Merger and Acquisition of Indian Banks

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PROJECT REPORT

ON

“MERGERS AND ACQUISITIONS OF BANKS”

EXECUTIVE SUMMARY

Mergers and acquisitions are one of the popular topics in business today, since they characterize the new economy: pressure of global competition, development of technology and disappearance of country boundaries. The purpose of this project is to study how mergers and acquisitions affect the share prices of the acquirer bank. We have taken up seven banks as a part of our case study analysis and have made an attempt to study the share price pattern of Transferee Banks before and after merger on a monthly basis by drawing out graphs and using correlation and regression.

TABLE OF CONTENTS

1. Introduction …………………………………………………………………7 2. Research Methodology…………………………………………………….19 3. Case study on Banks
a. Bank of Baroda……………………………………………………….22 b. OBC…………………………………………………………………..26 c. IDBI..………………………………………………………………….30 d. Indian Overseas Bank…………………………………………………34 e. ICICI…...……………………………………………………………...37 f. HDFC………...………………………………………………………..41 g. Punjab National Bank…………………………………………………44

4. Conclusions and Recommendations…………………………………………47 5. References…………………………………………………………………...48

LITERATURE REVIEW

Our research mainly identifies the changing pattern of average share prices of the acquirer company and whether the overall effect has been positive or not. The research papers, we have studied for this purpose includes:

1. MERGERS AND ACQUISITIONS: AN EXPERIMENTAL ANALYSIS OF SYNERGIES, EXTERNALITIES AND DYNAMICS BY- RACHEL T. A. CROSON, ARMANDO GOMES, KATHLEEN L. MCGINN AND MARKUS NÖTH The ultimate goal of a takeover is to realize synergies, but how the synergies are divided between the involved companies is an open question that is critical for identifying winners and losers in mergers and acquisitions. Experimental method is used to investigate these questions. This research focuses on the bargaining process among owner-managers in the division of fixed and known synergies. The analysis is limited to situations with three existing companies in an industry, each represented by one owner-manager. Each company may remain independent, merge with one other company or merge with two other companies either sequentially or simultaneously. Following tests have been undertaken in this research-

First, they highlight the importance of estimating the synergies and externalities involved in takeovers. If these can be estimated by the researcher (presumably in consultation with industry participants), then the order of takeovers within an industry can be predicted, and those predictions tested. A second set of results discusses the timing of takeovers and suggests an explanation for why takeovers may occur in waves. If one company believes that a takeover creates synergies and thus begins a negotiation process, all other firms in this industry whose values will be affected by a takeover through the externalities should consider their takeover options, too. Thus their theory and experiment identifies conditions under which one takeover will trigger another. A third contribution to empirical research involves the benefits from being involved in an early takeover. The theory we describe distinguishes between situations in which it is better to participate in the firs t takeover and those in which staying out yields a higher return. In these situations different players make the first bid and the synergies and externalities can be used to predict who will eventually be the acquirer and who the target. In addition to the implications of these predictions for empirical research, our experiment can be used by the firm’s management or its advising investment bank when thinking about whether and how to pursue a merger or takeover. Thus our research provides structural guidelines for the empirical analysis of these takeovers. Thus synergies created from takeovers and the resulting...
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