MERGER & ACQUISITION OF HDFC & CBOP

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MERGER & ACQUISITION OF HDFC & CBOP

ACKNOWLEDGEMENT

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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 control of a larger or longer established company and keep its

name for the combined entity. This is known as a reverse takeover.

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

two. In a merger one company acquires the other company and the other company ceases to

exist. In an amalgamation, two or more companies come together and form a new business

entity.

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MERGER & ACQUISITION OF HDFC & CBOP Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate

finance world. Every day, Wall Street investment bankers arrange M&A transactions, which

bring separate companies together to form larger ones. When they're not creating big

companies from smaller ones, corporate finance deals do the reverse and break up companies

through spinoffs, carve-outs or tracking stocks. Not surprisingly, these actions often make

the news. Deals can be worth hundreds of millions, or even 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.

MERGERS - A merger is a combination of two companies into one larger company,

which involves stock swap or cash payment to the target.

ACQUISITION - When one company takes over another and clearly established itself

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

GOVERNING LAWThe 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'.

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MERGER & ACQUISITION OF HDFC & CBOP

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 helps to come over from the competition between

two companies merging together strengthens the company to compete with other

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 monopoly over the market. 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 for one specific finished product. Vertical merger 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 as "vertical foreclosure" or "bottleneck" problem. Vertical 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

common market, which was earlier fragmented among them. This 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

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MERGER & ACQUISITION OF HDFC & CBOP 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 - 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.

Purchase mergers - this kind of merger occurs when one company purchases

another. 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

high price to earnings ratio (P/E) acquires one with a low P/E

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MERGER & ACQUISITION OF HDFC & CBOP

RESEARCH METHODOLOGY

OBJECTIVES

1. To study the merger and acquisitions in the banking sector.

2. To study the risk involved in merger and acquisition.

3. To study the benefits of merger and acquisition of HDFC AND CBOP.

LIMITATION OF THE STUDYThe 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 of the company.

DATA COLLECTION

The data’s which is collected from various secondary sources like internet, journals and other

publications.

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REVIEW OF LITERATURE1. 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 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.

3. MOTIVES FOR MERGERS AND ACQUISITIONS IN 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, literature is reviewed to look into the various motivations behind a banks' merger/

acquisition event. Given the increasing role of the economic power in the turf war of nations, the

paper looks at the significant role of the state and the central bank in protecting customer's

interests vis-à-vis creating players of international size. While, gazing at the mergers &

acquisitions in the Indian Banking Sector both from an opportunity and as imperative

perspectives, the paper also glances at the large implications for the nation.

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MERGER & ACQUISITION OF HDFC & CBOP 4. 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.

5. 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

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 and new company stock is issued in its place. For example, both Daimler-Benz

and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler,

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MERGER & ACQUISITION OF HDFC & CBOP 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, 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.

MERGERS AND ACQUISITIONS IN INDIA

Merger and acquisitions are on the rise. Volume of mergers and acquisitions in India in

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, FMCG, construction materials, automotives and 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 for 16%, while FMCG and construction materials

accounted for 13% and 10% respectively. In the banking sector, important mergers and

acquisitions in India in recent years include the merger between IDBI (Industrial

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

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MERGER & ACQUISITION OF HDFC & CBOP Centurion Bank and Bank of Punjab. Worth $82.1 million (Rs. 3.6 billion in Indian

currency), this merger led to the creation of the Centurion Bank of Punjab 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

currency).

 HDFC   Bank   acquired Centurion Bank of Punjab

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MERGER & ACQUISITION OF HDFC & CBOP

HDFC BANK OVERVIEW

HDFC Bank Ltd is a major Indian financial services company based in India, incorporated in

August 1994, after the Reserve Bank of India allowed establishing private sector banks. The

Bank was promoted by the Housing Development Finance Corporation, a premier housing

finance company (set up in 1977) of India. HDFC Bank has 1,725 branches and over 4,232

ATMs, in 779 cities in India, and all branches of the bank are linked on an online real-time basis.

As of 30 September 2008 the bank had total assets of Rs.1006.82 billion. For the fiscal year

2008-09, the bank has reported net profit of  2,244.9 crore (US$ 509.59 million), up 41% from

the previous fiscal. Total annual earnings of the bank increased by 58% reaching at  19,622.8

crore (US$ 4.45 billion) in 2008-09.

\

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HISTORY OF HDFC BANK

HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation Limited

(HDFC), India's largest housing finance company. It was among the first companies to receive

an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private

sector. The Bank started operations as a scheduled commercial bank in January 1995 under the

RBI's liberalisation policies.

Times Bank Limited (owned by Bennett, Coleman & Co. / Times Group) was merged with

HDFC Bank Ltd., in 2000. This was the first merger of two private banks in India. Shareholders

of Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times Bank.

In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more than

1,000. The amalgamated bank emerged with a base of about Rs. 1,22,000 crore and net advances

of about Rs.89,000 crore. The balance sheet size of the combined entity is more than Rs.

1,63,000 crore.

BUSINESS FOCUS

HDFC Bank deals with three key business segments - Wholesale Banking Services, Retail

Banking Services, Treasury. It has entered the banking consortia of over 50 corporates for

providing working capital finance, trade services, corporate finance and merchant banking. It is

also providing sophisticated product structures in areas of foreign exchange and derivatives,

money markets and debt trading and equity research.

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 distributor finance for facilitating superior supply chain management for its corporate

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MERGER & ACQUISITION OF HDFC & CBOP customers. HDFC Bank has made significant inroads into the banking consortia of a number of

leading Indian corporates including multinationals, companies from the domestic business

houses and prime public sector companies. It is recognized as a leading provider of 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 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

requirements. The products are backed by world-class service and delivered to customers

through the growing branch network, as well as through alternative delivery channels 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

70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant

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.

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

required to hold 25% of its deposits in government securities. The Treasury business is

responsible for managing the returns and market risk on this investment portfolio.

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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 services. It operated on a strong nationwide franchise

of 403 branches and had over 5,000 employees. The Bank's shares were listed on the major

Indian stock exchangesand on the Luxembourg Stock Exchange.

On 23 May 2008 HDFC Bank acquired Centurion Bank of Punjab.

MERGER & ACQUISITION OF HDFC AND CBOP

1994 Centurion Bank was incorporated on 30 June 1994 and received its certificate of

Commencement of Business on 20 July. It was a joint venture between 20th Century Finance

Corporation and its associates and Keppel Group of Singapore through Kephinance

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MERGER & ACQUISITION OF HDFC & CBOP Investment (Mauritius). Centurion had a network of ten branches, which grew to 29 branches

the next year.

1995 Centurion Bank amalgamated 20th Century Finance Corporation.

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

agreed to a merger of the two banks. The combined bank took as its name Centurion Bank

of Punjab. Bank of Punjab had been founded in 1995.

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

Bank had been established at Kodungallur in Thrissur District,Kerala in 1940. During the

1960's, Lord Krishna acquired three commercial banks: Thiyya Bank, Josna Bank and Kerala

Union Bank.

2008 HDFC Bank acquired Centurion Bank of Punjab. 

The swap ratio is expected to be around 1:25-30,” said a banking source. The merger will make

HDFC Bank the country’s seventh largest bank after Bank of India (BoI) and ahead of IDBI

Bank, from the current 10th position. The merger talks between the two banks began in January

2008 after the principal shareholders of CBoP – Bank Muscat with 14.02 per cent

stake, Sabre Capital with 3.48 per cent stake and Kephinance Investment (Mauritius) with 6.13

per cent — decided to exit.

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

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MERGER & ACQUISITION OF HDFC & CBOP responsibility of administering the Acts, will be ensuring that the due process prescribed in the

Statutes has been complied with before they seek the approval of the RBI. They would also be

ensuring compliance with the statutory procedures for notifying the amalgamation after

obtaining the sanction of the RBI.

Before deciding on the merger, the authorized officials of the acquiring bank and the

merging bank sit together and discuss the procedural modalities and financial terms. After the

conclusion of the discussions, a scheme is prepared incorporating therein the all the details of

both the banks and the area terms and conditions.

Once the scheme is finalized, it is tabled in the meeting of Board of directors of

respective banks. The board discusses the scheme thread bare and accords its approval if the

proposal is found to be financially viable and beneficial in long run.

After the Board approval of the merger proposal, an extra ordinary general meeting of the

shareholders of the respective banks is convened to discuss the proposal and seek their approval.

After the board approval of the merger proposal, a registered valuer is appointed to

valuate both the banks. The valuer valuates the banks on the basis of its share capital,market

capital, assets and liabilities, its reach and anticipated growth and sends its report to the

respective banks.

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

with all relevant documents such as Board approval, shareholders approval, valuation report etc

to Reserve Bank of India and other regulatory bodies such Security & exchange board of India

SEBI for their approval.

After obtaining approvals from all the concerned institutions, authorized officials of both

the banks sit together and discuss and finalize share allocation proportion by the acquiring bank

to the shareholders of the merging bank SWAP ratio

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

by the bank.

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MERGER & ACQUISITION OF HDFC & CBOP

HR Issues in Mergers & AcquisitionsPeople 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.

But what happens to the employees of the two companies? How will they adjust to the

new corporate environment? Will some choose to leave?

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.

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

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

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

clashes.

Lack of communication leads to suspicion, demoralization, loss of key personnel and

business even before the contract has been signed.

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.

Major stress on the accompany merger activity are: -

* Power status and prestige changes

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MERGER & ACQUISITION OF HDFC & CBOP * Loss of identity

* Uncertainty

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

HIGHLIGHT

THE MERGER- HDFC AND CENTURION BANK OF PUNJAB

1) HDFC bank is merged with Centurion Bank of punjab

2) New entity is named as “HDFC bank itself”.

3) The merger will strengthen HDFC Bank's distribution network in the northern and the

southern regions.

4) HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion Bank

of Punjab (CBoP) for Rs 9,510 crore.

BENEFITS FROM THIS DEAL

The corporate world is a place where only the vigilant, the sharp and the spontaneous can explore their way up the ladder, while the remaining admire or envy the success of the former . Here, every second tests the mental acumen of the professionals by putting them

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MERGER & ACQUISITION OF HDFC & CBOP into various odd situations which demand spontaneous, impromptu decisions to be crafted, keeping a long-term perspective in sight.

The expected merger of the HDFC Bank with the Centurion Bank of Punjab (CBoP) is believed to broaden the scope and reach of HDFC by crediting to its already well-distributed network. The HDFC Bank, which currently spans India with its chain of 746 branches, will add to itself 394 branches of the CBoP to itself, to make its network bigger and stronger. The merger talks between the two banks began in January 2008, after the principal shareholders of CBoP – Bank Muscat with 14.02 per cent stake, Sabre Capital with 3.48 per cent stake and the Kephinance Investment (Mauritius) with 6.13 per cent stake decided to move away from this partnership.

The HDFC Bank is further expected to pay Rs 100 billion to Rs 120 billion in shares for acquiring the CBoP. In what claims to be the largest ever private bank merger, the share swap ratio stands at 1:29, that is every shareholder of CBoP will get one share of HDFC Bank for every 29 shares of CBoP owned. Though this ratio is believed to have been worked out after rigorous discussions among the Board of Directors of both the banks, it has failed to receive a positive reaction from the CBoP shareholders. It has come as a yet another setback for them after a volatile period witnessing a decline in CBoP shares and an unstable management.

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

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

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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

quality, would ensure that it will be among the least affected in a slowdown. 

The bank's focus on technology and superior margins with support from low-cost

deposits will ensure profitable growth in the future.

The merger of retail focused-Centurion Bank of Punjab (CBOP) with HDFC Bank [Get

Quote] effective May 23, 2008, will shore up revenues in the medium-term. However, the

synergies from the merger with start reflecting over 12-24 months, and boost

profitability. Put together, the gains from organic and inorganic initiatives will help the

bank sustain growth rates in excess of its historical average of 29-30 per cent, and in a

profitable manner.

POST-MERGER

The inherent synergies of HDFC Bank and CBOP in their retail focus was the driver for

the merger, which added around 400 branches to HDFC Banks' branch strength of 760

(as on March 2008) along with a 15-20 per cent increase in the asset base to more than 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.

The integration plan is on schedule. The re-branding of CBOP was completed in May

itself; training processes to assign all the employees of CBOP in their new roles is

marching ahead with almost 90 per cent of the people retrained. With regards the

systems, treasury, wholesale banking and retail loan segments, they have already been

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MERGER & ACQUISITION OF HDFC & CBOP integrated with HDFC's platform, while the overall retail banking is expected to be

completed in the next two months.

MERGER EFFECTS

Rs crore CBOP **9 Mths

HDFC Bank**9 Mths

StandaloneFY 08

Post-merger H1 FY09

Net Int. Income 505 3,586 5,228 3,590Other Income 459 1,734 2,283 1,237

Net Profit 123 1,119 1,590 992Cost/income (%) 63.0 49.7 49.9 55.4

NIM (%) 3.6 4.3 4.4 4.2CASA (%) 24.5 50.9 55 44.0

Net NPA (%) 1.7 0.4 0.5 0.6CAR (%) 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 be 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

infuse Rs 3,500 crore (warrants already issued, conversion price of Rs 1,500 per share, deadline

is December 2009).

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Bibliography

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

Paper The Economics times

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www.wikipedia/acquisition.com

www.smartmanagementonline.com/Magazines/Articles/Mergers%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

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

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

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

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