Merger and Acquisition of Hdfc and Cbop

MERGER & ACQUISITION OF HDFC & CBOP

TERM PAPER : (Term 2 ) TOPIC : MERGER AND ACQUISITION OF HDFC AND CBOP SUBJECT : STRATEGIC MANAGEMENT SUBMITTED BY : PANKAJ SINGH (B51) Roll no : RRB51 SUBJECT : MGT 612 SECTION : RR1904 SUBMITED TO : MISS. NEHA

Lovely School of Business…. Date: 14/11/2010

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MERGER & ACQUISITION OF HDFC & CBOP

ACKNOWLEDGEMENT

I take this opportunity to present my votes of thanks to all those guidepost who really acted as lightening pillars to enlighten our way throughout this project that has led to successful and satisfactory completion of this study.

I am highly thankful to MISS. MISS. NEHA for her active support, valuable time and advice, wholehearted guidance, sincere cooperation and pains-taking involvement during the study and in completing the assignment of preparing the said paper within the time stipulated.

Without the active participation of our teachers it would have been extremely difficult for me to prepare the project in a time bound framework.

Name: PANKAJ SINGH Regd.No: 10907098 Rollno: RRB51 Sec: RR1904

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MERGER & ACQUISITION OF HDFC & CBOP MERGER AND ACQUISITION

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 management control of a larger or longer establish established ed 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

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MERGER & ACQUISITION OF HDFC & CBOP entity.

Mergers and acquisitions (M&A) (M&A) and corporate restructuri restructuring ng are a big part of the corporate corporate finance finance world. Every day, Wall Street investment investment bankers bankers arrange arrange M&A transactions, transactions, which   bring bring separa separate te compan companies ies togeth together er to form form larger larger ones. ones. When When they'r they'ree not creati creating ng big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or  trackin tracking g stocks. Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a 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 transactions; they happen all the time. Next time you flip open the newspaper’s  business section, odds are good that at least one headline will announce some kind of M&A transaction.

Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this question, this tutorial discusses the forces that drive companies to buy or merge with others, or  to split-off or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you'll 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.

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MERG MERGER ERS S - A merger is a combination of two companies into one larger 

company, which involves stock swap or cash payment to the target.

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When one one comp compan any y take takess over over anot anothe herr and and clea clearl rly y ACQU ACQUIS ISIT ITIO ION N - When

established itself as the new owner, the purchase is called an acquisition.

GOVERNING LAW MGT 612

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MERGER & ACQUISITION OF HDFC & CBOP The Companies Act, 1956 does not define the term 'Merger' or 'Amalgamation'. It deals with schemes of merger/acquisition which are given in s.390-394 'A', 395, 396 and 396 'A'.

CLASSIFICATIONS OF MERGERS • Horizontal merger –  is the merger of two companies which are in produce of Same

  products.This

can

be

again

classified

into

large

horizontal

merger

and

Small

horizontal merger.Horizontal merger.Horizontal merger helps to come over from the competition competition between two

companie companiess

togeth ther er stre streng ngth then enss the the comp compan any y to comp compet etee with with othe other  r  merging merging toge

companies. Horizontal merger between the small companies would not effect the industry in large. But between the larger companies will make an impact on the economy and gives

them the the monopoly monopoly over the the market. market. Horizontal Horizontal mergers

between

the

two

small

companies are common in India. When large companies merging together we need to

look into legislations which prohibit the monopoly.

• Vertical merger  –  If a merger between two companies producing different goods

or services services for one specific finished finished product. Vertical Vertical merger takes takes between the customer  and company or a company and a supplier. IN this a manufacture may merge with the distributor or supplier of its products. This makes other competitors difficult to access to an important component of product or to an important channel of distribution which are

called called

as

"vertical "vertical

foreclosure" foreclosure"

or "bottleneck "bottleneck""

problem. problem.

Vertical Vertical

merger  merger 

helps to avoid sales taxes and other marketing expenditures.

• Market-extension merger - is a merger of two companies that deal in same products in

different markets. Market extension merger helps the companies to have access to the  bigger market and bigger client base. • Product-extension merger –  takes place between the two or more companies which

sells different products but related to the same category. This type of merger  enables the new company to go in for a pooling in of their products so as to serve a

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MERGER & ACQUISITION OF HDFC & CBOP common common market market,, which which was earli earlier er fragme fragmente nted d among among them. them. This This merger merger is   between two companies that sell different, but somewhat related products, in a common market. This allows the new, larger company to pool their products and sell them with greater success to the already common market that the two separate companies shared. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits. 

Conglomeration Conglomeration - Two companies that have no common business areas. A

conglomeration is the merger of two companies that have no related products or  markets. In short, they have no common business ties. Conglomerate merger in which merging firms are not competitors, but use common or related production  processes and/or marketing and distribution channels. Co generic merger: Merger    between firms in the same general industry but having no Mutual buyer-seller  relationship, such as a merger between a bank and a leasing company.

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this kind kind of merg merger er occu occurs rs when when one compan company y Purch Purchase ase merge mergers rs - this

 purchases  purchases another. another. The purchase The  purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can  be written-up to the actual purchase price, and the difference between the book  value and the purchase price of the assets can depreciate annually, reducing taxes  payable by the acquiring company. 

Consolidation mergers - With this merger, a brand new company is formed

and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger. A unique type of merger called a reverse merger is used as a way of going public without the expense and time required by an IPO. Accretive mergers are those in which an acquiring company's earnings per  share (EPS) increase. An alternative way of calculating this is if a company with a

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MERGER & ACQUISITION OF HDFC & CBOP high price to earnings ratio (P/E) acquires one with a low P/E

RESEARCH METHODOLOGY

OBJECTIVES 1. To study study the the merger merger and acquis acquisitio itions ns in the the banking banking sector. sector. 2. To study study the the risk risk involve involved d in merger and acqui acquisitio sition. n. 3. To study study the the benefits benefits of merger merger and and acquis acquisition ition of HDFC AND CBOP.

LIMITATION OF THE STUDY The analysis is purely based on the secondary data. So, any error in the secondary data might also affect the study.

SIGNIFICANCE OF THE STUDY The study which I have under taken is significant and useful as it has given me an experience and knowledge about the recent merger and acquisitions in banking sector and what was its impact on the performance p erformance of the company.

DATA COLLECTION MGT 612

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MERGER & ACQUISITION OF HDFC & CBOP The data’s which is collected from various secondary seconda ry sources like internet, journals and other   publications.

REVIEW OF LITERATURE 1.

AN EXAMINATION OF BANK SECTOR

This article helps to discuss various regulations which are faced by banks in order to enter the merger and acquisition phase. In the banking sector, market entry is generally governed by a specific banking regulator .Actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to  proclaim that the action is a merger of equals, even if it is technically an acquisition.

2. CHALLENGES THE INDIAN BANKS FACE This article is about the various challenges faced by Indian banking sector. It discussed the  position of banks after merger and acquisition. It discusses the challenges such as: interest rates risk, credit risk by private private banks. The first mega merger in the Indian banking sector that of the

HDFC Bank with Times Bank, has created an entity which is the largest private sector bank in the country.

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MERGER & ACQUISITION OF HDFC & CBOP 3. MOTI MOTIVE VES S FOR FOR MERG MERGER ERS S AND AND ACQU ACQUIS ISIT ITIO IONS NS IN THE THE INDIAN BANKING SECTOR - A NOTE ON OPPORTUNITIES & IMPERATIVES Recent reports on banking sector often indicate that India is slowly but surely moving from a regime of 'large number of small banks' to 'small number of large banks'. The aim of this paper is to probe into the various motivations for mergers and acquisitions in the Indian Banking sector. Thus, Thus, liter literatu ature re is review reviewed ed to look look into into the variou variouss motiva motivatio tions ns behind behind a banks' banks' merger merger// acquisition event. Given the increasing role of the economic power in the turf war of nations, the  paper  paper looks at the signific significant ant role role of the state and the central central bank in protec protectin ting g custom customer' er'ss intere interests sts vis-àvis-à-vis vis creati creating ng player playerss of intern internati ational onal size. size. While, While, gazing gazing at the merger mergerss & acquis acquisiti itions ons in the Indian Indian Bankin Banking g Sector Sector both both from from an opportu opportunit nity y and as impera imperativ tivee  perspectives, the paper also glances at the large implications for the nation.

MERGERS AND ACQUISITIONS - THE INDIAN BANKING SCENARIO

This article studies M&A activities in the Indian banking sector and says that even though the objective of present bank mergers is to place the weak banks in safe hands, the future mergers will focus more on strategic issues like increasing geographical reach and improving product mix.

M&AS IN THE INDIAN BANKING SECTOR - STRATEGIC AND FINANCIAL IMPLICATIONS Like all business entities, banks want to safeguard against risks, as well as exploit available opportunities indicated by existing and expected trends. M&As in the banking sector have been on the rise in the recent past, both globally and in India. In this backdrop of emerging global and Indian trends in the banking sector, this article illuminates the key issues surrounding M&As in this sector with the focus on India. It seeks to explain the motives behind some M&As that have occurred in India post-2000, analyse the benefits and costs to both parties involved and the

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MERGER & ACQUISITION OF HDFC & CBOP consequences for the merged entity. A look at the future of the Indian banking sector, and some key recommendations for banks, follow from this analysis.

DISTINCTION BETWEEN MERGERS AND ACQUISITIONS Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over  another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist,the buyer "swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated.

This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered surrendered and new company stock is issued issued in its place. For example, both Daimler-Benz Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to  proclaim that the action is a merger of equals, even if it's technically an acquisition. Being  bought out often carries negative connotations, co nnotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of  their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's  board of directors, employees and shareholders shareholders..

MERGERS AND ACQUISITIONS IN INDIA Merger and acquisitions are on the rise. Volume of mergers and acquisitions in India in MGT 612

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MERGER & ACQUISITION OF HDFC & CBOP 2007 are expected to grow two fold from 2006 and four times compared to 2005. India has emerged as one of the top countries with respect to merger and acquisition deals. In 2007, the first two months alone accounted for merger and acquisition deals worth $40 billion in India. The estimated figures for the entire year projected a total of more than $ 100 billion worth of mergers and acquisitions in India. This is twofold growth from 2006 and a growth of almost four times from 2005.

MERGERS AND ACQUISITIONS IN DIFFERENT SECTORS IN INDIA Sector wise, large volumes of mergers and mergers and acquisitions in India have occurred in

finance,, telecom finance telecom,, FMCG, FMCG, constr construct uction ion materi materials als,, automo automotiv tives es and metals metals.. In 2005

finance topped the list with 20% of total value of mergers and acquisitions in India taking  place in this sector. Telecom accounted accounted for 16%, while while FMCG and constructi construction on materials materials accounted for 13% and 10% respectively. In the   banking sector, important mergers and acqu acquis isit itio ions ns in Indi Indiaa in rece recent nt year yearss incl include ude the the merg merger er betw betwee een n

IDBI (Indus (Industria triall

Development bank of India) and its own subsidiary IDBI Bank. The deal was worth $ 174.6 million (Rs. 7.6 billion in Indian currency). Another important merger was that between Centur Centurion ion Bank Bank and Bank Bank of Punjab Punjab.. Worth Worth $82 $82.1 .1 millio million n (Rs. (Rs. 3.6 billio billion n in Indian Indian curren currency) cy),, this this merger merger led to the creation creation of the Centurio Centurion n Bank Bank of Punjab Punjab with with 235  branches in different regions of India.

In the telecom sector, an increase of stakes by SingTel from 26.96 % to 32.8 % in Bharti Telecom was worth $252 million (Rs. 10.9 billion in Indian currency). In the Foods and FMCG sector a controlling stake of Shaw Wallace and Company was acquired by United Breweries Group owned by Vijay Mallya. This deal was worth $371.6 million (Rs. 16.2  billion in Indian currency). Another important one in this sector, worth $48.2 million (Rs 2.1 billion in Indian currency) was the acquisition of 90% stake in Williamson Tea Assam  by McLeod Russell India In construction materials 67 % stake in Ambuja Cement India Ltd was acquired by Holmic, a Swiss company for $634.9 million (Rs 27.3 billion in Indian

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MERGER & ACQUISITION OF HDFC & CBOP currency).

HDFC Bank acquired Centurion Bank of Punjab

HDFC BANK OVERVIEW

HDFC Bank Ltd is a major Indian major Indian financial services company based in India, India, incorporated in August 1994, after the Reserve Bank of India allowed establishing private sector banks. The Bank was promoted by the Housing Housing Development Development Finance Finance Corporation 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  MGT 612

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MERGER & ACQUISITION OF HDFC & CBOP 2008-09, 2008-09, the bank has reported net profit profit of  2,244.9 crore (US$ (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$ (US$ 4.45 billion) in 2008-09.

HISTORY OF HDFC BANK 

HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation Limited (HDFC), (HDFC), India's largest housing finance company. It was among the first companies to receive receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. sector. The Bank started operations operations as a scheduled scheduled commercial bank in January 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.

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MERGER & ACQUISITION OF HDFC & CBOP WHOLESALE BANKING SERVICES

The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corp to small & mid-sized corporates and agri-based businesses. For these customers, the Bank    provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor  and distri distribut butor or finance finance for facil facilita itati ting ng superi superior or supply supply chain chain manage management ment for its its corpor corporate ate customers. HDFC Bank has made significant inroads into the banking consortia of a number of  leadin leading g Indian Indian corpor corporate atess includ including ing multi multinati nationa onals, ls, compan companies ies from from the domest domestic ic busine business ss houses hou ses and prime prime public public sector sector companies companies.. It is recogni recognized zed as a leadin leading g provid provider er of cash cash management and transactional banking solutions to corporate customers, mutual funds, stock  exchange members and banks. RETAIL BANKING SERVICES

The objective of the Retail Bank Ban k is to provide its target market customers a full range of financial  products and banking services, giving the customer a one-stop window for all his/her banking requir requireme ements nts.. The produc products ts are backed backed by worldworld-cla class ss servic servicee and delive delivered red to custom customers ers throug through h the growin growing g branch branch networ network, k, as well well as through through altern alternati ative ve delive delivery ry channel channelss like like ATMs, Phone Banking, NetBanking and Mobile Banking.]] [[HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2009, the bank had a total card base (debit and credit cards) of over 13 million. The Bank is also one of the leading players in the “merchant acquiring” business with over  70,00 70,000 0 Point Point-o -off-sa sale le (POS (POS)) term termin inal alss for for debi debitt / credi creditt cards cards accep accepta tance nce at merc merchan hantt establishments.]] The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.

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MERGER & ACQUISITION OF HDFC & CBOP TREASURY

Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. These services are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is requir required ed to hold hold 25% of its deposits deposits in gov govern ernmen mentt securi securiti ties. es. The Treasu Treasury ry busine business ss is responsible for managing the returns and market risk on this investment portfolio.

MERGER AND ACQUISITION OF HDFC AND CBOP

CENTURION BANK OF PUNJAB The Centurion Bank of Punjab (formerly Centurion Bank ) was an Indian private-sector bank  that provided retail and corporate banking ban king services. It operated on a strong nationwide n ationwide franchise of 403 branches and had over 5,000 employees. The Bank's shares were listed on the major  Indian stock exchangesand on the Luxembourg Stock Exchange. MGT 612

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MERGER & ACQUISITION OF HDFC & CBOP On 23 May 2008 HDFC Bank acquired 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 Corpor Corporat atio ion n and and its its asso associ ciat ates es and and Keppe Keppell Grou Group p of Sing Singapo apore re thro through ugh Kephi Kephina nance nce 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.

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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 Kochi-based Lord Krishna Bank. Lord Krishna

Bank had been established at Kodungallur in Kodungallur in Thrissur District,Kerala 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 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 2008 afte afterr the the prin princi cipa pall shar shareh ehol olde ders rs of CBoP CBoP – Bank Bank Mu Musc scat at with with 14.0 14.02 2 per per cent cent

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MERGER & ACQUISITION OF HDFC & CBOP stake, Sabre Capital with 3.48 per cent stake and Kephinance Investment (Mauritius) with 6.13  per cent — decided to exit.

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 would also also be ensuri ensuring ng compli compliance ance with with the statut statutory ory procedu procedures res for notify notifying ing the amalgamation after obtaining the sanction of the RBI.

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Before Before deciding deciding on the merger, merger, the the authorized authorized offici officials als of the the acquiring 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.

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Once Once the the schem schemee is fina finali lize zed, d, it is tabl tabled ed in the the meet meetin ing g of Board Board of dire direct ctor orss 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.

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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.

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After the board approval of the merger proposal, a registered valuer is appointed to valu valuat atee both both the the banks banks.. Th Thee valu valuer er valua valuate tess the the banks banks on the the basi basiss of its its shar sharee capital,market capital, assets and liabilities, its reach and anticipated growth and sends its report to the respective banks.

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Once the valuation is accepted by the respective banks , they send the proposal along

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MERGER & ACQUISITION OF HDFC & CBOP with all relevant documents such as Board approval, shareholders approval, valuation report etc to Reserve Bank of India and other regulatory bodies such Security Secu rity & exchange  board of India ( SEBI) for their approval. 

After obtaining approvals from all the concerned institutions, authorized officials of both the banks banks sit together together and discus discusss and finali finalize ze share share alloca allocatio tion n propor proportio tion n by the acquiring bank to the shareholders of the merging bank ( SWAP ratio)

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After completion of the above procedures , a merger and acquisition agreement is signed  by the bank.

HR Issues in Mergers & Acquisitions People issues like staffing decision, organizational design, etc., are most sensitive issues in case of M&A negotiations, but it has been found that these issues are often being overlooked. 

Before the new organization is formed, goals are established, efficiencies projected and opportunities appraised as staff, technology, products, services and know-how are combined.

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But what happens to the employees of the two companies? How will they adjust to the new corporate environment? Will some choose to leave?

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When a merger is announced, company employees become concerned about job security and rumors start flying creating an atmosphere of confusion, and uncertainty about change.

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Roles, behaviors and attitudes of managers affect employees' adjustment to M&A.

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Multiple waves of anxiety and culture clashes are most common causes of merger failure.

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HR plays an important role in anticipating and reducing the impact of these cultural clashes.

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MERGER & ACQUISITION OF HDFC & CBOP 

Lack of communication leads to suspicion, demoralization, loss of key personnel and  business even before the contract has been signed.

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Gaining emotional and intellectual buy-in from the staff is not easy, and so the employees need to know why merger is happening so that they can work out options for themselves.

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Major stress on the accompany merger activity are: * Power status and prestige changes * Loss of identity * Uncertainty

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Unequal compensation may become issue of contention among new co-workers.

HIGHLIGHT THE MERGER- HDFC AND CENTURION BANK OF PUNJAB 1) HDFC bank is is merged merged with Centurion Centurion Bank Bank of punjab 2) New enti entity ty is named named as “HDF “HDFC C bank itse itself” lf”.. 3) The merger merger will strengthe strengthen n HDFC Bank's distri distributio bution n network in the northern northern and the 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

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MERGER & ACQUISITION OF HDFC & CBOP into int o var variou iouss odd sit situat uation ionss whi which ch dem demand and spon spontan taneous eous,, imp improm romptu ptu dec decisi isions ons 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  prin cipal shareholders 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.

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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.

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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  functi fun ctioni oning ng and ens ensuri uring ng a smo smooth oth tr trans ansiti ition on to a new wor work k cul cultur ture, e, abs absorb orbing ing 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.

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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.

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MERGER & ACQUISITION OF HDFC & CBOP

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 qual qualit ity, y, woul would d ensu ensure re that that it will will be amon among g the the leas leastt affe affect cted ed in a slow slowdo down wn..

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The bank's bank's focus focus on technol technology ogy and superi superior or margin marginss with with suppor supportt from from low-co low-cost st deposits will ensure profitable growth in the future.

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The merger of retail focused-Centurion Bank of Punjab (CBOP) with HDFC Bank [Get [Get Quote] Quote] effective May 23, 2008, will shore up revenues in the medium-term. However, the syne synerg rgie iess from from the the merg merger er with with star startt refl reflec ecti ting ng over over 12-2 12-24 4 mont months hs,, and and boos boostt  profitabi  profitability lity.. Put together, the gains from organic and inorganic inorganic initiatives 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 Rs 1.7 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.

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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

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MERGER & ACQUISITION OF HDFC & CBOP 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.

MERGER EFFECTS Rs crore

Net Int. Income

CBOP ** 9 Mths 50 5

HDFC Bank** 9 Mths 3,586

Standalone FY 08 5,228

Post-merger  H1 FY09 3,590

Other Income

459

1,734

2,283

1,237

Net Profit

123

1,119

1,590

9 92

Cost/income (%)

63.0

49.7

49.9

55.4

NIM (%)

3.6

4.3

4.4

4.2

CASA (%)

24.5

50.9

55

44.0

Net NPA (%)

1.7

0.4

0.5

0.6

CAR (%)

11.5

13.8

13.6

11.4

The actual benefits will start to filter in the next 12-24 months, with improved productivity in terms of net revenue (net interest income and other income) and CASA (the ratio of low cost deposits to total deposits) growth of CBoP branches on par with HDFC outlets. But before that to happen, HDFC bank will have to shoulder the pressure in the medium-term. For instance, on the efficiency front, the cost to income ratio has also increased from 50 per cent in March, 2008 to around 55 per cent in Q2 FY09 on the back of higher employee costs and integration costs, post the merger. The integration of the two banks' technology-based platforms is expected to be completed by the end of this fiscal, and will improve the cost efficiencies going forward. Likewise, the capital adequacy ratio (CAR) dropped to 11.4 per cent in Q2 FY09; this can  partially  partially be attributed attributed to the merger blues and also organic growth of loan book. However, it is comfortably above the regulatory requirement of 9 per cent. Notably, CAR will improve and  provide capital for future growth, if the promoters exercise their right to convert warrants and

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MERGER & ACQUISITION OF HDFC & CBOP infuse Rs 3,500 crore (warrants already issued, conversion price of Rs 1,500 per share, deadline is December 2009).

Bibliography Books

1. Merger and acquisition :- C.H.Rajeshwar 

Paper  The Economics times

WEB 

www.wikipedia/acquisition.com

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MERGER & ACQUISITION OF HDFC & CBOP 

www.smartmanagementonl www.smartmanagementonline.com/Magazin ine.com/Magazines/Articles/Merger es/Articles/Mergers%20and s%20and %20Acquisitions/IPMA0025.htm

 

 International Review of Business Research Papers Vol. 4 No.1 January 2008



http://www.rediff.com/money/2005/feb/17guest.htm

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www.smartmanagementonline.com/Magazines/Articles/Mergers%20and %20Acquisitions/IPMA0025.htm



http://tejas-iimb.org/articles/01.php



http://www.rediff.com/money/2008 http://www.rediff.com/money/2008/nov/24bcrisis-why /nov/24bcrisis-why-hdfc-bank-will-not-b -hdfc-bank-will-not-beehit.htm

JOURNALS

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papers.ssrn.com/sol3/papers.cfm?abstract_id=1008717

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papers.ssrn.com/sol3/papers.cfm?abstract_id=1008717

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