INTRODUCTION

Mergers and acquisitions (M&A) refers to the aspect of corporate strategy,

corporate finance and management dealing with the buying, selling and
combining of different companies that can aid, finance, or help a growing
company in a given industry grow rapidly without having to create another
business entity. An acquisition, also known as a takeover or a buyout, is the
buying of one company (the ‘target’) by another.

The acquisition process is very complex and various studies shows that only
50% acquisitions are successful. An acquisition may be friendly or hostile.
In a friendly takeover a company’s cooperate in negotiations. In the hostile
takeover, the takeover target is unwilling to be bought or the target's board
has no prior knowledge of the offer. Acquisition usually refers to a purchase
of a smaller firm by a larger one. Sometimes, however, a smaller firm will
acquire management control of a larger or longer established company and
keep its name for the combined entity. This is known as a reverse takeover.

Although merger and amalgamation mean the same, there is a small

difference between the two. In a merger one company acquires the other
company and the other company ceases to exist. In an amalgamation, two or
more companies come together and form a new business
Procedure of Bank Merger

 The procedure for merger either voluntary or otherwise is outlined in the

respective state statutes/ the Banking regulation Act. The Registrars, being
the authorities vested with the responsibility of administering the Acts, will
be ensuring that the due process prescribed in the Statutes has been complied
with before they seek the approval of the RBI. They would also be ensuring
compliance with the statutory procedures for notifying the amalgamation
after obtaining the sanction of the RBI.
 Before deciding on the merger, the authorized officials of the acquiring
bank and the merging bank sit together and discuss the procedural
modalities and financial terms.After the conclusion of the discussions, a
scheme is prepared incorporating therein the all the details of both the banks
and the area terms and conditions.
 Once the scheme is finalized, it is tabled in the meeting of Board of
directors of respective banks. The board discusses the scheme thread bare
and accords its approval if the proposal is found to be financially viable and
beneficial in long run.
 After the Board approval of the merger proposal, an extra ordinary
general meeting of the shareholders of the respective banks is convened to
discuss the proposal and seek their approval.
 After the board approval of the merger proposal, a registered valuer is
appointed to valuate both the banks. The valuer valuates the banks on the
basis of its share capital,market capital, assets and liabilities, its reach and
anticipated growth and sends its report to the respective banks.
 Once the valuation is accepted by the respective banks , they send the
proposal along with all relevant documents such as Board approval,
shareholders approval, valuation report etc to Reserve Bank of India and
other regulatory bodies such Security & exchange board of India SEBI for
their approval.
 After obtaining approvals from all the concerned institutions, authorized
officials of both the banks sit together and discuss and finalize share
allocation proportion by the acquiring bank to the shareholders of the
merging bank SWAP ratio
 After completion of the above procedures , a merger and acquisition
agreement is signed by the bank.
HDFC Bank acquired Centurion Bank
of Punjab
HDFC Bank Ltd is a major Indian financial services company based in
India, incorporated in August 1994, after the Reserve Bank of India allowed
establishing private sector banks. The Bank was promoted by the Housing
Development Finance Corporation, a premier housing finance company (set
up in 1977) of India. HDFC Bank has 1,725 branches and over 4,232 ATMs,
in 779 cities in India, and all branches of the bank are linked on an online
real-time basis. As of 30 September 2008 the bank had total assets of
Rs.1006.82 billion. For the fiscal year 2008-09, the bank has reported net
profit of 2,244.9 crore (US$ 509.59 million), up 41% from the previous
fiscal. Total annual earnings of the bank increased by 58% reaching at
19,622.8 crore (US$ 4.45 billion) in 2008 09.

HISTORY OF HDFC BANK

HDFC Bank was incorporated in 1994 by Housing Development Finance
Corporation Limited (HDFC), India's largest housing finance company. It
was among the first companies to receive an 'in principle' approval from the
Reserve Bank of India (RBI) to set up a bank in the private sector. The Bank
started operations as a scheduled commercial bank in January 1995 under
the RBI's liberalisation policies.Times Bank Limited (owned by Bennett,
Coleman & Co. / Times Group) was merged with HDFC Bank Ltd., in 2000.
This was the first merger of two private banks in India. Shareholders of
Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times
Bank. In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its
total branches to more than 1,000. The amalgamated bank emerged with a
base of about Rs. 1,22,000 crore and net advances of about Rs.89,000 crore.
The balance sheet size of the combined entity is more than Rs.1,63,000
crore.

BUSINESS FOCUS
HDFC Bank deals with three key business segments - Wholesale Banking
Services, Retail Banking Services, Treasury. It has entered the banking
consortia of over 50 corporates for providing working capital finance, trade
services, corporate finance and merchant banking. It is also providing
sophisticated product structures in areas of foreign exchange and derivatives,
money markets and debt trading and equity research.
CENTURION BANK OF PUNJAB

The Centurion Bank of Punjab (formerly Centurion Bank) was an Indian

private-sector bank that provided retail and corporate banking services. It
operated on a strong nationwide franchise of 403 branches and had over
5,000 employees. The Bank's shares were listed on the major Indian stock
exchanges and on the Luxembourg Stock Exchange. On 23 May 2008
HDFC Bank acquired Centurion Bank of Punjab.

MERGER & ACQUISITION OF HDFC

AND CBOP
 1994 Centurion Bank was incorporated on 30 June 1994 and received its
certificate of Commencement of Business on 20 July. It was a joint venture
between 20th Century Finance Corporation and its associates and Keppel
Group of Singapore through Kephinance Investment (Mauritius). Centurion
had a network of ten branches, which grew to 29 branches the next year.

 1995 Centurion Bank amalgamated 20th Century Finance Corporation.

 2005 On 29 June 2005, the Boards of Directors of Centurion Bank and

Bank of Punjab agreed to a merger of the two banks. The combined bank
took as its name Centurion Bank of Punjab. Bank of Punjab had been
founded in 1995.

 2006 Centurion Bank of Punjab acquired Kochi-based Lord Krishna

Bank. Lord Krishna Bank had been established at Kodungallur in Thrissur
District,Kerala in 1940. During the 1960's, Lord Krishna acquired three
commercial banks: Thiyya Bank, Josna Bank and Kerala Union Bank.

 2008 HDFC Bank acquired Centurion Bank of Punjab.

The swap ratio is expected to be around 1:25-30,” said a banking source.
The merger will make HDFC Bank the country’s seventh largest bank after
Bank of India (BoI) and ahead of IDBI Bank, from the current 10th position.
The merger talks between the two banks began in January 2008 after the
principal shareholders of CBoP – Bank Muscat with 14.02 per cent stake,
Sabre Capital with 3.48 per cent stake and Kephinance Investment
(Mauritius) with 6.13 per cent — decided to exit.

HIGHLIGHT
THE MERGER- HDFC AND CENTURION
BANK OF PUNJAB

1) HDFC bank is merged with Centurion Bank of punjab

2) New entity is named as “HDFC bank itself”.
3) The merger will strengthen HDFC Bank's distribution network in the
northern and the southern regions.
4) HDFC Bank Board on 25th February 2008 approved the acquisition of
Centurion Bank of Punjab (CBoP) for Rs 9,510 crore.

BENEFITS FROM THIS DEAL

 The corporate world is a place where only the vigilant, the sharp and the
spontaneous can explore their way up the ladder, while the remaining admire
or envy the success of the former . Here, every second tests the mental
acumen of the professionals by putting them into various odd situations
which demand spontaneous, impromptu decisions to be crafted, keeping a
long-term perspective in sight.
 The expected merger of the HDFC Bank with the Centurion Bank of
Punjab (CBoP) is believed to broaden the scope and reach of HDFC by
crediting to its already welldistributed network. The HDFC Bank, which
currently spans India with its chain of 746 branches, will add to itself 394
branches of the CBoP to itself, to make its network bigger and stronger. The
merger talks between the two banks began in January 2008, after the
principal shareholders of CBoP – Bank Muscat with 14.02 per cent stake,
Sabre Capital with 3.48 per cent stake and the Kephinance Investment
(Mauritius) with 6.13 per cent stake decided to move away from this
partnership.
 The HDFC Bank is further expected to pay Rs 100 billion to Rs 120
billion in shares for acquiring the CBoP. In what claims to be the largest
ever private bank merger, the share swap ratio stands at 1:29, that is every
shareholder of CBoP will get one share of HDFC Bank for every 29 shares
of CBoP owned. Though this ratio is believed to have been worked out after
rigorous discussions among the Board of Directors of both the banks, it has
failed to receive a positive reaction from the CBoP shareholders. It has come
as a yet another setback for them after a volatile period witnessing a decline
in CBoP shares and an unstable management.

 The HDFC Bank which presently enjoys the 10th position in the list of
largest banks in India on the basis of assets, and with this merger, will now
witness a jump to the 7th position. At the same time, the current stake of
HDFC in the CBoP, which is 23.38% is projected to fall to about 19% on
completion of the deal.Another important concern that rises with such
mergers is the question of blending the two distinct and diverse styles of
functioning and ensuring a smooth transition to a new work culture,
absorbing the strengths of both the merging companies. It is a meticulous
task to ensure that the fundamental ways of working and the ideology of the
two companies supplement the growth of each other rather than leaving any
one of the potential organizations obsolete.

 This merger has come after a series of activities marking an eventful past
for CBoP, which include acquiring the Lord Krishna Bank and the Bank of
Punjab. As the CBoP stands at a new dawn, we wish it brings some reason
to rejoice for the shareholders that have stood through its history of highs
and lows.

EFFECT OF MERGER AND

ACQUISITION OF HDFC AND CBOP

 HDFC Bank's ability to grow at over 30 per cent annually in the last nine
years, along with superior credit risk management practices, which have
helped it maintain asset quality, would ensure that it will be among the least
affected in a slowdown.

 The bank's focus on technology and superior margins with support from
low-cost deposits will ensure profitable growth in the future.

 The merger of retail focused-Centurion Bank of Punjab (CBOP) with

HDFC Bank [Get Quote] effective May 23, 2008, will shore up revenues in
the medium-term. However, the synergies from the merger with start
reflecting over 12-24 months, and boost profitability. Put together, the gains
from organic and inorganic initiatives will help the bank sustain growth rates
in excess of its historical average of 29-30 per cent, and in a profitable
manner.

POST-MERGER

 The inherent synergies of HDFC Bank and CBOP in their retail focus
was the driver for the merger, which added around 400 branches to HDFC
Banks' branch strength of 760 (as on March 2008) along with a 15-20 per
cent increase in the asset base to more than Rs1.7 lakh crore. While the
merger has helped increase the size of HDFC Bank, it has also led to some
pressure on key ratios (see Merger Effects) for the combined entity; CBoP
ratios were lower than that of HDFC Bank. The next pertinent question is
the pace of integration, and how fast HDFC Bank can ramp up efficiency
levels of CBOP to its own benchmarks.

 The integration plan is on schedule. The re-branding of CBOP was

completed in May itself; training processes to assign all the employees of
CBOP in their new roles is marching ahead with almost 90 per cent of the
people retrained. With regards the systems, treasury, wholesale banking and
retail loan segments, they have already been integrated with HDFC's
platform, while the overall retail banking is expected to be completed in the
next two months.