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Mergers:
In merger one or two existing companies merger its identify into another
existing companies form a new company , or one or another form a new
company and merger there identify into another existing company.
Definition:
The term Merger, Acquisition and take over are all parts of the Merger
parlance. In a merger, the companies come together to combine and share
their resources to achieve common objectives , shareholders of the combining
firms often remain as joint owners of the combined entity, an acquisition
resembles more of arms- length deal, with one firms shareholders creasing to
be owners of that firm.
Types of Mergers:
Form an economics standpoint, different types of merger can be grouped on
the basis of their stage of economic of the form.
1 Horizontal merger
2 Vertical merger
3 Conganaric merger
4 Conglomerate merger
Option 1: where A co. Merges with B co. Combined merged co. Emerges as
B Ltd.
1 Horizontal mergers
2 Vertical mergers
3 Conglomerate mergers
1 Horizontal Mergers
This types of merger involves two firms that operate and compete in a similar
kind of business. The merger is based on the assumption that it will provide
economies of scale from the larger combined unit.
2 Vertical Mergers:
Case Study:
The takeover of bank of Madura (BoM) by ICICI Bank has been the second
success story in the banking industry after the takeover of Times bank by HDFC
Bank last year. The board of Directors of ICICI Bank and Bank of Madura (BoM)
approved the merger of the two banks at their respective meetings held on
11th December and agreed to a share swap ratio of two shares of ICICI bank for
one share of BoM.
ICICI Bank was third time lucky after two earlier attempts of merger. The first
was a proposed merger with Centurion Bank, which fizzled out after the banks
promoters asked for higher valuations, the second a recent reverse merger
with parents ICICI. The integration exercise was scheduled to be completed by
September 2001.
Before we move onto why the two banks decided to merge. Let us look at why
ICICI decided to merge with Bank of Madura?
ICICI Bank has been scouting for a private banker for merger.
Though it had 21 percent of stake, the choice of Federal Bank, was not
lucrative due to the employee size (6600), per employee business is as low at
RS. 161 lakhs and a snail pace of technical up gradation, while, BOM had an
attractive business per employee figure of RS. 202 lakhs, a better technological
edge and had a vast base in solution India when compared to Federal Bank.
BoM was bankrupt (with assets which are RS. 350 crores behind
liabilities) and had a leverage of 41 times. If it were to be brought 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 crores of equity capital, which be impossible for them to rise.
BoM had network, which ICICI Bank wanted. They had many regional
branches, which would help ICICI increase their reach in the regional