PROJECT REPORT ONMergersBACHELOR OF MANAGEMENT STUDIESSEMESTER V2012-2013IN PARTIAL FULFILLMENT OF RECRUITMENT BACHELOR OF MANAGEMENT STUDIES

SUBMITTED BY:HARDIK J. SHETTYROLL NO: 62

(S.M. Shetty College Of Science, Commerce & Management Studies, Powai)

CERTIFICATE

(2012 2013)Date:-Place: - MumbaiThis is to certify that Mr. Hardik J. Shetty of Bachealor of Management Studies Semester V (2012-2013) has successfully completed the project on (Mergers) under the guidance of Prof. Mrs. Komal Tiwari.

Project Guide: Mrs komal Tiwari Principal: Dr Shridhara Shetty

Course Co-ordinator: Mrs Shurly TiwariInternal ExaminerExternal Examiner

DECLARATION

Date:-

I the undersigned Mrs Komal Tiwari have guided Mr Hardik J. Shetty for his project; he has completed the project (Mergers) successfully.

I hereby declare that the information provided in this project is true as per the best of my knowledge.

Thanking you,

Yours Faithfully

Prof. Mrs Komal Tiwari.

Acknowledgment

At the outset, I would like to thank Almighty GOD for his shower of blessings. The desire of completing this dissertation was given by my guide Prof. Mrs Komal Tiwari I am very much thankful to her for the guidance, support and for sparing her precious time from a busy and hectic schedule.

I am thankful to Mr. Shridhara Shetty, Principal of S.M. Shetty College Of Science, Commerce & Management Studies. My sincere thanks to our co-coordinator Prof.Mrs Shurly Tiwari who always motivated me and provided a helping hand for conceiving higher education. I would fail in my duty if I dont thank my parents and sister who are pillars of my life and my friends who have always supported and motivated me. Finally, I would express my gratitude to all those persons who directly and indirectly helped me in completing my dissertation.

Hardik J. Shetty [Roll No 62]

EXECUTIVE SUMMARY

Merger is a combination of two or more companies into one company. The acquiring company,(also referred to as the amalgamated company or the merged company) acquires the assets and the liabilities of the target company (or amalgamating company).

Typically, shareholders of the amalgating company get shares of the amalgamated company in exchange for their shares in the Target Company.

There are two ways which company can grow; one is internal growth and the other one is external growth.

The internal growth suffers from drawbacks like the problem of raising adequate finances, longer implementation time of the projects, uncertain etc. in order to overcome these problems a company can grow externally by acquiring the already existing business firms.

This is the route of mergers and acquisition.

INDEXSr no.TopicPage no.

Preface

1Introduction7

2Types of Mergers12

3Advantages14

4Procedures19

5Mergers in banking sector25

6Case Study

38

Conclusion

Bibliography/Wibliography

Introduction to Mergers and Acquisition

We have been learning about the companies coming together to from another company and companies taking over the existing companies to expand their business. With recession taking toll of many Indian businesses and the feeling of insecurity surging over our businessmen, it is not surprising when we hear about the immense numbers of corporate restructurings taking place, especially in the last couple of years. Several companies have been taken over and several have undergone internal restructuring, whereas certain companies in the same field of business have found it beneficial to merge together into one company. In this context, it would be essential for us to understand what corporate restructuring and mergers and acquisitions are all about. The phrase mergers and acquisitions (abbreviated 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

Thus important issues both for business decision and public policy formulation have been raised. No firm is regarded safe from a takeover possibility.On the more positive side Mergers & Acquisitions may be critical for the healthy expansion and growth of the firm. Successful entry into new product and geographical markets may require Mergers & Acquisitions at some stage in the firm's development. Successful competition in international markets may depend on capabilities obtained in a timely and efficient fashion through Mergers & Acquisition's. Many have argued that mergers increase value and efficiency and move resources to their highest and best uses, thereby increasing shareholder value. To opt for a merger or not is a complex affair, especially in terms of the technicalities involved. We have discussed almost all factors that the management may have to look into before going for merger. Considerable amount of brainstorming would be required by the managements to reach a conclusion. e.g. a due diligence report would clearly identify the status of the company in respect of the financial position along with the net worth and pending legal matters and details about various contingent liabilities. Decision has to be taken after having discussed the pros & cons of the proposed merger & the impact of the same on the business, administrative costs benefits, addition to shareholders' value, tax implications including stamp duty and last but not the least also on the employees of the Transferor or Transferee Company.

WHAT IS MERGER ?Merger is defined as combination of two or more companies into a single company where one survives and the others 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 identity, 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

Merger waves

The economic history has been divided intoMerger Wavesbased on the merger activities in the business world as:

PeriodNameFacet

18971904First WaveHorizontal mergers

19161929Second WaveVertical mergers

19651969Third WaveDiversified conglomerate mergers

19811989Fourth WaveCongeneric mergers; Hostile takeovers; Corporate Raiding

19922000Fifth WaveCross-border mergers

20032008Sixth WaveShareholder Activism, Private Equity, LBO

Purpose of Mergers & AcquisitionsThe purpose for an offeror company for acquiring another company shall be reflected in the corporate objectives. It has to decide the specific 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 resources2.To standardize product specifications, improvement of quality of product, expanding3.Market and aiming at consumers satisfaction through strengthening after sale Services4.To obtain improved production technology and know-how from the offered company5.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 offeree;3.To obtain new product for diversification or substitution of existing products 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 offeree company.6.Strategic control of patents and copyrights.

(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)

(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 developmental plans:The purpose of acquisition is backed by the offeror 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 expand 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 view the merger to achieve strategic objectives through alternative type of combinations which may be horizontal, vertical, product expansion, market extensional or other specified unrelated objectives depending upon the corporate strategies. Thus, various types of combinations distinct with each other in nature are adopted to pursue this 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 takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations. The combining corporate aim at circular combinations by pursuing this objective.

Types of MergersMerger or acquisition depends upon the purpose of the offeror company it wants to achieve. Based on the offerors objectives profile, combinations could be vertical, horizontal, circular and conglomeratic as precisely described below with reference to the purpose in view of the offeror company.

(A) Vertical combination:A company would like to takeover another company or seek its merger with that company to expand espousing backward integration to assimilate the resources of supply and forward integration towards market outlets. The acquiring company through merger of another unit attempts on reduction of inventories of raw material and finished goods, implements its production plans as per the objectives and economizes on working capital investments. In other words, in vertical combinations, the merging undertaking would be either a supplier or a buyer using its product as intermediary material for final production. The following main benefits accrue from the vertical combination to the acquirer company i.e.

1.It gains a strong position because of imperfect market of the intermediary products, scarcity of resources and purchased products; 2.Has control over products specifications.

(B) Horizontal combination:It is a merger of two competing firms which are at the same stage of industrial process. The acquiring firm belongs to the same industry as the target company. The mail purpose of such mergers is to obtain economies of scale in production by eliminating duplication of facilities and the operations and broadening the product line, reduction in investment in working capital, elimination in competition concentration in product, reduction in advertising costs, increase in market segments and exercise better control on market.(C) Circular combination:Companies producing distinct products seek amalgamation to share common distribution and research facilities to obtain economies by elimination of cost on duplication and promoting market enlargement. The acquiring company obtains benefits in the form of economies of resource sharing and diversification.

(D) Conglomerate combination:It is amalgamation of two companies engaged in unrelated industries like DCMand Modi Industries. The basic purpose of such amalgamations remains utilization of financial resources and enlarges debt capacity through re-organizing their financial structure so as to service the shareholders by increased leveraging and EPS, lowering average cost of capital and thereby raising present worth of the outstanding shares.

Advantages Of MergersMergers and takeovers are permanent form of combinations which vest in management complete control and provide centralized administration which are not available in combinations of holding company and its partly owned subsidiary. Shareholders in the selling company gain from the merger and takeovers as the premium offered to induce acceptance of the merger or takeover offers much more price than the book value of shares. Shareholders in the buying company gain in the long run with the growth of the company not only due to synergy but also due to boots trapping earnings .Mergers and acquisitions are caused with the support of shareholders, managers ad promoters of the combing companies. The factors, which motivate the shareholders and managers to lend support to these combinations and the resultant consequences they have to bear, are briefly noted below based on the research work by various scholars globally.

(1) From the standpoint of shareholdersInvestment made by shareholders in the companies subject to merger should enhance in value. The sale of shares from one companys shareholders to another and holding investment in shares should give rise to greater values i.e. The opportunity gains in alternative investments. Shareholders may gain from merger in different ways viz. From the gains and achievements of the company i.e. Through(a)Realization of monopoly profits;(b)Economies of scales;(c)Diversification of product line;(d)Acquisition of human assets and other resources not available otherwise;(e)Better investment opportunity in combinations.

(2)From the standpoint of managersManagers are concerned with improving operations of the company, managing the affairs of the company effectively for all round gains and growth of the company which will provide them better deals in raising their status, perks and fringe benefits. Mergers where all these things are the guaranteed outcome get support from the managers. At the same time, where managers have fear of displacement at the hands of new management in amalgamated company and also resultant depreciation from the merger then support from them becomes difficult.

(3) Promoters gainsMergers do offer to company promoters the advantage of increasing the size of their company and the financial structure and strength. They can convert a closely held and private limited company into a public company without contributing much wealth and without losing control.

(4) Benefits to general publicImpact of mergers on general public could be viewed as aspect of benefits and costs to:(a)Consumer of the product or services(b)Workers of the companies under combination(c)General public affected in general having not been user or consumer or the worker in the companies under merger plan.

(a) ConsumersThe economic gains realized from mergers are passed on to consumers in the form of lower prices and better quality of the product which directly raise their standard of living and quality of life. The balance of benefits in favour of consumers will depend upon the fact whether or not the mergers increase or decrease competitive economic and productive activity which directly affects the degree of welfare of the consumers through changes in price level, quality of products, after sales service, etc.

(b) Workers communityThe merger or acquisition of a company by a conglomerate or other acquiring company may have the effect on both the sides of increasing the welfare in the form of purchasing power and other miseries of life. Two sides of the impact as discussed by the researchers and academicians are:firstly,mergers with cash payment to shareholders provide opportunities for them to invest this money in other companies which will generate further employment and growth to uplift of the economy in general.Secondly,any restrictions placed on such mergers will decrease the growth and investment activity with corresponding decrease in employment. Both workers and communities will suffer on lessening job Opportunities, preventing the distribution of benefits resulting from diversification of production activity.

(c) General publicMergers result into centralized concentration of power. Economic power is to be understood as the ability to control prices and industries output as monopolists. Such monopolists affect social and political environment to tilt everything in their favour to maintain their power ad expand their business empire. These advances result into economic exploitation. But in a free economy a monopolist does not stay for a longer period as other companies enter into the field to reap the benefits of higher prices set in by the monopolist. This enforces competition in the market as consumers are free to substitute the alternative products. Therefore, it is difficult to generalize that mergers affect the welfare of general public adversely or favorably. Every merger of two or more companies has to be viewed from different angles in the business practices which protects the interest of the shareholders in the merging company and also serves the national purpose to add to the welfare of the employees, consumers and does not create hindrance in administration of the Government polices.

Change in scenario of Banking Sector

1.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.2.The merger of the city bank with Travelers Group and the merger of Bank of America with Nation Bank have triggered the mergers and acquisition market in the banking sector world wide.3.Europe and Japan are also on their way to restructure their financial sector thought merger and acquisitions. Merger will help banks with added money power, extended geographical reach with diversified branch Network, improved product mix, and economies of scale of operations. Merger will also help banks to reduced them borrowing cost and to spread total risk associated with the individual banks over the combined entity. Revenues of the combine entity are likely to shoot up due to more effective allocation of bank funds. ICICI Bank has initiated merger talks with Centurian Bank but due to difference arising over swap ration the merger didnt materialized. Now UTI Bank is egeing Centurian Bank. The proposed merger of UTI Bank and Centurian Bank will make them third largest private banks in terms of size and market Capitalization State Bank of India has also planned to merge seven of its associates or part of its long-term policies to regroup and consolidate its position. Some of the Indian Financial Sector players are already on their way for mergers to strengthen their existing base.4.In India mergers especially of the PSBS may be subject to technology and trade union related problem. The strong trade union may prove to be big obstacle for the PSBS mergers. Technology of the merging banks to should complement each other NPA management. Management of efficiency, cost reduction, tough competition from the market players and strengthing of the capital base of the banks are some of the problem which can be faced by the merge entities. Mergers for private sector banks will be much smoother and easier as again that of PSBS.

THE BANKING SCENARIO HAS BEEN CHANGING AT FAST PLACE. Bank traditionally just borrower and lenders, has started providing complete corporate and retail financial services to its customers1.Technology drive has benefited the customers in terms of faster improve convenient banking services and Varity of financial products to suit their requirement. Atms, Phone Banking, Net banking, Any time and Any where banking are the services which bank have started offering following the changing trend in sectors. In plastic money segment customer have also got a new option of debits cards against the earlier popular credit card. Earlier customers had to conduct their banking transaction within the restricted time frame of banking hours. Now banking hours are extended.2.Atms ,Phone banking and Net banking had enable the customer to transact as per their convince customer can now without money at any time and from any branch across country as certain their account transaction, order statements of their account and give instruction using the tally banking or on online banking services.3.Bank traditionally involve working capital financing have started offering consumer loans and housing loans. Some of the banks have started offering travel loans, as wellas many banks have started capitalizing on recent capital market boom by providing IPO finance to the investors.

Procedure of Mergers & Acquisitions Public announcement:To make a public announcement an acquirer shall follow the following procedure:

1.Appointment of merchant banker:The acquirer shall appoint a merchant banker registered as category I with SEBI to advise him on the acquisition and to make a public announcement of offer on his behalf.2.Use of media for announcement:Public announcement shall be made at least in one national English daily one Hindi daily and one regional language daily newspaper of that place where the shares of that company are listed and traded.3.Timings of announcement:Public announcement should be made within four days of finalization of negotiations or entering into any agreement or memorandum of understanding to acquire the shares or the voting rights4.Contents of announcement:Public announcement of offer is mandatory as required under the SEBI Regulations.

Procedure of Bank MergerThe 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 conditionsOnce 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

RBI Guidelines on Mergers & Acquisitions of Banks

With a view to facilitating consolidation and emergence of strong entities and providing an avenue for non disruptive exit of weak/unviable entities in the banking sector, it has been decided to frame guidelines to encourage merger/amalgamation in the sector.

Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to formulate a scheme with regard to merger and amalgamation of banks, the State Governments have incorporated in their respective Acts a provision for obtaining prior sanction in writing, of RBI for an order, inter alia, for sanctioning a scheme of amalgamation or reconstruction.

The request for merger can emanate from banks registered under the same State Act or from banks registered under the Multi State Co-operative Societies Act(Central Act) for takeover of a bank/s registered under State Act. While the State Acts specifically provide for merger of co-operative societies registered under them, the position with regard to take over of a co-operative bank registered under the State Act by a co-operative bank registered under the CENTRAL

Although there are no specific provisions in the State Acts or the Central Act for the merger of a co-operative society under the State Acts with that under the Central Act, it is felt that, if all concerned including administrators of the concerned Acts are agreeable to order merger/ amalgamation, RBI may consider proposals on merits leaving the question of compliance with relevant statutes to the administrators of the Acts. In other words, Reserve Bank will confine its examination only to financial aspects and to the interests of depositors as well as the stability of the financial system while considering such proposals

Information & Documents to be furnished by BY THE ACQUIRER OF BANKS Draft scheme of amalgamation as approved by the Board of Directors of the acquirer bank.

Copies of the reports of the valuers appointed for the determination of realizable value of assets (net of amount payable to creditors having precedence over depositors) of theacquired bank.

Information which is considered relevant for the consideration of the scheme of merger including in particular:-

A] Annual reports of each of the Banks for each of the three completed financialyears immediately preceding the proposed date for merger.

B] Financial results, if any, published by each of the Banks for any period subsequent to the financial statements prepared for the financial year immediately preceding the proposed date of merger.

C] Pro-forma combined balance sheet of the acquiring bank as it will appear consequent on the merger.

D] Computation based on such pro-forma balance sheet of the following:-

Tier I Capital Tier II Capital Risk-weighted Assets Gross and Net npas Ratio of Tier I Capital to Risk-weighted Assets Ratio of Tier II Capital to Risk-weighted Assets Ratio of Total Capital to Risk-weighted Assets Tier I Capital to Total Assets Gross and Net npas to Advances Cash Reserve Ratio Statutory Liquidity Ratio

Information certified by the values as is considered relevant to understand the net realizable value of assets of the acquired bank including in particular:-A.The method of valuation used by the valuesB.The information and documents on which the values have relied and the extent of the verification, if any, made by the values to test the accuracy of such information

C.If the values have relied upon projected information, the names and designations of the persons who have provided such information and the extent of verification, if any, made by the values in relation to such informationD.Details of the projected information on which the values have reliedE.Detailed computation of the realizable value of assets of the acquired bank.

Mergers in the Banking SectorINTRODUCTIONICICI Bank (formerly Industrial Credit and Investment Corporation of India) is India's largest private bank. ICICI Bank has total assets of aboutRs.20.05bn (end-Mar 2005), a network of over 550 branches and offices, and about1900 atms ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. ICICI Bank's equity shares are listed in India on stock exchanges atKolkata and Vadodara , the Stock Exchange ,Mumbaiand the National Stock Exchange of India Limited and its adrs are listed on the New York Stock Exchange(NYSE). During the year 2005 ICICI bank was involved as a defendant in cases of alleged criminal practices in its debt collection operations and alleged fraudulent tactics to sell its products.The industrial Credit and Investment Corporation of India Limited now known as ICICI Ltd. Was founded b the World bank, the Government of India and representatives of private industry on January 5, 1955. The objective was to encourage and assist industrial development and investment in India. Over the years, ICICI has evolved into a diversified financial institution. ICICIs principal business activities include:

Project Finance Infrastructure Finance Corporate Finance Securitization Leasing Deferred Credit Consultancy services Custodial services

The ICICI Groups draws its strength from the core competencies of its individual companies. Today, top Indian Corporate look towers ICICI as a business partner for providing solutions to their varied financial requirements. The Group also offers a gamut of personal finance solutions to individuals. To lead the financial services into the new millennium, the Group is now truly positioned as a Virtual Universal Bank. The liberalization of the Indian economy in the 1990s offered ICICI an opportunity to provide a wide range of financial services. For regulatory and strategic reasons, ICICI setup specialized subsidiaries in the areas of commercial banking, investment banking, non- banking finance, investor servicing brooking, venture capital financing and state level infrastructure financing. ICICI plans to focus on its retail finance business and expect the same to contribute up to 15-20 % of its turnover in the next five years. It is trying to change the perception that it is a corporate oriented bank. The bank hard selling its image as a retail segment bank has for the first time come up with an advertisement that addresses its products at the individual. This is to drive home the point that the bank has product and services catering to all individuals. For this purpose the network of ICICI Bank shall come into use. The parent plants to sell its products and also raise retail funds through the banking subsidiary

THE ICICI GROUP COMPRISES OF:

ICICI Bank Limited,

ICICI Securities and Finance Company Limited (ICICI Securities),

ICICI Credit Corporation Limited ( ICICI Credit),

ICICI Investors Services Limited (ICICI Services),

ICICI Venture Funds Management Limited (ICICI Venture),

ICICI international Limited,

ICICI -KINFRA Limited (I-KIN)

Mr. K.V. Kamath, CEO of ICICI Limited, has recently voiced the intentions of ICICI Limited towards banking and ICICI Bank. ICICI Limited is endeavoring to forge a closer relationship with ICICI bank. Mr. K V Kamath recently quoted in a leading daily Banking is dead. Universal banking is in offering with a whole range of financial products and services. The basic idea is for banks to do business along with banking.Bankers will have to emerge as businessmen.ICICI Bank is a focused banking company coping with the changing times of the banking industry. So it can be a lucrative target for other player in the same line of operations. However, when merged with ICICI Limited the attraction is reduced manifold considering the magnitude of operations of the ICICI limited. Of course, one would still need a bank to open letters of credit, offer guarantees, handle documentation, and maintain current account facilities etc. So banks will not superfluous. But nobody needs so many of them any more. Secondly, besides credit, a customer may also want from a bank efficient cash management, advisory services and market research on his product. Thus the importance of fee based is increasing in comparison with the fund-based income.

The pre--merger status of ICICI Bank is as follows: it had liabilities of Rs.12,073 crore, equity market capitalization of Rs.2,466 crore and equity volatility of 0.748. Working through options reasoning, we find that this share price and volatility are consistent with assets worth Rs.13,249 crore with volatility 0.15. Thus, ICICI bank had assets which are9.7% ahead of liabilities, which is roughly consistent with the spirit of the Basle Accord, and has leverage of 5.37 times

History of ICICI Bank The World bank the Government of India and representatives of Indian industry form ICICI Limited as a development finance institution to provide medium-term and long-term project financing to Indian businesses in1955

1994 ICICI establishes ICICI Bank as a subsidiary.

1999 ICICI becomes the first Indian company and the first bank or financialinstitution from non-Japan Asia to list on the NYSE

2001 ICICI acquired Bank of Madura (est.1943). Bank of Madura was a Chettiar bank, and had acquired Chettinad Mercantile Bank (est.1933) and Illanji Bank (established1904) in the1960s.

2002The Boards of Directors of ICICI and ICICI Bank approve the merger of ICICI,ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. After receiving all necessary regulatory approvals, ICICI integrates the group's financing and banking operations, both wholesale and retail, into a single.

INTRODUCTION OF BANK OF MADURAThe pre--merger status of Bank of Madura is as follows: it had liabilities of Rs.4,444 crore, equity market capitalization of Rs.100 crore and equity volatility of 0.69.Working through options reasoning, we may say that the stock market thinks that it s assets are worth Rs.4, 095 crore with a volatility of 0.02. Hence, bom is bankrupt (with assets which are Rs.350 crore behind liabilities) and has a leverage of 41 times. If we needed to bring bom up to a point where its assets were 10% ahead of liabilities, which is broadly consistent with the Basle Accord, this would require an infusion of Rs.800 crore of equity capital. How do we combine these to think of the merged entity? Assets and liabilities are additive, so the total assets of the merged entity would prove to be roughly Rs.17,345crore and the liabilities would prove to be Rs.16,517 crore. The merged entity would hence need roughly Rs.800 crore of fresh equity capital in order to come up to a point where assets were at least 10% ahead of liabilities. How can we estimate the market capitalization of the merged entity? The value of equity is the value of a call option on the assets of the merged entity. Pricing the call requires an estimate of the volatility of the merged assets, i.e. It requires knowledge of the extent to which the assets of the two banks are uncorrelated. We find that using values of the correlation coefficient ranging from 80% to 95%, the volatility of assets of the merged entity proves to be around 0.12. In this case, the valuation of the call option, i.e. An estimate of the market capitalization of the merged entity, proves to be roughlyRs.2,500 crore. This number is not far from the pre--merger market capitalisation of ICICI Bank, which was Rs.2,466 crore. Hence, we can say that on purely financial arguments, the merger is roughly neutral to ICICI Bank shareholders if bom was merged into ICICI Bank for free. Indeed, if banking regulators took their jobs more seriously,They wouldforce the shareholders of bom to walk into such a merger at a zero share price as a way of reducing The number of bankrupt banks in India by one. Such a forced-merger would be a politically easier alternative for the RBI when compared with closing down bom. The shareholders of ICICI Bank have paid a non-zero fee for bom. This reflects a hope that the products and processes of ICICI Bank will rapidly improve the value of assets of bom in order to compensate. In addition, the merged entity will have to rapidly raise roughly Rs.800 crore of equity capital to obtain a 10% buffer between assets and liabilities.

Hence, this proposed merger is a godsend for bom, which was otherwise a bankrupt entity which was headed for closure given the low probability that it would manage to raise Rs.800 crore of equity on a base of Rs.100 crore of market capitalisation. It is useful to observe that bom probably did not see things in this way, given the willingness of India's banking regulators to interminably tolerate the existence of bankrupt banks. Closure of bom would normally involve pain for bom's shareholders and workers; instead both groups will get an extremely pleasant ride if the merger goesthrough. The proposed merger is a daunting problem for ICICI Bank. It will need to rapidly find roughly Rs.800 crore in equity. If India's banking regulators were serious about capital adequacy, ICICI Bank should have to pay roughly zero to merge with bom (it is doing a favour to bom and to India's banking system); instead ICICI Bank has paid a positive price for bom. The key question that will be answered in the next two/three years is: Will ICICI Bank's superior knowledge of products and processes revitalize the assets and employees of bom, and generate shareholder value in the merged entity? ICICI's top management clearly thinks so, and it would be a very happy outcome if this did indeed happen. The proposed merger is a good thing for India's economy, since the headcount of bankrupt banks will go down by one, and there is a possibility of obtaining higher value added out of the poorly utilized assets and employees of bom. If the merger goes through, then it will reduce the say of the management team of bom in India's resource allocation, which is a good thing.

Merger of ICICI Bank with Bank of Madura The proposed merger between ICICI Bank and Bank of Madura (bom) is are markable one. The pre--merger market capitalization of ICICI Bank was roughlyRs.2500 crore while bom was at roughly Rs.100 crore. Bom is known to have a poor asset portfolio. What will the merged entity be worth? The key rationale underlying every merger is the question of synergy. Can ICICI Bank's products and technology bring new life to the 263 branches of bom? Will ICICI Bank (which has 1,700 employees) be able to overcome the 2,600 employees that bom carries, given that Indian labour law makes it troublesome and expensive to sack workers? In applying these ideas to ICICI Bank and to bom, we need to believe that the stock market effectively processes information to produce estimates of the price and volatility of the shares of both these banks. This assumption is suspect, because both securities have poor stock market liquidity. Hence, we should be cautious in interpreting the numbers shown here. There are many other aspects in which this reasoning leans on models, which are innately imperfect depictions of reality. However, these models are powerful tools for understanding the basic factors at work, and they probably convey the broad picture quite effectively. The stock of ICICI Bank may be in the limelight on the back of the proposed acquisition of Bank of Madura. Though the stock has gained sharply in the last two months after hitting a recent low of Rs 110, some upside may be left as the bank could get re-rated on account of the merger.

Existing shareholders could hold their exposures in ICICI Bank while investors with an appetite for risk could contemplate exposures despite the impressive gains of the past few months. ICICI Bank continues to be one of the better options in the banking sector at the moment and the possible merger with ICICI may well be on the back burner. The merger would pitchfork ICICI Bank as the leading private sector bank. The merger may be viewed favorably since Bank of Madura has focused strengths and reasonably good quality balance sheet. The board of directors is to meet on December 11to consider the merger. It is quite likely that the swap ratio may be fixed in a manner that holds out a good deal for the shareholders of Bank of Madura. This may also be influenced by the fact that the Bank of Madura stock has gained sharply by around 70 per cent in the past fortnight in the homestretch to the deal. As the acquisition is to be financed by issuance of stock, the rise in the market capitalization of Bank of Madura may mean a higher degree of equity issuance by ICICI Bank. But the price may well be worth paying as this is the only way that ICICI Bank may be able to get control over banks with reasonable quality balance sheets that could make a difference in the medium to long-term.Bank of Madura has assets of Rs 3,988 crore and deposits of Rs 3,395 crore as of March 2000. The fact that the bank has a capital adequacy of 15.8 per cent with shareholder funds of Rs 263 crore may mean that ICICI Bank (post-merger phase) will have more leeway to pursue growth without expanding the equity base (other than paying for the acquisition).Strong capital adequacy, a strong beachhead on the Internet arena, a revamped IT architecture, a growing retail client base through a brick-and-click strategy, and improving asset quality and earnings growth are positive features as far as ICICI Bank is concerned. Despite these factors, the share had been on a downtrend from after touching a high of Rs 271, eight months ago. The uptrend then was on the back of the announcement of its ADR issue and new technology initiatives. The subsequent downtrend was triggered by the possibility of the merger with its parent. There is continuing concern on asset quality of ICICI. It has been a stated goal of the ICICI group to go in for universal banking. It is clear that once regulatory hurdles are removed, such a possibility becomes distinctly feasible. But Given the battering that bank stock took, ICICI may now hesitate to pursue this path. Also ICICI Bank is the most visible investor-friendly face for the group in terms of returns to shareholders and it may well be maintained as a separate entity. In this backdrop, the stock may hold scope for improvement in the valuation of the stock.

The Generation Gap:-

the merger of 57 year old BOM sooth bared old generation bank with a fast growing technology say new Generation bank will help the latter and the start merger is likely to bring cheer to shareholder and bank employees of BOM and some amount of discomfort and anxiety to those of ICICI bank. The scheme of amalgamation will increase the equity bank of ICICI Bank to RS220.36 CR. ICICI Bank will issue 235.4-lakh share of RS 10 each to the shareholder of BOM. The merger entity will have an increase of a net base over RS 160 bn and deposit base of RS 131 bn.

The merged entity will have 360 branches and a similar number of ATMs across the country and also enable theICICI to serve a large customer boneof 1.2 million customers of BOM through a wider network, adding to the antoma bare to 2.7 million

Managing rural branches:ICICI major branches are in major and cities, where as BOM spreads its wings mostly in semi urban and city segments of south India. There in a task ahead lying for the merged entity to increase dramatically the business mix of rural branches of BOM. On the other hand due to Geographical location of its branches and level of competition. ICICI Bank will have a tough time to cope with.Managing software:Another task which stand on the way is technology while ICICI bank which is fully automatic.Quality of assets:-the nature of assets a bank is holding would signify its operational efficiency. Usually the level of Non performing Assets ( NPAS) judges the quality of assets. The lower the NAPS to total advances or total assets the better the quality is and vice versa.Staff productivity: -One of the key area where banks can develop competition advantage. The measurement of staff productivity becomes one of the essential factors while measuring the performance of the banksLiquidity:-While assessing the liquidity of a bank the most sought ratio is net loans to total assets. A rise in the net loans to total assets may be considered as a fall in the liquidity of the bank.Book Value per share:-It is simply the net worth of the company (which is equal to the paid up equity capital plus resource and surplus) divided by the number of outstanding equity shares.Earning per share:-specific valuation per unit of investment given by Net income after income taxes and after dividends on preferred stock of the company.

Net work:-Book value of a company is common stock, surplus, resources andretained earnings.Profitability: -the most crucial ratio in measuring the profitability is net profit of the bank. The ratio such as Net Interest Income (NIL) and Net Interest Margin (NIM)measure sustenance ability of the bank based on the spread. Entity is using the package, Banks 2000, BOM computerized 90 percent of its business and was converted with ISBS software. The BOM branches are supposed to switch over to Banks 2000. Though it is not a difficult task, with 80% computer literate staff would need effective retraining which involves a cost. The ICICI Bank need to invest RS 50 core for upgrading BOMs 263 branches.Managing Human Resources: One of the greatest challenges before ICICI Banks is managing human resources. When the head count of ICICI Bank is taken it in less than 1500 employees on the other hand BOM has over 2500.The merged entity will have bout 4000 employees which will make it one of the largest banks among the new generation private sector banks. Th staff of ICICI Banks are drawn from 75 various banks mostly young qualified professionals with computer background and prefer to work in metro or by either with good remuneration packages. While under the influence of tread unions most of the BOM employees have low career aspiration. The announcement by H.N. signor, CEO and MD of ICICI, that three would be no VRS or retrenchment, creates a new hope amongst the BOM employees. It isa tough task ahead to manage. On the other hand their pay would be revised up wards. It is not a Herevlean task to integrate two work welters?Managing Client Base:-The clients base of ICICI Bank after merger, will be as 2.7 Million from it past 0.5Million, as accumulation of 2.2 Million from BOM. The nature and quality of clients is not of uniform quality. The BOM had built up it client base for a long time, in a hard way, on the basis of personalized services. In order to deal with the BOM clientele, the ICICI Bank needs to redefine its strategies to suit to the new clientele. The sentiments or a relationship of small and medium borrower is hurt it may be difficult for them to reestablish the relationship which could also hamper the image of the bank.

Changes after the merger:-While, BOM had an attractive business per employee figure of Rs.202 lakh, a better technological edge and had a vast base in southern India when compared to Federal bank. While all these factors sound good, a cultural integration would be a tough task ahead for ICICI Bank.ICICI Bank has announced a merger with 57-year-old Bank of Madure, with 263 branches, out of which 82 of them are in rural areas, with most of them in southern India.As on the day of announcement of merger) 09-12-00), Kotak mahindra group was holding about 12 percent stake in BOM, the Chairman BOM, Mr.K.M. Thaiagarajan,along with his associates was holding about 26 percent stake, Spic groups has about 4.7 percent, while LIC and UTI were having marginal holdings. The merger will give ICICIBank a hold on South India market, which has high rate of economic development.The board of Director at ICICI has contemplated the following synergies emerging from the merger:Financial Capability:The amalgamation will enable them to have a stronger financial and operational structure, which is supposed to be capable of greater resourger/depositmobilization. And ICICI will emerge a one of the largest private sector banks in the country. Branch network:The ICICIs branch network would not only 264, but also increases geographic coverage as well as convenience to its customers.Customer base:The emerged largest customer base will enable the ICICI bank to offer banking financial services and products and also facilitate cross-selling of products and services of the ICICI groups.Tech edge:The merger will enable ICICI to provide atms, Phone and the Internet banking and finical services and products and also facilitate cross-selling of products and services of the ICICI group.Focus on Priority Sector:The enhanced branch network will enable the Bank to focus on micro-finance activities through self-help groups, in its priority sector initiatives through its acquired 87 rural and 88 semi-urban branches.

THE SWAP RATIO:The swap ratio has been approved in the ratio of 1:2 two shares of ICICI Bank for everyone share of Bank of Madera. The deal with Bank of Madera is likely to dilute the current equity capital by around 12 percent. And the merger is expected to bring 20 percent gains in EPS of bank. And also the banks comfortable capital Adequacy Ratio (CAR) of 19.64 percent has declined to 17.6 percent.

CASE STUDY : MERGER OF ICICI BANK WITH SANGLI BANKThe merger that was announced on APRIL 18, 2007 between ICICI Bank and SANGLI Bank.All branches of Sangli Bank functions as branches of ICICI Bank from April 19, said the Reserve Bank of India. Sangli Bank is an unlisted private bank headquartered at Sangli in Maharashtra. As on March 31, 2006,Sangli Bank had deposits of Rs. 2,004 crore, advances of Rs. 888 crore, net NPA (non-performing assets) ratio of 2.3 per cent and capital adequacy of 1.6 per cent. Its loss at the end of 2005-06 amounted to Rs. 29 crore.It has 198 branches and extension counters, including 158 branches in Maharashtra and 31 branches inKarnataka. About 50 per cent of the total branches are located in rural and semi-urban areas and 50 per cent in metropolitan and urban centres. The bank has about 1,850 employees. ICICI Bank is the second largest bank in India and the biggest in terms of market capitalization .As on September 30, 2006, ICICI Bank had total assets of Rs. 282,373 crore. In the six months ended September 30, 2006, it made a net profit of Rs. 1,375 crore.-It had 632 branches and extension counters and 2,336 ATMs as on that date, and is in the process of setting up additional branches and ATMs pursuant to authorisations granted by the RBI. It has about31,500 employees.ICICI Bank offers a wide range of financial products and services directly and through subsidiaries in the areas of life and general insurance, asset management and investment banking.Its shares are listed on the Bombay Stock Exchange Limited and the National Stock Exchange of IndiaLimited and its American Depositary Shares are listed on the New York Stock Exchange

CONCLUSIONS AND FINDINGS

Mergers are highly beneficial to companies that are experiencing tough financial times.

When two firms join together through mergers, the jointbusinessbenefits with regards to cost efficiency and productivity. This is because the two companies join together to form a bigger and new company in which production is going to be done on a larger scale. As a result, there is an increase in output production and it is highly likely that the total cost of production is reduced

Mergers also lead to revenue enhancement by market share gain since the joint organization is going to be able to generate even more value than separate companies. It is expected that after a merger, the new generated shareholder value is going to be much higher than that of the total shares of two separate firms.

Bibliography / Wibliography

SEARCH ENGINE:www.google.comwww.yahoo.com

REFERENCE BOOK:Mergers, Acquisitions, and Corporate RestructuringsPatrick A. Gaughan

WEBSITE:www.wikipedia.com