Project Report on mergers and acquisitions

ACKNOWLEDGEMENTS This project has come to fruition though the guidance of esteemed guidance of my mentors Mr. V.P. Jain and Ms. Jyoti Sindhu. I express my special thanks thanks to them them for for their their sup suppor portt in select selection ion of the topic and their insightf insightful ul comments and suggestions on earlier drafts that were reised and improed under  their guidance. I take this opportunity to thank my teachers who shared with me their alua!le knowledge.  This is an outcome of unparalleled infrastructural support that I hae receied from the Sri Venkateswara "ollege li!rary staff and I"T #a! staff.  I deeply alue your guidance.

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ACKNOWLEDGEMENTS This project has come to fruition though the guidance of esteemed guidance of my mentors Mr. V.P. Jain and Ms. Jyoti Sindhu. I express my special thanks thanks to them them for for their their sup suppor portt in select selection ion of the topic and their insightf insightful ul comments and suggestions on earlier drafts that were reised and improed under  their guidance. I take this opportunity to thank my teachers who shared with me their alua!le knowledge.  This is an outcome of unparalleled infrastructural support that I hae receied from the Sri Venkateswara "ollege li!rary staff and I"T #a! staff.  I deeply alue your guidance.

CONTENTS 2|Page

ACKNOWLEDGEMENTS.... ACKNOWLEDGEMENTS............... ....................... ....................................................2 ........................................2 CONTENTS.............. CONTENTS......................... ...................... ....................... ........................................................2 ............................................2 INTRODUCTION......... INTRODUCTION..................... ....................... ....................... .................................................. ......................................5 5 OBJECTIVE.............. OBJECTIVE.......................... ....................... ....................... ....................... .......................................... ...............................7 7 CONCEPTUAL CONCEPTUAL FRAMEWORK............ FRAMEWORK........................ ....................... ..................................7 .......................7 MOTIVES BEHIND MERGER AND ACQUISITIONS............ ACQUISITIONS...............11 ...11 IMPACT OF M&AS.............................................................................14 CASE STUD................ STUD........................... ....................... ....................... ................................................21 .....................................21 CONCLUSION.......... CONCLUSION...................... ....................... ....................... ....................................................2! ........................................2! REFERENCES........... REFERENCES....................... ....................... ...................... ................................................... ........................................ 27

INTRODUCTION

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$n entrepreneur may grow its !usiness either !y internal expansion or !y external expansion. In case of internal expansion a firm grows gradually oer time% through ac&uisition of new assets% replacement of the technologically o!solete e&uipments etc. 'ut in external expansion% a firm ac&uires a running !usiness and grows oernight through corporate com!inations. These com!inations are often in the form mergers% ac&uisitions% amalgamations and takeoers.

Mergers and

$c&uisitions are now a critical part of the fa!ric of doing !usiness and are deeply ingrained in the !usiness strategy world oer. The glo!al financial serices industry has also experienced merger waes mainly due to seere competition which puts focus on economies of scale% cost efficiency% and profita!ility and the (too !ig to fail) principle followed !y the authorities. This project aims to study the impact of M*$s on the Indian !anking industry. +uring the last two decades% the Indian !anking sector has undergone a metamorphic change following the economic reform process initiated !y the ,oernment of India. The forces of glo!ali-ation% deregulation and li!erali-ation unleashed !y the economic reforms% set in motion in //% hae transformed the face of the Indian financial serices sector landscape % including that of the Indian  !anking sector in a !ig way. There has !een a paradigm shift from a regulated to a deregulated enironment. The economic li!erali-ation and deregulation measures initiated in the //0s hae opened up the doors to foreign competition and made the markets more efficient and competitie. "ontinuous innoation and keeping pace with technological change hae !ecome a must for surial of the firms in the financial serices industry including the !anking sector. The deelopments in the

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Indian !anking sector hae witnessed &uite a few mergers and ac&uisitions 1M*$ s2. The 3arsimham "ommittee report in $ugust // highlighted the need for  financial sector reforms and fostering competitie spirit in the Indian !anking sector. In //4% a second committee was set 1under M. 3arsimham2 to specifically suggested mergers among strong !anks !oth in the pu!lic and priate sectors. Since the onset of reforms in //0% according to 5'I report% 66 !ank amalgamations% hae taken place in India 1up to 60042. 7hile% the amalgamations of Indian !anks were mostly drien !y weak financials% in the post /// period there hae !een mergers  !etween healthy !anks prompted !y !usiness and commercial considerations.

OBJECTIVE The main o!jectie of the project is to 1. Proide a clear understanding of the concepts of mergers and ac&uisitions 2. $naly-e their impact on • Performance of !usiness • Shareholders • 8mployees • "ustomers ". $naly-e the impact of !ank mergers through a case study

CONCEPTUAL FRAMEWORK

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C#$%'( )$* D+,$,(,#$ MERGER  $ merger can !e defined as the fusion or the a!sorption of one company !y another. It may also !e understood as an arrangement9 there!y the assets of two or  more companies get transferred to or come under the control of one company. In common practice% in merger one of the two existing companies merges its identity into another existing company or one or more existing companies may form a new company and merge their identities into a new company !y transferring their   !usiness and undertakings including all assets and lia!ilities to the new company. The shareholders of the company whose identity has !een merged are then issued as the shares in the capital of the company merged. $malgamation legal process !y which two or more companies are joined together to form a new entity or one or more companies are to !e a!sor!ed or   !lended with another and as a conse&uence the amalgamating company loses its existence and its shareholders !ecome the shareholders of the new company or the amalgamated company. The word amalgamation or merger is not defined anywhere under the companies act /:;. of the Income Tax $ct% /; defines amalgamation as follows? “Amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or  which is formed as a result of the merger, as the amalgamated company) in such a manner that6|Page

i.

all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company

ii.

by virtue of the amalgamation; all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company

iii.

by virtue of the amalgamation; shareholders holding not less than three fourths in value of the shares in the amalgamating company or companies(other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary ) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acuisition of the property of one company by another company  pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first mention company;

!therwise, then as a result of acuisition of a property of one company by another  company pursuant to the purchase of property by another company or as a result of  distribution of such property to the other company after the winding up of the first  mentioned company.

ACQUISITION $n ac&uisition usually refers to a purchase of a smaller firm !y a larger one. $c&uisition% also known as a takeoer or a !uyout% is the !uying of one company !y another. $c&uisitions or takeoers occur !etween the !idding company and the 7|Page

target company. There may !e either hostile or friendly takeoers. $c&uisition in general sense is ac&uiring the ownership in the property. In the context of !usiness com!inations% an ac&uisition is the purchase !y one company of a controlling interest in the share capital% or the all or su!stantially all of the assets and@or  lia!ilities% of another company. $ takeoer may !e friendly or hostile% depending on the offeror companyAs approach% and may !e affected through agreements !etween the offeror and the majority shareholders% purchase of shares from the open market% or !y making an offer for ac&uisition of the offeree shares to the entire !ody of  shareholders.

DIFFERENCE BETWEEN MERGER AND ACQUISITION The difference !etween Merger and $c&uisitions is su!tle. In case of a merger% two firms% together% form a new company. $fter merger% the separately owned companies !ecome jointly owned and get a new single identity. 7hen two firms get merged% stocks of !oth the concerns are surrendered and new stocks in the name of new merged company are issued. ,enerally% Mergers take place !etween two companies of more or less of the same si-e. In these cases% the process is called Merger of 8&uals.

'ut% in case of $c&uisition% one firm takes oer another and esta!lishes its power as the single owner.