merger final.docx

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CHAPTER 1

INTRODUCTION MERGER AND ACQUISITION

Mergers and acquisitions are both aspects of strategic management, corporate finance

and management dealing with the buying, selling, dividing and combining of

different companies and similar entities that can help an enterprise grow rapidly in its sector or

location of origin, or a new field or new location, without creating a subsidiary, other child entity

or using a joint venture.

M&A can be defined as a type of restructuring in that they result in some entity reorganization

with the aim to provide growth or positive value. Consolidation of an industry or sector occurs

when widespread M&A activity concentrates the resources of many small companies into a few

larger ones, such as occurred with the automotive industry between 11! and 1"!.

#he distinction between a !erger and an $ac%uisition$ has become increasingly blurred in

various respects, although it has not completely disappeared in all situations. rom a legal point

of view, a merger is a legal consolidation of two companies into one entity, whereas

an ac%uisition occurs when one company ta'es over another and completely establishes itself as

the new owner . (ither structure can result in the economic and financial consolidation of the two

entities. )n practice, a deal that is an ac%uisition for legal purposes may be called a $merger of

e%uals$ if both C(*s agree that joining together is in the best interest of both of their companies,

while when the deal is unfriendly +that is, when the target company does not want to be

purchased it is almost always regarded as an $ac%uisition-.


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An ac%uisition or ta'eover is the purchase of one business or company by another company or

other business entity. uch purchase may be of 1!!/, or nearly 1!!/, of the assets or ownership

e%uity of the ac%uired entity. Consolidation occurs when two companies combine together to

form a new enterprise altogether, and neither of the previous companies remains independently.

Ac%uisitions are divided into $private$ and $public$ ac%uisitions, depending on whether the

ac%uiree or merging company is or is not listed on a public stoc' mar'et . ome public

companies rely on ac%uisitions as an important value creation strategy. An additional dimension

or categorization consists of whether an ac%uisition is friendly or hostile.

Achieving ac%uisition success has proven to be very difficult, while various studies have shown

that 0!/ of ac%uisitions were unsuccessful. $erial ac%uirers$ appear to be more successful with

M&A than companies who only ma'e an ac%uisition occasionally.

hether a purchase is perceived as being a $friendly$ one or a $hostile$ depends significantly on

how the proposed ac%uisition is communicated to and perceived by the target company2s board of

directors, employees and shareholders. )t is normal for M&A deal communications to ta'e place

in a so3called $confidentiality bubble$ wherein the flow of information is restricted pursuant to

confidentiality agreements. )n the case of a friendly transaction, the companies cooperate in

negotiations4 in the case of a hostile deal, the board and5or management of the target is unwilling

to be bought or the target2s board has no prior 'nowledge of the offer. 6ostile ac%uisitions can,

and often do, ultimately become $friendly$, as the ac%uirer secures endorsement of the

transaction from the board of the ac%uiree company. #his usually re%uires an improvement in the

terms of the offer and5or through negotiation.

$Ac%uisition$ usually refers to a purchase of a smaller firm by a larger one. ometimes, however,

a smaller firm will ac%uire management control of a larger and5or longer3established company

and retain the name of the latter for the post3ac%uisition combined entity. #his is 'nown as

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a reverse ta'eover . Another type of ac%uisition is the reverse merger , a form of transaction that

enables a private company to be publicly listed in a relatively short time frame. A reverse merger

occurs when a privately held company buys a publicly listed shell company, usually one with no

business and limited assets.

#he combined evidence suggests that the shareholders of ac%uired firms realize significant

positive $abnormal returns$ while shareholders of the ac%uiring company are most li'ely to

e7perience a negative wealth effect. #he overall net effect of M&A transactions appears to be

positive8 almost all studies report positive returns for the investors in the combined buyer and

target firms. #his implies that M&A creates economic value, presumably by transferring assets to

management teams that operate them more efficiently

#here are also a variety of structures used in securing control over the assets of a company,

which have different ta7 and regulatory implications8

• #he buyer buys the shares, and therefore control, of the target company being purchased.

*wnership control of the company in turn conveys effective control over the assets of the

company, but since the company is ac%uired intact as a going concern, this form of

transaction carries with it all of the liabilities accrued by that business over its past and all of

the ris's that company faces in its commercial environment.

• #he buyer buys the assets of the target company. #he cash the target receives from the sell3

off is paid bac' to its shareholders by dividend or through li%uidation. #his type of

transaction leaves the target company as an empty shell, if the buyer buys out the entire

assets. A buyer often structures the transaction as an asset purchase to $cherry3pic'$ the

assets that it wants and leave out the assets and liabilities that it does not. #his can be

particularly important where foreseeable liabilities may include future, un %uantified damage

awards such as those that could arise from litigation over defective products, employee

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benefits or terminations, or environmental damage. A disadvantage of this structure is the ta7

that many jurisdictions, particularly outside the 9nited tates, impose on transfers of the

individual assets, whereas stoc' transactions can fre%uently be structured as li'e3'ind

e7changes or other arrangements that are ta73free or ta73neutral, both to the buyer and to the

seller2s shareholders.

#he terms $demerger $, $spin3off $ and $spin3out$ are sometimes used to indicate a situation where

one company splits into two, generating a second company which may or may not become

separately listed on a stoc' e7change.

1. As per 'nowledge3based views, firms can generate greater values through the retention of

'nowledge3based resources which they generate and integrate.:0; (7tracting technological

benefits during and after ac%uisition is ever challenging issue because of organizational

differences. . ?etailed 'nowledge e7change and integrations are difficult when the ac%uired firm is

large and high performing.

". Management of e7ecutives from ac%uired firm is critical in terms of promotions and pay

incentives to utilize their talent and value their e7pertise.

0. #ransfer of technologies and capabilities are most difficult tas' to manage because of

complications of ac%uisition implementation. #he ris' of losing implicit 'nowledge is

always associated with the fast pace ac%uisition.

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An increase in ac%uisitions in the global business environment re%uires enterprises to evaluate

the 'ey sta'e holders of ac%uisition very carefully before implementation. )t is imperative for the

ac%uirer to understand this relationship and apply it to its advantage. @etention is only possible

when resources are e7changed and managed without affecting their independence.

T"PES O# MERGERS

Merger or ac%uisition depends upon the purpose of the offeror company it wants to achieve.


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A company would li'e to ta'e over another company or see' its merger with that company to

e7pand espousing bac'ward integration to assimilate the resources of supply and forward

integration towards mar'et outlets. #he ac%uiring 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 wor'ing capital investments. )n other

words, in vertical combinations, the merging underta'ing would be either a supplier or a buyer

using its product as intermediary material for final production.

#he following main benefits accrue from the vertical combination to the ac%uirer company8

)t gains a strong position because of imperfect mar'et of the intermediary products,

scarcity of resources and purchased products4

6as control over products specifications.

$C% Circu'ar co!(ination)

Companies producing distinct products see' amalgamation to share common distribution and

research facilities to obtain economies by elimination of cost on duplication and promoting

mar'et enlargement. #he ac%uiring company obtains benefits in the form of economies of

resource sharing and diversification.

$D% Cong'o!erate co!(ination)

)t is amalgamation of two companies engaged in unrelated industries li'e ?CM and Modi

)ndustries. #he basic purpose of such amalgamations remains utilization of financial resources

and enlarges debt capacity through re3organizing their financial structure so as to service the


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shareholders by increased leveraging and (B, lowering average cost of capital and thereby

raising present worth of the outstanding shares. Merger enhances the overall stability of the

ac%uirer company and creates balance in the company s total portfolio of diverse products and‟

production processes.

T"PES O# ACQUISITION

T,ere are di--erent t./es o- Acquisitions0taeo2er)3

1 Friendly takeovers

2 Hostile takeovers

3 Reverse takeovers

14 #riend'. taeo2ers


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board of directors. )f the board feels that accepting the offer serves shareholders better than

rejecting it, it recommends the offer be accepted by the shareholders. )n a private company,

because the shareholders and the board are usually the same people or closely connected with

one another, private ac%uisitions are usually friendly. )f the shareholders agree to sell the

company, then the board is usually of the same mind or sufficiently under the orders of the

shareholders to cooperate with the bidder.

54 Hosti'e taeo2ers

A hostile ta'eover allows a suitor to bypass a target company2s management unwilling to agree to

a merger or ta'eover. A ta'eover is considered $hostile$ if the target company2s board rejects the

offer, but the bidder continues to pursue it, or the bidder ma'es the offer without informing the

target company2s board beforehand.

A hostile ta'eover can be conducted in several ways. A tender offer can be made where the

ac%uiring company ma'es a public offer at a fi7ed price above the current mar'et price.

An ac%uiring company can also engage in a pro7y fight, whereby it tries to persuade enough

shareholders, usually a simple majority, to replace the management with a new one which will

approve the ta'eover.

Another method involves %uietly purchasing enough stoc' on the open mar'et, 'nown as a

creeping tender offer, to effect a change in management. )n all of these ways, management resists

the ac%uisition but it is carried out anyway.

64 Re2erse taeo2ers


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A reverse ta'eover is a type of ta'eover where a private company ac%uires a public company.

#his is usually done at the instigation of the larger, private company, the purpose being for the

private company to effectively float itself while avoiding some of the e7pense and time involved

in a conventional )B*. 6owever, under A)M rules, a reverse ta'e3over is an ac%uisition or

ac%uisitions in a twelve month period which for an A)M company would8

• e7ceed 1!!/ in any of the class tests4 or

• result in a fundamental change in its business, board or voting control4 or

in the case of an investing company, depart substantially from the investing strategy stated in its

admission document or, where no admission document was produced on admission, depart

substantially from the investing strategy stated in its pre3admission announcement or, depart

substantially from the investing strategy.


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PROCESS O# MERGER AND ACQUISITION

Merger and ac%uisition process is the most challenging and most critical one when it comes to

corporate restructuring. *ne wrong decision or one wrong move can actually reverse the effects

in an unimaginable manner. )t should certainly be followed in a way that a company can gain

ma7imum benefits with the deal.

#o''o7ing are so!e o- t,e i!/ortant ste/s in t,e M8A /rocess)

*usiness +a'uation


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P'anning E9it

hen any company decides to sell its operations, it has to undergo the stage of e7it planning.

#he company has to ta'e firm decision as to when and how to ma'e the e7it in an organized and

profitable manner. )n the process the management has to evaluate all financial and other business

issues li'e ta'ing a decision of full sale or partial sale along with evaluating on various options

of reinvestments.

Structuring *usiness Dea'

After finalizing the merger and the e7it plans, the new entity or the ta'e over company has to

ta'e initiatives for mar'eting and create innovative strategies to enhance business and its

credibility. #he entire phase emphasize on structuring of the business deal.

Stage o- Integration

#his stage includes both the company coming together with their own parameters. )t includes the

entire process of preparing the document, signing the agreement, and negotiating the deal. )t also

defines the parameters of the future relationship between the two.

O/erating t,e +enture

After signing the agreement and entering into the venture, it is e%ually important to operate the

venture. #his operation is attributed to meet the said and pre3defined e7pectations of all the


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companies involved in the process. #he M&A transaction after the deal include all the essential

measures and activities that wor' to fulfill the re%uirements and desires of the companies

involved.


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$6% Maret e9/ansion and strateg.)

1. #o eliminate competition and protect e7isting mar'et4

=. #o obtain a new mar'et outlets in possession of the offeree4

>. #o obtain new product for diversification or substitution of e7isting products and to enhance the

product range4

". trengthening retain outlets and sale the goods to rationalize distribution4

0. #o reduce advertising cost and improve public image of the offeree company4

. trategic control of patents and copyrights.

$:% #inancia' strengt,)

1. #o improve li%uidity and have direct access to cash resource4

=. #o dispose of surplus and outdated assets for cash out of combined enterprise4

>. #o enhance gearing capacity, borrow on better strength and the greater assets bac'ing4

". #o improve (B +(arning per hare.

0.#o avail ta7 benefits.


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$;% Genera' gains)

1. #o improves its own image and attract superior managerial talent to manage its affair.

=. #o offer better satisfaction to consumer or users of the product.

$% Strategic /ur/ose)

#he Ac%uirer Company view the merger to achieve strategic objectives through alternative type

of combinations which may be horizontal, vertical, product e7pansion, mar'et e7tensional or

other specified unrelated objectives depending upon the corporate strategies. #hus, various types

of combinations distinct with each other in nature are adopted to pursue this objective li'e

vertical or horizontal combination.

$?% Cor/orate -riend'iness)

Although it is rare but it is true that business houses e7hibit degrees of cooperative spirit despite

competitiveness in providing rescues to each other from hostile ta'eovers and cultivate situations

of collaborations sharing goodwill of each other to achieve performance heights through business

combinations. #he corporate aims at circular combinations by pursuing this objective.


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*ENE#ITS O# MERGERS AND ACQUISITIONS

14 GRO@TH or DI+ERSI#ICATION8 3 Companies that desire rapid growth in size or mar'et

share or diversification in the range of their products may find that a merger can be used to fulfill

the objective instead of going through the tome consuming process of internal growth or

diversification. #he firm may achieve the same objective in a short period of time by merging

with an e7isting firm. )n addition such a strategy is often less costly than the alternative of

developing the necessary production capability and capacity. )f a firm that wants to e7pand

operations in e7isting or new product area can find a suitable going concern. )t may avoid many

of ris's associated with a design4 manufacture the sale of addition or new products. Moreover

when a firm e7pands or e7tends its product line by ac%uiring another firm, it also removes a

potential competitor.

54 S"NERGISM8 3 #he nature of synergism is very simple. ynergism e7ists whenever the value

of the combination is greater than the sum of the values of its parts. )n other words,

synergism is D=E=F0-.


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fi7es assets, customer relationship or managerial personnel. *perating synergism occurs when

these assets, which are intangible, may be combined with the e7isting assets and organization of

the ac%uiring firm to produce an incremental value. Although that value may be difficult to

appraise it may be the primary motive behind the ac%uisition.

#inancia' s.nergis!3Among these are incremental values resulting from complementary

internal funds flows more efficient use of financial leverage, increase e7ternal financial

capability and income ta7 advantages.

a% Co!/'e!entar. interna' -unds -'o7s

easonal or cyclical fluctuations in funds flows sometimes may be reduced or eliminated by

merger. )f so, financial synergism results in reduction of wor'ing capital re%uirements of the

combination compared to those of the firms standing alone.

(% More e--icient use o- #inancia' e2erage

inancial synergy may result from more efficient use of financial leverage. #he ac%uisition firm

may have little debt and wish to use the high debt of the ac%uired firm to lever earning of the

combination or the ac%uiring firm may borrow to finance and ac%uisition for cash of a low debt

firm thus providing additional leverage to the combination. #he financial leverage advantage

must be weighed against the increased financial ris'.

c% Increased E9terna' #inancia' Ca/a(i'ities

Many mergers, particular those of relatively small firms into large ones, occur when the ac%uired

firm simply cannot finance its operation. #ypical of this is the situations are the small growing

firm with e7pending financial re%uirements. #he firm has e7hausted its ban' credit and has


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virtually no access to long term debt or e%uity mar'ets. ometimes the small firm has

encountered operating difficulty, and the ban' has served notice that its loan will not be

renewedG )n this type of situation a large firms with sufficient cash and credit to finance the

re%uirements of smaller one probably can obtain a good buy bee. Ma'ing a merger proposal to

the small firm. #he only alternative the small firm may have is to try to interest = or more large

firms in proposing merger to introduce, competition into those bidding for ac%uisition. #he

smaller firm s situations might not be so blea'. )t may not be threatened by non renewable of ‟

maturing loan.


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merger, management of ac%uiring firm simply may not have sufficient 'nowledge of the business

to control the ac%uired firm ade%uately. Attempts to maintain control may induce resentment by

personnel of ac%uired firm. #he resulting reduction of the efficiency may eliminate e7pected

operating synergy or even reduce the post merger profitability of the ac%uired firm. #he list of

possible counter synergism factors could goon endlessly4 the point is that the mergers do not

always produce that e7pected results. Hegative factors and the ris's related to them also must be

considered in appraising a prospective merger

Ot,er !oti2es #or Merger

Merger may be motivated by two other factors that should not be classified under synergism.

#hese are the opportunities for ac%uiring firm to obtain assets at bargain price and the desire of

shareholders of the ac%uired firm to increase the li%uidity of their holdings.

14 Purc,ase o- Assets at *argain Prices

Mergers may be e7plained as an opportunity to ac%uire assets, particularly land mineral rights,

plant and e%uipment, at lower cost than would be incurred if they were purchased or constructed

at the current mar'et prices. )f the mar'et price of many soc's have been considerably below the

replacement cost of the assets they represent, e7panding firm considering construction plants,

developing mines or buying e%uipments often have found that the desired assets could be


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obtained where by cheaper by ac%uiring a firm that already owned and operated that asset. @is'

could be reduced because the assets were already in place and an organization of people 'new

how to operate them and mar'et their products. Many of the mergers can be financed by cash

tender offers to the ac%uired firm s shareholders at price substantially above the current mar'et.‟

(ven so, the assets can be ac%uired for less than their current casts of construction. #he basic

factor underlying this apparently is that inflation in construction costs not fully rejected in stoc'

prices because of high interest rates and limited optimism by stoc' investors regarding future

economic conditions.

54 Increased Manageria' Si''s or Tec,no'og.

*ccasionally a firm with good potential finds it unable to develop fully because of deficiencies

in certain areas of management or an absence of needed product or production technology. )f the

firm cannot hire the management or the technology it needs, it might combine with a compatible

firm that has needed managerial, personnel or technical e7pertise. *f course, any merger,

regardless of specific motive for it, should contribute to the ma7imization of owner s wealth.‟

64 Acquiring ne7 tec,no'og. I#o stay competitive, companies need to stay on top of

technological developments and their business applications.


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a7s Regu'ating Merger

ollowing are the laws that regulate the merger of the company83

$I% T,e Co!/anies Act B 1;<

ection >! to >0 of Companies Act, 10 deal with arrangements, amalgamations, mergers

and the procedure to be followed for getting the arrangement, compromise or the scheme of

amalgamation approved. #hough, section >1 deals with the issue of compromise or arrangement

which is different from the issue of amalgamation as deal with under section >", as section >"

too refers to the procedure under section >1 etc., all the section are to be seen together while

understanding the procedure of getting the scheme of amalgamation approved. Again, it is true

that while the procedure to be followed in case of amalgamation of two companies is wider than

the scheme of compromise or arrangement though there e7ist substantial overlapping.

#he procedure to be followed while getting the scheme of amalgamation and the important

points, are as follows83

+1 Any company, creditors of the company, class of them, members or the class of members can

file an application under section >1 see'ing sanction of any scheme of compromise or

arrangement. 6owever, by its very nature it can be understood that the scheme of amalgamation

is normally presented by the company. hile filing an application either under section >1 or

section >", the applicant is supposed to disclose all material particulars in accordance with the

provisions of the Act.

+= 9pon satisfying that the scheme is prima facie wor'able and fair, the #ribunal order for the

meeting of the members, class of members, creditors or the class of creditors. @ather, passing an

order calling for meeting, if the re%uirements of holding meetings with class of shareholders or

the members, are specifically dealt with in the order calling meeting, then, there wonJt be any

subse%uent litigation. #he scope of conduct of meeting with such class of members or the


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shareholders is wider in case of amalgamation than where a scheme of compromise or

arrangement is sought for under section >1

+> #he scheme must get approved by the majority of the sta'e holders viz., the members, class

of members, creditors or such class of creditors. #he scope of conduct of meeting with the

members, class of members, creditors or such class of creditors will be restrictive some what in

an application see'ing compromise or arrangement.

+" #here should be due notice disclosing all material particulars and anne7ing the copy of the

scheme as the case may be while calling the meeting.

+0 )n a case where amalgamation of two companies is sought for, before approving the scheme

of amalgamation, a report is to be received form the registrar of companies that the approval of

scheme will not prejudice the interests of the shareholders.

+ #he Central Kovernment is also re%uired to file its report in an application see'ing approval

of compromise, arrangement or the amalgamation as the case may be under section >"A.

+L After complying with all the re%uirements, if the scheme is approved, then, the certified copy

of the order is to be filed with the concerned authorities.

$II% T,e Co!/etition Act B55

ollowing provisions of the Competition Act, =!!= deals with mergers of the company83

+1 ection 0 of the Competition Act, =!!= deals with DCombinations- which defines

combination by reference to assets and turnover

+a e7clusively in )ndia and

+b in )ndia and outside )ndia.

or e7ample, an )ndian company with turnover of @s. >!!! crores cannot ac%uire another )ndian

company without prior notification and approval of the Competition Commission. *n the other

hand, a foreign company with turnover outside )ndia of more than 9? 1.0 billion may ac%uire


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a company in )ndia with sales just short of @s. 10!! crores without any notification to the

Competition Commission being re%uired.

+= ection of the Competition Act, =!!= states that, no person or enterprise shall enter into a

combination which causes or is li'ely to cause an appreciable adverse effect on competition

within the relevant mar'et in )ndia and such a combination shall be void.

All types of intra3group combinations, mergers, demergers, reorganizations and other similar

transactions should be specifically e7empted from the notification procedure and appropriate

clauses should be incorporated in sub3regulation 0+= of the @egulations. #hese transactions do

not have any competitive impact on the mar'et for assessment under the Competition Act,

ection .

$III% #oreign E9c,ange Manage!ent ActB1

#he foreign e7change laws relating to issuance and allotment of shares to foreign entities are

contained in #he oreign (7change Management +#ransfer or )ssue of ecurity by a person

residing out of )ndia @egulation, =!!! issued by @


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$I+% SE*I Tae o2er Code 1:

(


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+other than shares which are held by, or by a nominee for, the transferee company or its

subsidiaries become shareholders of the transferee company.

#he following provisions would be applicable to merger only if the conditions laid down in

section =+1= of the Company Act. #hereafter

the courts would issue the necessary sanctions for the scheme of mergers after dealing with the

application for the merger if they are convinced that the impending merger is Dfair and

reasonable-.

#he courts also have a certain limit to their powers to e7ercise their jurisdiction which have

essentially evolved from their own rulings. or e7ample, the courts will not allow the merger to

come through the intervention of the courts, if the same can be effected through some other


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provisions of the Companies Act4 further, the courts cannot allow for the merger to proceed if

there was something that the parties themselves could not agree to4 also, if the merger, if

allowed, would be in contravention of certain conditions laid down by the law, such a merger

also cannot be permitted. #he courts have no special jurisdiction with regard to the issuance of

writs to entertain an appeal over a matter that is otherwise Dfinal, conclusive and binding- as per

the section >1 of the Company act.

$+II% Sta!/ dut.

tamp act varies from state to tate. As per


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+d Certain events can devalue an )ntellectual Broperty Asset, in the same way a fire can

suddenly destroy a piece of real property. #hese sudden events in respect of )B could be adverse

publicity or personal injury arising from a product. An essential part of the due diligence and

valuation process accounts for the impact of product and company3related events on assets I

management can use ris' information revealed in the due diligence.

+e ?ue diligence could highlight contingent ris' which do not always arise from )ntellectual

Broperty law itself but may be significantly affected by product liability and contract law and

other non )ntellectual Broperty realms.

#herefore )ntellectual Broperty due diligence and valuation can be correlated with the overall

legal due diligence to provide an accurate conclusion regarding the asset present and future.


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CHAPTER 5

MERGER AND ACQUISITION IN *ANING SECTOR

Introduction

#he )nternational ban'ing scenario has shown major turmoil in the past few years in terms of

mergers and ac%uisitions. ?e regulation has been the main driver, through three major routes 3

dismantling of interest rate controls, removal of barriers between ban's and other financial

intermediaries, and lowering of entry barriers. )t has lead to disintermediation, investors

demanding higher returns, price competition, reduced margins, falling spreads and competition

across geographies forcing ban's to loo' for new ways to boost revenues. Consolidation has

been a significant strategic tool for this and has become a worldwide phenomenon, driven byapparent advantages of scale3economies, geographical diversification, and lower costs through

branch and staff rationalization, cross3border e7pansion and mar'et share concentration. #he new


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#he )ndian financial system would be open to intense international competition with complete

implementation of the provisions of #* agreement on services +KA# during the year =!!03

! when ban's will be re%uired to compete across the globe with multinational ban's having

greater financial strengths. #he ban's will also be re%uired to strengthen their capital position to

meet stringent prudential capital ade%uacy norms under


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Recent Scenario O- Mergers in India)

)n )ndia, the mergers in !s had ta'en place under the direction of @


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#here are other cost cutting opportunities in )# implementation, branch rationalization and

staff rationalization.

• M & A provides a fast and easy method for many ban's to enter areas where they lac' a

presence. tructured framewor' of merger process 8 #he 1st report of the Harasimham

Committee +Hov 11 had recommended a broad pattern of the structure of the ban'ing

system with > or " large ban's +to become international in character, O to 1! national

ban's +to have a networ' throughout the country & engaged in NuniversalJ ban'ing

besides local ban's and rural ban's. )n its =nd report, the Committee had recommended

that the Dmergers between ban's, ?)s and H


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strengthening ris' management systems, emphasis on technology have emerged in the recent

past. )n addition, the impact of the


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• Maret entr. 3 Cash rich firms use the ac%uisition route to buyout an established player

in a new mar'et and then build upon the e7isting platform.

• Ta9 s,ie'ds and -inancia' sa-eguards 3 #a7 concessions act as a catalyst for a

strong ban' to ac%uire distressed ban's that have accumulated losses and unclaimed

depreciation benefits in their boo's.

• Regu'ator. inter2ention 3 #o protect depositors, and prevent the de3stabilisation of the

financial services sector, the @


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#uture o- M8A in Indian *aning

)n =!!, further opening up of the )ndian ban'ing sector is forecast to occur due to the changing

regulatory environment +proposal for upto L"/ ownership by oreign ban's in )ndian ban's.

#his will be an opportunity for foreign ban's to enter the )ndian mar'et as with their huge capital

reserves, cutting3edge technology, best international practices and s'illed personnel they have a

clear competitive advantage over )ndian ban's. Pi'ely targets of ta'eover bids will be Qes large international ban's4 O31! national ban's4 and a few large local area ban's. )n

addition, M&As in the future are li'ely to be more mar'et3driven, instead of government3driven.


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CHAPTER 6

INTRODUCTION ON OTA MAHINDRA *AN AND ING

+"AS"A *AN

Rota' Mahindra Kroup

(stablished in 1O0, the Rota' Mahindra Kroup is one of )ndiaJs leading financial

servicesconglomerates. )n ebruary =!!>, Rota' Mahindra inance Ptd. +RMP, the KroupJs

flagship company, received a ban'ing licence from the @eserve " la'h crore and

theconsolidated net worth of the Kroup stands at @s. =!,00" crore +appro7 9S >.> billion as

oneptember >!, =!1". #he Kroup offers a wide range of financial services that encompass

everysphere of life. rom commercial ban'ing, to stoc' bro'ing, mutual funds, life insurance and

investment ban'ing, the Kroup caters to the diverse financial needs of individuals and the

corporate sector. #he Kroup has a wide distribution networ' through branches and franchisees

across )ndia,and international offices in Pondon, Hew Qor', ?ubai, Abu ?habi, Mauritius and

ingapore.

Rota' Mahindra


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#he avings > locations in the country.

HISTOR" O# OTA MAHINDRA *AN

https://en.wikipedia.org/wiki/Mumbaihttps://en.wikipedia.org/wiki/Mumbaihttps://en.wikipedia.org/wiki/Mumbaihttps://en.wikipedia.org/wiki/Indiahttps://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttps://en.wikipedia.org/wiki/History_of_banking_in_Indiahttps://en.wikipedia.org/wiki/History_of_banking_in_Indiahttps://en.wikipedia.org/wiki/History_of_banking_in_Indiahttps://en.wikipedia.org/wiki/Mumbaihttps://en.wikipedia.org/wiki/Indiahttps://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttps://en.wikipedia.org/wiki/History_of_banking_in_India


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Rota' Mahindra group, established in 1O0 by 9day Rota', is one of )ndiaJs leading financial

services conglomerates. )n ebruary =!!>, Rota' Mahindra inance Ptd. +RMP, the KroupJs

flagship company, received a ban'ing licence from the @eserve branches. #he


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Voya inancial, )nc. )HK crore and operating a pan3)ndia networ' of over 1,!!! outlets, including 0=L₹

branches, which service over two million customers. )HK Kroup, the highest3ran'ing

institutional shareholder, currently holds a ""/ e%uity sta'e in )HK Vysya


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(stablished in 1>!s, Vysya


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MERGER O# ING +"AS"A INTO OTA MAHINDRA *AN

#he @s 10,!!! crore Rota' Mahindra , =!10, Rota' Mahindra .0O. #he company2s trailing 1=3month +##M (B was at @s O.! per share as per the


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%uarter ended Uune =!10. #he stoc'2s price3to3earnings +B5( ratio was O!.O>. #he latest boo'

value of the company is @s LL.LO per share. At current value, the price3to3boo' value of the

company is .=0

Merger ter!s

#he Rota' and )HK Vysya respectively considered the results of a due diligence review covering

areas such as advances, investments, deposits, properties & branches, liabilities, material

contracts etc.

.@.


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A#TER MERGER MOMENT

#he @eserve / in )HK Vysya, has indicated that it supports the proposed

transaction. )HK Kroup will become the largest non3promoter shareholder in combined Rota'.

)HK Kroup and Rota' intend to e7plore areas of cooperation in cross border business, on the

basis of a ramewor' for uture Cooperation that has been entered into, subject to mutual

agreement on specific terms and all laws and regulations.


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AD+ANTAGES O# MERGER

Rota', with "1 branches and relatively deeper presence in the est and Horth, has a

differentiated proposition for various customer segments including 6H)s, deep corporate

relationships including emerging corporates, a wide product portfolio, including agricultural

finance and consumer loans and a robust capital position.

)HK Vysya has a strong customer franchise for over O decades, with a national branch networ' of

0L> branches and deep presence in outh )ndia, particularly in Andhra Bradesh, #elengana and

Rarnata'a. )HK Vysya has a large customer base across all segments. )t is particularly noted for

abest3in3class M(


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?eals can be conducted in cash or by e7change shares. #he Rota'3)HK Vysya deal will purely an

e7change of stoc's. )nvestors in )HK Vysya will get L=0 Rota' Mahindra / sta'e in )HK

Vysya. )ts shareholding in the new entity would be nearly =0.>/, according to an (conomic

#imes report.

:% *roerages gi2e t,u!(s u/8 Most analysts and bro'erage firms cheered the deal. #his is

because they e7pect the deal to improve Rota' MahindraJs ban' business by e7panding its

branch networ' as well as improving its loan portfolio. #he deal also happens at a time when the

economy is showing signs of improvement. #his means, Rota' will be in a better position to ta'e

advantage of any rise in demand for loans, analysts said. #he deal is li'ely to increase Rota'Js

loan boo' by nearly two3thirds +L0/, bro'erages said.

;% *ranc, net7or 8 #he merger is e7pected to double Rota'Js branch networ' from "1 to

1,=1" having nearly "!,!!! employees. )HK Vysya current has about 0L> branches in the

country, most of which are situated in the outh. #his is good news is because Rota' was


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predominantly present in Horth )ndia. #his means the two ban'Js branches do not overlap. #he

merger also means the combined entity will have a far wider reach in the country than earlier.

Rota' is e7pected to gain = million customers from the merger.


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IMPACT A#TER MERGER

Rota' Mahindra !0 crore towards non3performing assets . #he ban' also made a provision of @s >

crore towards integration costs . At the time of the merger, Rota' calculated the integrated costs

of the merger at @s =!! crore. #he ban' also provides for additional interest on savings accounts

of @s >! crore was third provision.

)HK Vysya merger bites Rota'


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CONCUSION

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