MERGER & ACQUISITION OF HDFC & CBOP TERM PAPER : (Term 2 ) TOPIC : MERGER AND ACQUISITION OF HDFC AND CBOP SUBJECT : STRATEGIC MANAGEMENT SUBMITTED BY : PANKAJ SINGH (B51) Roll no : RRB51 SUBJECT : MGT 612 SECTION : RR1904 SUBMITED TO : MISS. NEHA Lovely School of Business…. Date: 14/11/2010 MGT 612 Page 1
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MERGER & ACQUISITION OF HDFC & CBOP
TERM PAPER : (Term 2 )
TOPIC : MERGER AND ACQUISITION OF HDFC AND CBOP
SUBJECT : STRATEGIC MANAGEMENT
SUBMITTED BY : PANKAJ SINGH (B51)
Roll no : RRB51
SUBJECT : MGT 612
SECTION : RR1904
SUBMITED TO : MISS. NEHA
Lovely School of Business…. Date: 14/11/2010
MGT 612 Page 1
MERGER & ACQUISITION OF HDFC & CBOP
ACKNOWLEDGEMENT
I take this opportunity to present my votes of thanks to all those guidepost who really acted as
lightening pillars to enlighten our way throughout this project that has led to successful and
satisfactory completion of this study.
I am highly thankful to MISS. NEHA for her active support, valuable time and advice, whole-
hearted guidance, sincere cooperation and pains-taking involvement during the study and in
completing the assignment of preparing the said paper within the time stipulated.
Without the active participation of our teachers it would have been extremely difficult for me
to prepare the project in a time bound framework.
Name: PANKAJ SINGH
Regd.No: 10907098
Rollno: RRB51
Sec: RR1904
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MERGER & ACQUISITION OF HDFC & CBOP
MERGER AND ACQUISITION
Mergers and acquisitions (M&A) refers to the aspect of corporate strategy, corporate finance
and management dealing with the buying, selling and combining of different companies that
can aid, finance, or help a growing company in a given industry grow rapidly without having
to create another business entity. An acquisition, also known as a takeover or a buyout, is the
buying of one company (the ‘target’) by another. The acquisition process is very complex
and various studies shows that only
50% acquisitions are successful. An acquisition may be friendly or hostile. In a friendly
takeover a company’s cooperate in negotiations. In the hostile takeover, the takeover target is
unwilling to be bought or the target's board has no prior knowledge of the offer. 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 or longer established company and keep its
name for the combined entity. This is known as a reverse takeover.
Although merger and amalgamation mean the same, there is a small difference between the
two. In a merger one company acquires the other company and the other company ceases to
exist. In an amalgamation, two or more companies come together and form a new business
entity.
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MERGER & ACQUISITION OF HDFC & CBOP
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate
finance world. Every day, Wall Street investment bankers arrange M&A transactions, which
bring separate companies together to form larger ones. When they're not creating big
companies from smaller ones, corporate finance deals do the reverse and break up companies
through spinoffs, carve-outs or tracking stocks. Not surprisingly, these actions often make
the news. Deals can be worth hundreds of millions, or even billions, of dollars. They can
dictate the fortunes of the companies involved for years to come. For a CEO, leading an
M&A can represent the highlight of a whole career. And it is no wonder we hear about so
many of these transactions; they happen all the time. Next time you flip open the newspaper’s
business section, odds are good that at least one headline will announce some kind of M&A
transaction.
Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this
question, this tutorial discusses the forces that drive companies to buy or merge with others, or
to split-off or sell parts of their own businesses. Once you know the different ways in which
these deals are executed, you'll have a better idea of whether you should cheer or weep when a
company you own buys another company - or is bought by one. You will also be aware of the
tax consequences for companies and for investors.
MERGERS - A merger is a combination of two companies into one larger company,
which involves stock swap or cash payment to the target.
ACQUISITION - When one company takes over another and clearly established itself
as the new owner, the purchase is called an acquisition.
GOVERNING LAW
The Companies Act, 1956 does not define the term 'Merger' or 'Amalgamation'. It deals with
schemes of merger/acquisition which are given in s.390-394 'A', 395, 396 and 396 'A'.
Horizontal merger – is the merger of two companies which are in produce of Same
products.This can be again classified into large horizontal merger and Small
horizontal merger.Horizontal merger helps to come over from the competition between
two companies merging together strengthens the company to compete with other
companies. Horizontal merger between the small companies would not effect the industry
in large. But between the larger companies will make an impact on the economy and gives
them the monopoly over the market. Horizontal mergers between the two small
companies are common in India. When large companies merging together we need to
look into legislations which prohibit the monopoly.
Vertical merger – If a merger between two companies producing different goods
or services for one specific finished product. Vertical merger takes between the customer
and company or a company and a supplier. IN this a manufacture may merge with the
distributor or supplier of its products. This makes other competitors difficult to access to an
important component of product or to an important channel of distribution which
are called as "vertical foreclosure" or "bottleneck" problem. Vertical merger
helps to avoid sales taxes and other marketing expenditures.
Market-extension merger - is a merger of two companies that deal in same products in
different markets. Market extension merger helps the companies to have access to the
bigger market and bigger client base.
Product-extension merger – takes place between the two or more companies which
sells different products but related to the same category. This type of merger
enables the new company to go in for a pooling in of their products so as to serve a
common market, which was earlier fragmented among them. This merger is
between two companies that sell different, but somewhat related products, in a
common market. This allows the new, larger company to pool their products and
sell them with greater success to the already common market that the two separate
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MERGER & ACQUISITION OF HDFC & CBOP companies shared. The product extension merger allows the merging companies to
group together their products and get access to a bigger set of consumers. This
ensures that they earn higher profits.
Conglomeration - Two companies that have no common business areas. A
conglomeration is the merger of two companies that have no related products or
markets. In short, they have no common business ties. Conglomerate merger in
which merging firms are not competitors, but use common or related production
processes and/or marketing and distribution channels. Co generic merger: Merger
between firms in the same general industry but having no Mutual buyer-seller
relationship, such as a merger between a bank and a leasing company.
Purchase mergers - this kind of merger occurs when one company purchases
another. The purchase is made with cash or through the issue of some kind of debt
instrument; the sale is taxable. Acquiring companies often prefer this type of
merger because it can provide them with a tax benefit. Acquired assets can be
written-up to the actual purchase price, and the difference between the book value
and the purchase price of the assets can depreciate annually, reducing taxes payable
by the acquiring company.
Consolidation mergers - With this merger, a brand new company is formed and
both companies are bought and combined under the new entity. The tax terms are
the same as those of a purchase merger. A unique type of merger called a reverse
merger is used as a way of going public without the expense and time required by an
IPO. Accretive mergers are those in which an acquiring company's earnings per
share (EPS) increase. An alternative way of calculating this is if a company with a
high price to earnings ratio (P/E) acquires one with a low P/E
RESEARCH METHODOLOGY
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MERGER & ACQUISITION OF HDFC & CBOP
OBJECTIVES
1. To study the merger and acquisitions in the banking sector.
2. To study the risk involved in merger and acquisition.
3. To study the benefits of merger and acquisition of HDFC AND CBOP.
LIMITATION OF THE STUDY
The analysis is purely based on the secondary data. So, any error in the secondary data might
also affect the study.
SIGNIFICANCE OF THE STUDY
The study which I have under taken is significant and useful as it has given me an
experience and knowledge about the recent merger and acquisitions in banking sector and
what was its impact on the performance of the company.
DATA COLLECTION
The data’s which is collected from various secondary sources like internet, journals and other
publications.
REVIEW OF LITERATURE
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MERGER & ACQUISITION OF HDFC & CBOP 1. AN EXAMINATION OF BANK SECTOR
This article helps to discuss various regulations which are faced by banks in order to enter the
merger and acquisition phase. In the banking sector, market entry is generally governed by a
specific banking regulator .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.
2. CHALLENGES THE INDIAN BANKS FACE
This article is about the various challenges faced by Indian banking sector. It discussed the
position of banks after merger and acquisition. It discusses the challenges such as: interest rates
risk, credit risk by private banks. 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.
3. MOTIVES FOR MERGERS AND ACQUISITIONS IN THE INDIAN BANKING SECTOR - A NOTE ON OPPORTUNITIES & IMPERATIVES
Recent reports on banking sector often indicate that India is slowly but surely moving from a
regime of 'large number of small banks' to 'small number of large banks'. The aim of this paper is
to probe into the various motivations for mergers and acquisitions in the Indian Banking sector.
Thus, literature is reviewed to look into the various motivations behind a banks' merger/
acquisition event. Given the increasing role of the economic power in the turf war of nations, the
paper looks at the significant role of the state and the central bank in protecting customer's
interests vis-à-vis creating players of international size. While, gazing at the mergers &
acquisitions in the Indian Banking Sector both from an opportunity and as imperative
perspectives, the paper also glances at the large implications for the nation.
4. MERGERS AND ACQUISITIONS - THE INDIAN BANKING SCENARIO
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MERGER & ACQUISITION OF HDFC & CBOP This article studies M&A activities in the Indian banking sector and says that even though the
objective of present bank mergers is to place the weak banks in safe hands, the future mergers
will focus more on strategic issues like increasing geographical reach and improving product
mix.
5. M&AS IN THE INDIAN BANKING SECTOR - STRATEGIC AND FINANCIAL IMPLICATIONS Like all business entities, banks want to safeguard against risks, as well as exploit available
opportunities indicated by existing and expected trends. M&As in the banking sector have been
on the rise in the recent past, both globally and in India. In this backdrop of emerging global and
Indian trends in the banking sector, this article illuminates the key issues surrounding M&As in
this sector with the focus on India. It seeks to explain the motives behind some M&As that have
occurred in India post-2000, analyse the benefits and costs to both parties involved and the
consequences for the merged entity. A look at the future of the Indian banking sector, and some
key recommendations for banks, follow from this analysis.
DISTINCTION BETWEEN MERGERS AND ACQUISITIONS
Although they are often uttered in the same breath and used as though they were synonymous,
the terms merger and acquisition mean slightly different things. When one company takes over
another and clearly established 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, often of about the same size,
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." Both companies' stocks
are surrendered and new company stock is issued in its place. For example, both Daimler-Benz
and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler,
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