merger of bank

8/7/2019 merger of bank

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Presented by:- Reg no:-Tara prasad 057

Nasim A khan 061Mitali 062Kamaljeet Sahoo 060



INTRODUCTION TO MERGER AND ACQUISITION

MERGERS

A merger occurs when two or more companies combinesand the resulting firm maintains the identity of one of thefirms. One or more companies may merger with an existingcompany or they may merge to form a new company.Usually the assets and liabilities of the smaller firms aremerged into those of larger firms.



Merger may take two forms-

1. Merger through absorption

Absorption is a combination of two or more companies into anexisting company. All companies except one loose their identify in a merger through absorption.

2. Merger through consolidation.A consolidation is a combination if two or more combines intoa new company. In this form of merger all companies arelegally dissolved and a new entity is created .In consolidationthe acquired company transfers its assets, liabilities and shareof the acquiring company for cash or exchange of assets.



ACQUISITION

A fundamental characteristic of merger is that theacquiring company takes over the ownership of other

companies and combines their operations with its ownoperations. An acquisition may be defined as an act of acquiring effective control by one company over theassets or management of another company without anycombination of companies.



MERGER AND INDIAN BANKING SECTOR 1) Mergers and acquisitions encourage banks to gain global reach and

better synergy andallow large banks to acquire the stressed assets of weaker banks.

2) Merger in India between weak/unviable banks should grow faster sothat the weak banks could be rehabilitated providing continuity of

employment with the working force, utilization of the assets blockedup in the weak/unviable banks and adding constructively to the

prosperity of the nation through increased flow of funds.

3) The process of merger and acquisition is not a new happening in caseof Indian Banking,Grind lay Bank merged standard charated Bank,Times Bank with HDFC Bank, bank of Madura with ICICI Bank,

Nedungadi Bank Ltd. With Punjab National Bank and most recdentlyGlobal Trust Bank merged with Oriental Bank of Commerce.



4 ) Merger and amalgamation in Indian banking so far has been to provide the safeguard and hedging to weak bank against their failureand too at the initiative of RBI, rather than to pay the way to initiatethe banks to come forward on their own record for merger andamalgamation purely with a commercial view and economicconsideration.

5) The Banking and finance system will improve competitivenessthrough aprocess of consolidation either through mergers andacquisitions or through strategic alliances.

6) There is need to restructure the banking sector in India throughmerger and amalgamation in order top makes them more capitalized,automated and technology oriented so as to provide environment morecompetitive and customer friendly.



Mergers Of Banking Sector

2000 Times bank HDF C Bank

2001 Bank of Madura ICICI

2002 Be nara s st a te bank Bank of Baroda

200 3 Ne dungad i Bank Punjab na tional Bank

2004 Sou th Gujra t Local Are a Bank Bank of Baroda

2004 Global Tru st Bank Orie n tal Bank of Comme rc e

2005Bank of Punjab Ce n tur ion bank

2007 Ce n tur ion Bank of PunjabLtd( me rg e d)

HDFC Bank Ltd



TYPES OF MERGERS

Mergers are of many types. Mergers may be differentiated on the basis of activities,which are added in the process of the existing product or service lines. Mergers can be a distinguished into the following four types:-

1. Horizontal Merger 2. vertical Merger 3. Conglomerate Merger 4 . Concentric Merger



H orizontal merger

Horizontal merger is a combination of two or more corporate firmsdealing in same lines of business activity. Horizontal merger is a cocentric merger, which involves combination of two or more businessunits related to technology, production process,marketing research anddevelopment and management.

Vertical erger

Vertical merger is the joining of two or more firms in different stages of production or distribution that are usually separate. he vertical ergerschief gains are identified as the lower buying cost of material.

inimization of distribution costs, assured supplies and marketincreasing or creating barriers to entry for potential competition or

placing them at a cost disadvantage.



Conglomerate Merger

Conglomerate merger is the combination of two or more unrelated business units in respect of technology, production process or market andmanagement. In other words, firms engaged in the different or unrelatedactivities are combined together. Diversification of risk constitutes therational for such merger moves.

Concentric Merger

Concentric merger are based on specific management functions where asthe conglomerate mergers are based on general management functions. If the activities of the segments brought together are so related that there iscarry over on specific management functions. Such as marketingresearch, Marketing, financing, manufacturing and personnel.



BENEFITS OF MERGERS

GROWT H 0R DI ERSIFICATION: - Companies that desire rapidgrowth in size or market share or diversification in the range of their

products may find that a merger can be used to fulfill the objectiveinstead of going through the tome consuming process of internal growthor diversification. The firm may achieve the same objective in a short

period of time by merging with an existing firm.

SYNERGISM: - The nature of synergism is very simple. Synergismexists when ever the value of the combination is greater than the sum of

the values of its parts. The incremental value may derive from increase ineither operational or financial efficiency.



Operating Synergism: - Operating synergism may result fromeconomies of scale, some degree of monopoly power or increased

managerial efficiency. The value may be achieved by increasing the salesvolume in relation to assts employed increasing profit margins or decreasing operating risks.

Financial synergism

Among these are incremental values resulting from complementaryinternal funds flows more efficient use of financial leverage, increaseexternal financial capability and income tax advantages.

A) Complementary internal funds flows

Seasonal or cyclical fluctuations in funds flows sometimes may bereduced or eliminated by merger. If so, financial synergism results inreduction of working capital requirements of the combination comparedto those of the firms standing alone.



B ) The Income Tax Advantages

In some cases, income tax consideration may provide the financialsynergy motivating a merger, e.g. assume that a firm A has earnings

before taxes of about rupees ten crores per year and firm B now break even, has a loss carry forward of rupees twenty crores accumulated

from profitable operations of previous years. The merger of A and Bwill allow the surviving corporation to utility the loss carries forward,thereby eliminating income taxes in future periods.

merger of bank

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