Mergers

Project report On

Mergers & Acquisitions

INDEX

1

Contents page no.

1. Introduction …………………………42. Problem formulation ……………53. Variables ………………………………64. Methodology ……………………….75. Data collection …………………….86. Data analysis ……………………….107. Findings ……………………………….148. Conclusion …………………………..159. Bibliography………………………… 16

INTRODUCTION

2

In today’s scenario, making profits have become the main objective of any firm either by launching new products or by the expansion of the present business. Merger and acquisitions have become one of the important mediums to expand the business. Merger is defined as the process of combining two companies into a new one. On the other hand, in acquisition one company is acquired by another through purchasing.

There have been many merger and acquisitions till date in the business world in order to earn profits and value to the company. For example, But this very purpose of mergers and acquisitions does not get fulfilled all the time. There have been many examples when mergers and acquisitions have failed to earn any profit or value to the company, instead have deteriorated the company’s performance.

PROBLEM FORMULATION

3

In the year 2004, Global Trust Bank Ltd. (a private sector bank) was merged with Oriental Bank of Commerce (a public sector bank) by the government of India following the disclosure of scams the Global Trust Bank was indulged into. This research is about the study of operating performance of the two banks prior to the merger & acquisitions. The pre-merger and post-merger performance of the company will be studied and analyzed. Through this analysis it will be concluded whether the merger and acquisitions bring about any impact on the financial performance of the acquiring firm or not.

Objective:

To analyze the impact of mergers and acquisitions on the financial performance of the acquiring firm.

Research hypothesis:

H0: Mergers and acquisitions do not improve the financial performance of the acquiring firm.

H1: Mergers and acquisitions improve the financial performance of the acquiring firm.

VARIABLES

4

Dependent variable:

Merger

Independent variables:

Interest income

OPBDT (Operating profit before depreciation & taxes)

PAT (Profit after taxes)

Equity Capital

EPS (Earning per share)

Operating income

Net profit margin

METHODOLOGY

5

Interest income is the interest earned cash temporarily held in savings accounts, certificates of deposits, or other investments.

Operating income is the amount of profit realized from a business's operations after taking out operating expenses - such as cost of goods sold (COGS) or wages - and depreciation. Operating income takes the gross income (revenue minus COGS) and subtracts other operating expenses and then removes depreciation. These operating expenses are costs which are incurred from operating activities and include things such as office supplies and heat and power.

Operating profit before depreciation and taxes is the income earned by the firm after deducting other expenses.

Profit after tax is the profit obtained after deducting the depreciation and interest.

Equity capital is capital raised from owners in the company. This is different from debt capital which is money raised by incurring debt through the issuance of debentures and other types of bonds. Owners can choose to sell equity in the company, in the form of stock, to investors. This is usually done through a direct offering to the public or through an underwriter like an investment bank

EPS is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Net profit margin is a ratio of profitability calculated as

6

net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

DATA COLLECTION:

Type of data – Secondary

The data has been taken from financial statements (profit & loss a/c and balance sheet) of the acquiring bank.

STATISTICAL TOOL: t-testing

Data for Global trust bank:

Variables 2001-02 2002-03 2003-04Interest income 7242.21 5395.97 3541.90OPBDT 907.13 -2280.29 -787.90PAT 402.59 -2666.32 -8123.80Equity capital 1213.59 1213.59 1213.60EPS 3.32 -21.97 ---

7

Oriental bank of commerce: (Pre-merger)

Variables 2001- 02 2002- 03 2003-04 2004-05Year of merger

Interest income 3040.47 3294.69 3300.54 3571.90OPBDT 359.11 497.60 736.76 819.59PAT 233.42 323.44 478.89 532.73Equity capital 192.54 192.54 192.54 192.54EPS 16.65 23.73 35.63 37.71Operating income 3541.83 3861.50 4027.43 3835.60Net profit margin 9.12 11.89 17.03 19.44

Oriental bank of commerce: (Post-merger)

Variables 2005-06 2006-07 2007-08Interest income 4118.92 5164.90 6838.18OPBDT 631.68 652.63 428.27PAT 410.59 424.20 278.37Equity capital 250.54 250.54 250.54EPS 22.24 23.18 14.10Operating income 4408.98 5530.47 6978.11Net profit margin 12.54 15.35 11.38

DATA ANALYSIS

8

Variable view of pre-merger data:

Variable view of post-merger data:

OUTPUT of t-testing: (for pre-merger)

9

OUTPUT of t-testing: (for post-merger)

10

11

Data interpretation:

After performing the t-testing on the variables, significance level in all the cases has come out to be less than 0.05 which rejects the null hypothesis i.e. mergers & acquisition of Oriental bank of commerce and Global Trust bank has been beneficial to the acquiring firm which in this case is Oriental bank of commerce.

12

Findings

After the study of data before and after merger following findings can be deduced:

Interest income has increased Net profit margin has increased Earnings per share has increased immediately

after the merger but in 2008 it has reduced Profit after taxes has increased OPBDT has increased

Conclusion

13

After analyzing all the aspects of the data available and giving some important recommendations a suitable conclusion which should be derived for this study. However, before starting the conclusion part, the objective of the research must be kept in mind so that we can arrive at a befitting conclusion for the research problem.The primary objective of the research is to find out the effect of merger and acquisitions on the financial performance of the acquiring firm.

After taking into account the various findings it can be concluded that the financial performance of the bank has increased after the merger and acquisition of the Global trust bank with the oriental bank of commerce.

Bibliography

14

www.moneycontrol.com www.investopedia.com www.indiamergers.co.in www.bseindia.com www.yahoofinance.com

15