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Impact of mergers and acquisitions upon the financial environment of Pakistan

Mergers and acquisitions Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, 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. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations. Acquisition An acquisition is the purchase of one business or company by another company or other business entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquired or merging company (also termed a target) is or is not listed on public stock markets. An additional dimension or categorization consists of whether an acquisition is friendly or hostile. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome. Whether a purchase is perceived as being a "friendly" one or a "hostile" depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees and shareholders. It is normal for M&A deal communications to take place in a so-called 'confidentiality bubble' wherein the flow of information is restricted pursuant to confidentiality agreements. In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the board and/or management of the target is unwilling to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can, and often do, ultimately become "friendly", as the acquirer secures endorsement of the transaction from the board of the acquire company. This usually requires an improvement in the terms of the offer and/or through negotiation.

"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 and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover. Another type of acquisition 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 (often one that has strong prospects and is eager to raise financing) buys a publicly listed shell company, usually one with no business and limited assets. There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications: This unreferenced section requires citations to ensure verifiability. The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired 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 risks that company faces in its commercial environment. The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This 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 "cherry-pick" the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as likekind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller's shareholders.

The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation where one company splits into two, generating a second company separately listed on a stock exchange. As per knowledge-based views, firms can generate greater values through the retention of knowledge-based resources which they generate and integrate. Extracting technological benefits during and after acquisition is ever challenging issue because of organizational differences. Based on the content analysis of seven interviews authors concluded five following components for their grounded model of acquisition: Improper documentation and changing implicit knowledge makes it difficult to share information during acquisition. For acquired firm symbolic and cultural independence which is the base of technology and capabilities are more important than administrative independence. Detailed knowledge exchange and integrations are difficult when the acquired firm is large and high performing. Management of executives from acquired firm is critical in terms of promotions and pay incentives to utilize their talent and value their expertise. Transfer of technologies and capabilities are most difficult task to manage because of complications of acquisition implementation. The risk of losing implicit knowledge is always associated with the fast pace acquisition. Preservation of tacit knowledge, employees and literature are always delicate during and after acquisition. Strategic management of all these resources is a very important factor for a successful acquisition. Increase in acquisitions in our global business environment has pushed us to evaluate the key stake holders of acquisition very carefully before implementation. It is imperative for the acquirer to understand this relationship and apply it to its advantage. Retention is only possible when resources are exchanged and managed without affecting their independence.

Distinction between mergers and acquisitions The terms merger and acquisition mean slightly different things. The legal concept of a merger (with the resulting corporate mechanics, statutory merger or statutory consolidation, which have nothing to do with the resulting power grab as between the management of the target and the acquirer) is different from the business point of view of a "merger", which can be achieved independently of the corporate mechanics through various means such as "triangular merger", statutory merger, acquisition, etc. When one company takes over another and clearly establishes 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 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". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place.For example, in the 1999 merger of Glaxo Welcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, 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 is technically an acquisition. Being bought out often carries negative connotations; therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to as a merger at the time. 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. Business valuation The five most common ways to evaluate a business are asset valuation, historical earnings valuation, future maintainable earnings valuation, relative valuation (comparable company & comparable transactions), discounted cash flow (DCF) valuation

Professionals who valuate businesses generally do not use just one of these methods but a combination of some of them, as well as possibly others that are not mentioned above, in order to obtain a more accurate value. The information in the balance sheet or income statement is obtained by one of three accounting measures: a Notice to Reader, a Review Engagement or an Audit. Accurate business valuation is one of the most important aspects of M&A as valuations like these will have a major impact on the price that a business will be sold for. Most often this information is expressed in a Letter of Opinion of Value (LOV) when the business is being valuated for interest's sake. There are other, more detailed ways of expressing the value of a business. While these reports generally get more detailed and expensive as the size of a company increases, this is not always the case as there are many complicated industries which require more attention to detail, regardless of size. As synergy plays a large role in the valuation of acquisitions it is paramount to get the value of synergies right; synergies are different from the "sales price" valuation of the firm, as they will accrue to the buyer. The analysis should, hence be done from the acquiring firm's point of view. Synergy creating investments are started by the choice of the acquirer and therefore they are not obligatory, making them real options in essence. To include this real options aspect into analysis of acquisition targets is one interesting issue that has been studied lately. Financing M&A Mergers are generally differentiated from acquisitions partly by the way in which they are financed and partly by the relative size of the companies. Various methods of financing an M&A deal exist: Cash Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidder's shareholders.

Stock

Payment in the form of the acquiring company's stock, issued to the shareholders of the acquired company at a given ratio proportional to the valuation of the latter. Which method of financing to choose? There are some elements to think about when choosing the form of payment. When submitting an offer, the acquiring firm should consider other potential bidders and think strategically. The form of payment might be decisive for the seller. With pure cash deals, there is no doubt on the real value of the bid (without considering an eventual earn out). The contingency of the share payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes are a second element to consider and should be evaluated with the counsel of competent tax and accounting advisers. Third, with a share deal the buyers capital structure might be affected and the control of the buyer modified. If the issuance of shares is necessary, shareholders of the acquiring company might prevent such capital increase at the general meeting of shareholders. The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be modified and the decision maker should take into account the effects on the reported financial results. For example, in a pure cash deal (financed from the companys current account), liquidity ratios might decrease. On the other hand, in a pure stock for stock transaction (financed from the issuance of new shares), the company might show lower profitability ratios (e.g. ROA). However, economic dilution must prevail towards accounting dilution when making the choice. The form of payment and financing options are tightly linked. If the buyer pays cash, there are three main financing options: Cash on hand: it consumes financial slack (excess cash or unused debt capacity) and may decrease debt rating. There are no major transaction costs. It consumes financial slack, may decrease debt rating and increase cost of debt. Transaction costs include underwriting or closing costs of 1% to 3% of the face value. Issue of stock: it increases financial slack, may improve debt rating and reduce cost of debt. Transaction costs include fees for preparation of a proxy statement, an extraordinary shareholder meeting and registration.

If the buyer pays with stock, the financing possibilities are:

Issue of stock (same effects and transaction costs as described above). Shares in treasury: it increases financial slack (if they dont have to be repurchased on the market), may improve debt rating and reduce cost of debt. Transaction costs include brokerage fees if shares are repurchased in the market otherwise there are no major costs. In general, stock will create financial flexibility. Transaction costs must also be considered but tend to have a greater impact on the payment decision for larger transactions. Finally, paying cash or with shares is a way to signal value to the other party, e.g.: buyers tend to offer stock when they believe their shares are overvalued and cash when undervalued. Specialist M&A advisory firms Although at present the majority of M&A advice is provided by full-service investment banks, recent years have seen a rise in the prominence of specialist M&A advisers, who only provide M&A advice (and not financing). These companies are sometimes referred to as Transition companies, assisting businesses often referred to as "companies in transition." To perform these services in the US, an advisor must be a licensed broker dealer, and subject to SEC (FINRA) regulation. More information on M&A advisory firms is provided at corporate advisory. Motives behind M&A The dominant rationale used to explain M&A activity is that acquiring firms seek improved financial performance. The following motives are considered to improve financial performance: Economy of scale: This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins. Economy of scope: This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products. Increased revenue or market share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.

Cross-selling: For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products. Synergy: For example, managerial economies such as the increased opportunity of managerial specialization. Another example are purchasing economies due to increased order size and associated bulk-buying discounts. Taxation: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company. Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders (see below). Resource transfer: resources are unevenly distributed across firms (Barney, 1991) and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources. Vertical integration: Vertical integration occurs when an upstream and downstream firm merge (or one acquires the other). There are several reasons for this to occur. One reason is to internalize an externality problem. A common example of such an externality is double marginalization. Double marginalization occurs when both the upstream and downstream firms have monopoly power and each firm reduces output from the competitive level to the monopoly level, creating two deadweight losses. Following a merger, the vertically integrated firm can collect one deadweight loss by setting the downstream firm's output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable. Hiring: some companies use acquisitions as an alternative to the normal hiring process. This is especially common when the target is a small private company or is in the startup phase. In this case, the acquiring company simply hires the staff of the target private company, thereby acquiring

its talent (if that is its main asset and appeal). The target private company simply dissolves and little legal issues are involved.[citation needed] However, on average and across the most commonly studied variables, acquiring firms' financial performance does not positively change as a function of their acquisition activity.[9] Therefore, additional motives for merger and acquisition that may not add shareholder value include: Diversification: While this may hedge a company against a downturn in an individual industry it fails to deliver value, since it is possible for individual shareholders to achieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger. Empire-building: Managers have larger companies to manage and hence more power. Manager's compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders). Effects on management Merger & Acquisitions (M&A) term explains the corporate strategy which determines the financial and long term effects of combination of two companies to create synergies or divide the existing company to gain competitive ground for independent units. A study published in the July/August 2008 issue of the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership continuity in target companies top management teams for at least a decade following a deal. The study found that target companies lose 21 percent of their executives each year for at least 10 years following an acquisition more than double the turnover experienced in non-merged firms.[10] If the businesses of the acquired and acquiring companies overlap, then such turnover is to be expected; in other words, there can only be one CEO, CFO, et cetera at a time. Different Types of M&A Types of M&A by functional roles in market The M&A process itself is a multifaceted which depends upon the type of merging companies.

- A horizontal merger is usually between two companies in the same business sector. The example of horizontal merger would be if a health cares system buys another health care system. This means that synergy can obtained through many forms including such as; increased market share, cost savings and exploring new market opportunities. - A vertical merger represents the buying of supplier of a business. In the same example as above if a health care system buys the ambulance services from their service suppliers is an example of vertical buying. The vertical buying is aimed at reducing overhead cost of operations and economy of scale. - Conglomerate M&A is the third form of M&A process which deals the merger between two irrelevant companies. The example of conglomerate M&A with relevance to above scenario would be if health care system buys a restaurant chain. The objective may be diversification of capital investment. Strategic Mergers A Strategic merger usually refers to long term strategic holding of target (Acquired) firm. This type of M&A process aims at creating synergies in the long run by increased market share, broad customer base, and corporate strength of business. A strategic acquirer may also be willing to pay a premium offer to target firm in the outlook of the synergy value created after M&A process. M&A research and statistics for acquired organizations Given that the cost of replacing an executive can run over 100% of his or her annual salary, any investment of time and energy in re-recruitment will likely pay for itself many times over if it helps a business retain just a handful of key players that would have otherwise left.

Organizations should move rapidly to re-recruit key managers. Its much easier to succeed with a team of quality players that you select deliberately rather than try to win a game with those who randomly show up to play. Brand considerations Mergers and acquisitions often create brand problems, beginning with what to call the company after the transaction and going down into detail about what to do about overlapping and competing product brands. Decisions about what brand equity to write off are not inconsequential. And, given

the ability for the right brand choices to drive preference and earn a price premium, the future success of a merger or acquisition depends on making wise brand choices. Brand decision-makers essentially can choose from four different approaches to dealing with naming issues, each with specific pros and cons: Keep one name and discontinue the other. The strongest legacy brand with the best prospects for the future lives on. In the merger of United Airlines and Continental Airlines, the United brand will continue forward, while Continental is retired. Keep one name and demote the other. The strongest name becomes the company name and the weaker one is demoted to a divisional brand or product brand. An example is Caterpillar Inc. keeping the Bucyrus International name. History of M&A The Great Merger Movement: 1895-1905 The Great Merger Movement was a predominantly U.S. business phenomenon that happened from 1895 to 1905. During this time, small firms with little market share consolidated with similar firms to form large, powerful institutions that dominated their markets. It is estimated that more than 1,800 of these firms disappeared into consolidations, many of which acquired substantial shares of the markets in which they operated. The vehicle used were so-called trusts. In 1900 the value of firms acquired in mergers was 20% of GDP. In 1990 the value was only 3% and from 19982000 it was around 1011% of GDP. Companies such as DuPont, US Steel, and General Electric that merged during the Great Merger Movement were able to keep their dominance in their respective sectors through 1929, and in some cases today, due to growing technological advances of their products, patents, and brand recognition by their customers. There were also other companies that held the greatest market share in 1905 but at the same time did not have the competitive advantages of the companies like DuPont and General Electric. These companies such as International Paper and American Chicle saw their market share decrease significantly by 1929 as smaller competitors joined forces with each other and provided much more competition. The companies that merged were mass producers of homogeneous goods that could exploit the efficiencies of large volume production. In addition, many of these mergers were capital-intensive. Due to high fixed costs, when demand fell, these newly-merged companies had an incentive to

maintain output and reduce prices. However more often than not mergers were "quick mergers". These "quick mergers" involved mergers of companies with unrelated technology and different management. As a result, the efficiency gains associated with mergers were not present. The new and bigger company would actually face higher costs than competitors because of these technological and managerial differences. Thus, the mergers were not done to see large efficiency gains, they were in fact done because that was the trend at the time. Companies which had specific fine products, like fine writing paper, earned their profits on high margin rather than volume and took no part in Great Merger Movement.[citation needed] Short-run factors One of the major short run factors that sparked The Great Merger Movement was the desire to keep prices high. However, high prices attracted the entry of new firms into the industry who sought to take a piece of the total product. With many firms in a market, supply of the product remains high. A major catalyst behind the Great Merger Movement was the Panic of 1893, which led to a major decline in demand for many homogeneous goods. For producers of homogeneous goods, when demand falls, these producers have more of an incentive to maintain output and cut prices, in order to spread out the high fixed costs these producers faced (i.e. lowering cost per unit) and the desire to exploit efficiencies of maximum volume production. However, during the Panic of 1893, the fall in demand led to a steep fall in prices.

Another economic model proposed by Naomi R. Lamoreaux for explaining the steep price falls is to view the involved firms acting as monopolies in their respective markets. As quasi-monopolists, firms set quantity where marginal cost equals marginal revenue and price where this quantity intersects demand. When the Panic of 1893 hit, demand fell and along with demand, the firms marginal revenue fell as well. Given high fixed costs, the new price was below average total cost, resulting in a loss. However, also being in a high fixed costs industry, these costs can be spread out through greater production (i.e. Higher quantity produced). To return to the quasi-monopoly model, in order for a firm to earn profit, firms would steal part of another firms market share by dropping their price slightly and producing to the point where higher quantity and lower price

exceeded their average total cost. As other firms joined this practice, prices began falling everywhere and a price war ensued. One strategy to keep prices high and to maintain profitability was for producers of the same good to collude with each other and form associations, also known as cartels. These cartels were thus able to raise prices right away, sometimes more than doubling prices. However, these prices set by cartels only provided a short-term solution because cartel members would cheat on each other by setting a lower price than the price set by the cartel. Also, the high price set by the cartel would encourage new firms to enter the industry and offer competitive pricing, causing prices to fall once again. As a result, these cartels did not succeed in maintaining high prices for a period of no more than a few years. The most viable solution to this problem was for firms to merge, through horizontal integration, with other top firms in the market in order to control a large market share and thus successfully set a higher price. Long-run factors In the long run, due to desire to keep costs low, it was advantageous for firms to merge and reduce their transportation costs thus producing and transporting from one location rather than various sites of different companies as in the past. Low transport costs, coupled with economies of scale also increased firm size by two- to fourfold during the second half of the nineteenth century. In addition, technological changes prior to the merger movement within companies increased the efficient size of plants with capital intensive assembly lines allowing for economies of scale. Thus improved technology and transportation were forerunners to the Great Merger Movement. In part due to competitors as mentioned above, and in part due to the government, however, many of these initially successful mergers were eventually dismantled. The U.S. government passed the Sherman Act in 1890, setting rules against price fixing and monopolies. Starting in the 1890s with such cases as Addyston Pipe and Steel Company v. United States, the courts attacked large companies for strategizing with others or within their own companies to maximize profits. Price fixing with competitors created a greater incentive for companies to unite and merge under one name so that they were not competitors anymore and technically not price fixing. Merger waves

The economic history has been divided into Merger Waves based on the merger activities in the business world as:[17]Period Name Facet 18971904 19161929 19651969 19811989 19922000 20032008 First Wave Horizontal mergers

Second Wave Vertical mergers Third Wave Diversified conglomerate mergers

Fourth Wave Congeneric mergers; Hostile takeovers; Corporate Raiding Fifth Wave Sixth Wave Cross-border mergers Shareholder Activism, Private Equity, LBO

M&A objectives in more recent merger waves During the third merger wave (19651989), corporate marriages involved more diverse companies. Acquirers more frequently bought into different industries. Sometimes this was done to smooth out cyclical bumps, to diversify, the hope being that it would hedge an investment portfolio. Starting in the fourth merger wave (19921998) and continuing today, companies are more likely to acquire in the same business, or close to it, firms that complement and strengthen an acquirers capacity to serve customers.

Buyers arent necessarily hungry for the target companies hard assets. Some are more interested in acquiring thoughts, methodologies, people and relationships. Paul Graham recognized this in his 2005 essay "Hiring is Obsolete", in which he theorizes that the free market is better at identifying talent, and that traditional hiring practices do not follow the principles of free market because they depend a lot upon credentials and university degrees. Graham was probably the first to identify the trend in which large companies such as Google, Yahoo! or Microsoft were choosing to acquire startups instead of hiring new recruits. Many companies are being bought for their patents, licenses, market share, name brand, research staffs, methods, customer base, or culture. Soft capital, like this, is very perishable, fragile, and

fluid. Integrating it usually takes more finesse and expertise than integrating machinery, real estate, inventory and other tangibles. Cross-border M&A In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A deals cause the domestic currency of the target corporation to appreciate by 1% relative to the acquirer's local currency. The rise of globalization has exponentially increased the necessity for MAIC Trust accounts and securities clearing services for Like-Kind Exchanges for cross-border M&A. In 1997 alone, there were over 2333 cross-border transactions, worth a total of approximately $298 billion. Due to the complicated nature of cross-border M&A, the vast majority of cross-border actions have unsuccessful as companies seek to expand their global footprint and become more agile at creating high-performing businesses and cultures across national boundaries M&A failure Despite the goal of performance improvement, results from mergers and acquisitions (M&A) are often disappointing compared with results predicted or expected. Numerous empirical studies show high failure rates of M&A deals. Studies are mostly focused on individual determinants. A book by Thomas Straub (2007) "Reasons for frequent failure in Mergers and Acquisitions"[21] develops a comprehensive research framework that bridges different perspectives and promotes an understanding of factors underlying M&A performance in business research and scholarship. The study should help managers in the decision making process. The first important step towards this objective is the development of a common frame of reference that spans conflicting theoretical assumptions from different perspectives. On this basis, a comprehensive framework is proposed with which to understand the origins of M&A performance better and address the problem of fragmentation by integrating the most important competing perspectives in respect of studies on M&A Furthermore according to the existing literature relevant determinants of firm performance are derived from each dimension of the model. For the dimension strategic management, the six strategic variables: market similarity, market complementarities, production operation similarity, production operation complementarities, market power, and purchasing power were identified having an important impact on M&A performance. For the dimension organizational behavior, the

variables acquisition experience, relative size, and cultural differences were found to be important. Finally, relevant determinants of M&A performance from the financial field were acquisition premium, bidding process, and due diligence. Three different ways in order to best measure post M&A performance are recognized: Synergy realization, absolute performance and finally relative performance. Employee turnover contributes to M&A failures. The turnover in target companies is double the turnover experienced in non-merged firms for the ten years following the merger.

http://www.scribd.com/doc/21028710/Project-report-on-Mergers-and-Acquisitions

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.

WHAT IS ACQUISITION?? Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company. Methods of Acquisition: An acquisition may be affected by a)Agreement with the persons holding majority interest in the company management like members of the board or major shareholders commanding majority of voting power; b)Purchase of shares in open market; c)To make takeover offer to the general body of shareholders; d)Purchase of new shares by private treaty; e)Acquisition of share capital through the following forms of considerations viz. Means of cash, issuance of loan capital, or insurance of share capital. Takeover: A takeover is acquisition and both the terms are used interchangeably. Takeover differs from merger in approach to business combinations i.e. The process of takeover, transaction involved in takeover, determination of share exchange or cash price and the fulfillment of goals of combination all are different in takeovers than in mergers. For example, process of takeover is unilateral and the offered company decides about the maximum price. Time taken in completion of transaction is less in takeover than in mergers, top management of the offeree company being more co-operative. De-merger or corporate splits or division:

De-merger or split or divisions of a company are the synonymous terms signifying a movement in the company. Purpose of Mergers & Acquisitions The 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 resources; 2.To standardize product specifications, improvement of quality of product, expanding 3.Market and aiming at consumers satisfaction through strengthening after sale Services; 4.To obtain improved production technology and know-how from the offered company 5.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. (9) Desired level of integration: Mergers and acquisition are pursued to obtain the desired level of integration between the two combining business houses. Such integration could be operational or

financial. This gives birth to conglomerate combinations. The purpose and the requirements of the offeror company go a long way in selecting a suitable partner for merger or acquisition in business combinations.

Types of Mergers Merger 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 DCM

and 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. Merger enhances the overall stability of the acquirer company and creates balance in the companys total portfolio of diverse products and production processes.

[4]Advantages of Mergers - 10

Downloaded from a2zmba.blogspot.com Mergers 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 shareholders Investment 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. - 11

Downloaded from a2zmba.blogspot.com One or more features would generally be available in each merger where shareholders may have attraction and favour merger.

(2)From the standpoint of managers Managers 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 gains Mergers 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 public Impact 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) Consumers

The 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 community The 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 public - 13

Downloaded from a2zmba.blogspot.com Mergers 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. Chapter 12: 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.

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Chapter 9: 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.

Chapter 11: Information & Documents to be furnished by BY THE ACQUIRER OF BANKS 1.

Draft scheme of amalgamation as approved by the Board of Directors of the acquirer bank. 2. 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 the acquired bank. 3. 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 financial years 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:I. Tier I Capital Ii. Tier II Capital Iii . Risk-weighted Assets Iv. Gross and Net npas V. Ratio of Tier I Capital to Risk-weighted Assets Vi . Ratio of Tier II Capital to Risk-weighted Assets Vii. Ratio of Total Capital to Risk-weighted Assets Viii . Tier I Capital to Total Assets Ix. Gross and Net npas to Advances X.

Cash Reserve Ratio Xi. Statutory Liquidity Ratio 4. 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 values B. 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 information D. Details of the projected information on which the values have relied E. Detailed computation of the realizable value of assets of the acquired bank. 5.

Such other information and explanations as the Reserve Bank may require.

Chapter 6: Mergers in the Banking Sector ICICI Bank INTRODUCTION ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is India 's largest private bank. ICICI Bank has total assets of about Rs.20.05bn (end-Mar 2005), a network of over 550 branches and offices, and about 1900 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 at Kolkata and Vadodara , the Stock Exchange, Mumbai and 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 set up specialized subsidiaries in the areas of commercial banking, investment banking, nonbanking 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 upto 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. 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 longterm project financing to Indian businesses in 1955 . 1994 ICICI establishes ICICI Bank as a subsidiary. 1999 ICICI becomes the first Indian company and the first bank or financial institution from non-Japan Asia to list on the NYSE . - 29

Downloaded from a2zmba.blogspot.com 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

(established 1904 ) in the 1960s .

2002 The 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 MADURA The 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 its 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.17,345 - 30

Downloaded from a2zmba.blogspot.com crore 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 atleast 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 roughly Rs.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

would force 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 goes through. 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. Chapter 13: Merger of ICICI Bank with Bank of Madura

The proposed merger between ICICI Bank and Bank of Madura (bom) is a remarkable one. The pre--merger market capitalization of ICICI Bank was roughly Rs.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 - 33

Downloaded from a2zmba.blogspot.com 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 backburner. 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 a reasonably good quality balance sheet. The board of directors is to meet on December 11 to 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. 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 banks. Liquidity: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 and retained 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. Recommendation of Narasimham Committee on banking sector reforms Globally, the banking and financial systems have adopted information and communications technology. This phenomenon has largely by passed the Indian banking system, and the committee feels that requisite success needs to be achieved in the following areas:-

Banking automation Planning, Standardization of electronic payment systems Telecom infrastructure Data were Merger between banks and dfls and nbfcs need to be based on synergies and should make a sound commercial sense. Committee also opines that merger between strong banks / fls would make for greater economic and commercial sense and would be a case where the whole is greater than the sum of its party and have a force multiplier effect. It also have merger should not be seen as a means of bailing out weak banks. 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/deposit mobilization. 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.

INTRODUCTION 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. All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers, & other forms of corporate restructuring. 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. .