151.82 1,114.89
Equity Share Capital 1,151.82 1,114.89
Share Application Money 0.29 0.00
Preference Share Capital 0.00 0.00
Reserves 53,938.82 50,503.48
Revaluation Reserves 0.00 0.00
Net worth 55,090.93 51,618.37
Deposits 225,602.11 202,016.60
Borrowings 109,554.28 94,263.57
Total Debt 335,156.39 296,280.17
Other Liabilities and Provisions 15,986.35 15,501.18
Total Liabilities 406,233.67 363,399.72
Cash and Balances with RBI 20,906.97 27,514.29
Balance with Banks, Money at Call 13,183.11 11,359.40
Advances 216,395.90 181,205.60
Investments 134,685.96 120,892.80
Gross Block 4,744.26 7,114.12
Accumulated Depreciation 0.00 3,901.43
Net Block 4,744.26 3,212.69
Capital Work in Progress 0.00 0.00
Other Assets 16,347.47 19,214.93
Total Assets 406,233.67 363,399.71
Contingent Liabilities 931,651.64 694,948.84
Bills for collection 0.00 38,597.36
Book Value (Rs) 479.45 463.01

31
PRE & POST MERGER PROFIT AND LOSS ACCOUNT FROM 2009 TO
2010

IN(rs.cr)

MARCH MARCH
PARTICULR
2011 2010
Interest Earned 25,974.05 25,706.93
Other Income 6,647.89 7,292.43
Total Income 32,621.94 32,999.36
Interest expended 16,957.15 17,592.57
Employee Cost 2,816.93 1,925.79
Selling and Admin Expenses 0.00 6,056.48
Depreciation 562.44 619.50
Miscellaneous Expenses 7,134.05 2,780.03
Preoperative Exp Capitalized 0.00 0.00
Operating Expenses 6,617.25 10,221.99
Provisions and Contingencies 3,896.17 1,159.81
Total Expenses 27,470.57 28,974.37
Net Profit for the Year 5,151.38 4,024.98
Extraordinary Items 0.00 -0.09
Profit brought forward 3,464.38 2,809.65
Total 8,615.76 6,834.54
Preference dividend 0.00 0.00
Equity dividend 1,612.58 1,337.86
Corporate dividend tax 202.38 164.04
EPS (%) 44.83 36.10
Equity dividend (%) 140.00 120.00
Book value(Rs) 479.45 463.01
Transfer to statutory reserves 1,782.45 1,867.22
Transfer to other resaves 0.26 1.04
Proposed dividend/ transfer to govt 1,814.86 1,501.90
Balance c/f to balance sheet 5,018.18 3,464.38
total 8,615.75 6,834.54

32
PRE & POST MERGER FINANCIAL RATIO OF ICICI BANK 2009 TO
2010

In(rs.cr)
MARCH MARCH
PARTICULR
2011 2010
Face Value 10.00 10.00
Dividend Per Share 14.00 12.00
Operating Profit Per Share (Rs) 25.78 49.80
Net Operating Profit Per Share (Rs) 226.05 293.74
Free Reserves Per Share (Rs) - 356.94
Bonus in Equity Capital - -
Interest Spread 6.95 5.66
Adjusted Cash Margin(%) 17.51 13.64
Net Profit Margin 19.83 12.29
Return on Long Term Fund(%) 43.05 44.72
Return on Net Worth(%) 9.35 7.79
Adjusted Return on Net Worth(%) 9.35 7.53
Return on Assets Excluding Revaluations 479.45 463.01
Return on Assets Including Revaluations 479.35 463.01
Interest Income / Total Funds 6.75 8.82
Net Interest Income / Total Funds 2.34 4.08
Non Interest Income / Total Funds 1.73 0.008
Interest Expended / Total Funds 4.41 4.74
Operating Expense / Total Funds 1.57 2.59
Profit Before Provisions / Total Funds 2.35 1.41
Net Profit / Total Funds 1.34 1.08
Loans Turnover 0.13 0.17
Total Income / Capital Employed(%) 8.48 8.90
Interest Expended / Capital Employed(%) 4.41 4.74
Total Assets Turnover Ratios 0.07 0.09
Asset Turnover Ratio 0.07 0.10
Interest Expended / Interest Earned 65.29 68.44
Other Income / Total Income 20.38 0.92
Operating Expense / Total Income 18.56 29.05
Selling Distribution Cost Composition - 0.72
Capital Adequacy Ratio 19.54 19.41
Advances / Loans Funds(%) 68.53 58.57
Credit Deposit Ratio 90.45 90.04
Investment Deposit Ratio 59.77 53.28
Cash Deposit Ratio -
Total Debt to Owners Fund 6.08 5.74
Financial Charges Coverage Ratio 1.57 1.58

33
Financial Charges Coverage Ratio Post Tax 1.34 1.26
Current Ratio 0.07 0.14
Quick Ratio 15.86 14.70
Dividend Payout Ratio Net Profit 31.30 33.23
Dividend Payout Ratio Cash Profit 28.22 28.80
Earning Retention Ratio 68.70 65.62
Cash Earning Retention Ratio 71.78 70.34
AdjustedCash Flow Times 39.48 44.79
Earnings Per Share 44.83 36.10
Book Value 479.45 463.01

PRE MERGER BANK OF RAJASTHN LTD BALANCE SHEET 2009 TO


2010
In(rs.cr)

PARTICULR March2010 March2009


Capital and Liabilities:
Total Share Capital 161.35 161.35
Equity Share Capital 161.35 161.35
Reserves 379.99 482.12
Net Worth 643.47
Deposits 15,062.35 15,187.15
Borrowings 0.65 1.28
Total Debt 15,063.00 15,188.43
Other Liabilities & Provisions 1,300.55 990.38
Total Liabilities 17,300.06 16,822.28
Assets
Cash & Balances with RBI 1,078.70 703.45
Balance with Banks, Money at Call 308.90 1,171.48
Advances 8,329.47 7,780.75
Investments 6,722.51 6,809.15
Gross Block 645.94 637.79
Revaluation Reserves 402.12
Accumulated Depreciation 129.78 113.20
Net Block 516.16 122.47
34
Other Assets 344.32 234.97
Total Assets 17,300.06 16,822.27
Contingent Liabilities 1,138.15 1,235.47
Bills for collection 885.59 1,015.00
Book Value (Rs) 33.35 39.88

PROFIT AND LOSS ACCOUNT FROM 2009 TO 2010


In(rs.cr)

PARTICULR March2010 March2009


Income
Interest Earned 1,359.49 1,383.61
Other Income 129.99 131.39
Total Income 1,489.48 1,515.00
Expenditure
Interest expended 1,024.48 998.45
Employee Cost 382.11 208.82
Selling, Admin & Misc Expenses 173.57 178.16
Depreciation 11.47 11.85
Operating Expenses 552.83 330.09
Provisions & Contingencies 14.32 68.74
Total Expenses 1,591.63 1,397.28
Net Profit for the Year -102.13 117.71
Profit brought forward 234.34 185.69
Total 132.21 303.40
Equity Dividend 0.00 3.23
Corporate Dividend Tax 0.00 0.55
Per share data (annualized)
Earnings Per Share (Rs) -6.33 7.30
Equity Dividend (%) 0.00 2.00
Book Value (Rs) 33.55 39.88
Appropriations
Transfer to Statutory Reserves 9.03 55.28
Transfer to Other Reserves 0.00 10.00
Proposed Dividend/Transfer to Govt 0.00 3.78
Balance c/f to Balance Sheet 123.19 234.34
Total 132.22 303.40

FINANCIAL RATIO FROM 2009 TO 2010


35
In(rs.cr)

PARTICULR March2010 March2009


Investment Valuation Ratios
Face Value 10.00 10.00
Dividend Per Share -- 0.20
Operating Profit Per Share (Rs) -8.47 8.73
Net Operating Profit Per Share (Rs) 88.57 90.34
Free Reserves Per Share (Rs) 8.88 15.77
Bonus in Equity Capital 33.33 33.33
Profitability Ratios
Interest Spread 4.65 7.03
Adjusted Cash Margin(%) -6.07 8.60
Net Profit Margin -6.85 7.81
Return on Long Term Fund(%) 177.48 185.52
Return on Net Worth(%) -18.86 18.29
Adjusted Return on Net Worth(%) -18.82 18.30
Return on Assets Excluding Revaluations 33.55 39.88
Return on Assets Including Revaluations 58.04 64.80
Management Efficiency Ratios
Interest Income / Total Funds 8.47 9.05
Net Interest Income / Total Funds 2.40 2.85
Non Interest Income / Total Funds 0.36 0.30
Interest Expended / Total Funds 6.08 6.20
Operating Expense / Total Funds 3.21 1.98
Profit Before Provisions / Total Funds -0.52 1.11
Net Profit / Total Funds -0.61 0.73
Loans Turnover 0.18 0.19
Total Income / Capital Employed(%) 8.83 9.35
Interest Expended / Capital Employed(%) 6.08 6.20
Total Assets Turnover Ratios 0.08 0.09
Asset Turnover Ratio 2.21 2.29
Profit And Loss Account Ratios
Interest Expended / Interest Earned 75.36 72.16
Other Income / Total Income 4.06 3.25
Operating Expense / Total Income 36.34 21.12
Selling Distribution Cost Composition 0.22 0.26
Balance Sheet Ratios
Capital Adequacy Ratio 7.52 11.50
Advances / Loans Funds(%) 55.07 53.42
Debt Coverage Ratios
Credit Deposit Ratio 53.26 52.40
Investment Deposit Ratio 44.73 39.74
Cash Deposit Ratio 5.89 6.59
Total Debt to Owners Fund 27.82 23.60

36
Financial Charges Coverage Ratio -0.07 1.19
Financial Charges Coverage Ratio Post Tax 0.91 1.13
Leverage Ratios
Current Ratio 0.02 0.01
Quick Ratio 7.50 8.80
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit -- 3.20
Dividend Payout Ratio Cash Profit -- 2.91
Earning Retention Ratio -- 96.80
Cash Earning Retention Ratio -- 97.09
Adjusted Cash Flow Times -- 117.12
Earnings Per Share -6.33 7.30
Book Value 33.55 39.88

4.8 FINANCIAL PERFORMANCE OF ICICI BANK PRE & POST MERGER WITH BANK OF RAJASTHAN

37
Before merger 4year After merger 4year t stat 5% P(t<=)one
mean stdev mean stdev -tail
Profitability
standards
Net profit 10.81 1.01 21.25 1.56 -12.75 0.00
Return on assets 1.08 0.07 1.71 0.15 -7.28 0.00
Return on 10.13 2.69 13.03 1.35 -1.46 0.12
equity(standalone)
Return on 6.85 0.75 6.62 0.03 0.59 0.30
investment
Ratio of operating 2.26 0.28 2.69 0.30 -5.88 0.00
profit to total
assets
Returns on 9.72 0.87 9.86 0.30 -0.34 0.38
advance
Financial
leverage
standards

Total debt/equity 5.78 2.55 4.41 0.14 1.02 0.19

Liquidity standard
Current ratio 0.12 0.02 0.07 0.01 3.40 0.02
Acide ratio 8.28 4.29 13.09 2.79 -2.03 0.07
Interest 72.24 3.30 64.33 3.00 4.43 0.01
expend/interest
earned
Capital market
standards
EPS(PAT/no. of 36.03 2.44 58.16 28.46 -1.54 0.11
equity share)

38
4.9 Post merger analysis of ICICI bank:
2008 2009 2010 2011
Current 0.11 0.13 0.14 0.11
ratio
Quick 6.42 5.94 14.70 15.86
ratio
d/eratio 5.27 4.42 3.91 4.10
Netprofit 10.51 9.74 12.17 15.91
margin
Returnon 62.34 56.72 44.72 42.97
longterm
fund
Returnon 8.94 7.58 7.79 9.35
networth
EPS 37.37 33.76 36.10 44.43

39
CHAPTER 5 RECOMMENDATIONS & CONCLUSION
CONCLUSION:

Mergers are increasing day to day; every mergers make a significant impact on the
market as well as entities involved in the process. In the present study firstly we
discussed about the mergers and factors forcing for the same. Then the merger
movement as well as impact of merger on acquiring entity i.e. ICICI bank ltd. Are
analyzed through graphical observation method and average method. The present
research study resulted that the acquiring bank (ICICI bank ltd) loses their market
prices when the announcement came into the other hand the bank of Rajasthan ltd
(BORs) gain with announcement news.

LIMITATIONS:

The major limitations of the project are the time frame. The post merger analysis is
just for 4 year and 4 year to less period to judge the effects of merger.

Post merger analysis of ICICI bank Ltd

Whole of the analysis is based on the balance sheet, profit & loss a/c and financial
ratio which is secondary data. Hence it suffer from begin very reliable.

The analysis is based on various ratios hence all the limitations of the ratio analysis
become a part of the limitations of the study.

40
REFERENCES:

www.moneycontrol.com
www.nseindia.com
www.icicibank.com
www.wikipedia.org/wiki/merger_and_acquisition
www.BORs.com
www.businessstanderd.com
www.rbi.org
http://securite.indiabulls.com
www.economictimes.indiatimes.com
www.investopedia.com

41