finance

1. SYNOPSIS
On
Impact Of Mergers And Acquisitions On Employees A Study In Banking Sector
In partial fulfillment of the requirement for the
Award of degree of
Master of Business Administration (MBA)
Submitted to
KCL-IMT
(Punjab Technical University)
In the partial fulfillment of requirement for the degree of
Masters of Business Administration
Submitted by: Supervisor:
Sukhjeet kaur Mr. Ashutosh
MBA IV
Roll No. 1174302
DEPARTMENT OF MANAGEMENT
KCL-IMT JALANDHAR

2. To Study on Mergers and Acquisitions-
Of Private Banking Sector
INTRODUCTION TO THE TOPIC
Mergers and Acquisitions
A merger is a tool used by companies for the purpose of expanding their operations often aiming
at an increase of their long term profitability. There are 15 different types of actions that a
company can take when deciding to move forward using M&A. Usually mergers occur in a
consensual (occurring by mutual consent) setting where executives from the target company help
those from the purchaser in a due diligence process to ensure that the deal is beneficial to both
parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of
outstanding shares of a company in the open market against the wishes of the target's board. In
the United States, business laws vary from state to state whereby some companies have limited
protection against hostile takeovers. One form of protection against a hostile takeover is the
shareholder rights plan, otherwise known as the "poison pill".
Historically, mergers have often failed (Straub, 2007) to add significantly to the value of the
acquiring firm's shares (King, et al., 2004). Corporate mergers may be aimed at reducing market
competition, cutting costs (for example, laying off employees, operating at a more
technologically efficient scale, etc.), reducing taxes, removing management, "empire building"
by the acquiring managers, or other purposes which may or may not be consistent with public
policy or public welfare. Thus they can be heavily regulated, for example, in the U.S. requiring
approval by both the Federal Trade Commission and the Department of Justice.
1.1 Acquisition
An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another.
An acquisition may be friendly or hostile. In the former case, the companies cooperate in
negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board

3. 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.
1.1.1 Types of acquisition
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 business, 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 like-kind 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

4. Classifications of mergers:
Horizontal mergers take place where the two merging companies produce similar product in the
same industry.
Vertical mergers occur when two firms, each working at different stages in the production of
the same good, combine.
Congeneric mergers occur where two merging firms are in the same general industry, but they
have no mutual buyer/customer or supplier relationship, such as a merger between a bank and a
leasing company. Example: Prudential's acquisition of Bache & Company.
Conglomerate mergers take place when the two firms operate in different industries.

5. List of different mergers and acquisitions in banking sector
 Mumbai-based Abhyudaya Co-operative Bank, is set to acquire one more co-operative bank — Sant
Janabai Urban Co-operative Bank — in Parbhani district of Marathwada. This is the third acquisition
for the bank which recently took over Citizen’s Co-operative Bank.
 While Saraswat Bank acquired Maratha Mandir, Cosmos Bank took over four urban cooperative
banks. These included Secunderabad-based Premier Urban Co-operative Bank and Annapurna Mahila
Co-operative Bank, Baroda-based Unnati Co-operative Bank and Co-operative Bank of Ahmedabad.
Cosmos is on a consolidation phase now, and will look at further acquisitions much later.
 Shamrao Vithal Co-operative Bank (SVCB) a leading multi-state cooperative bank is acquiring two
more cooperative banks — Kolhapur’s Mahavir Co-operative Bank and Bangalore’s Sauhadra Co-
operative Bank. It plans to conclude acquisition of the two co-operative banks by October, 2006 and
has already received permission from the Reserve Bank of India.
 ICICI Bank has acquired Bank of Madhura in the year 2001 because of its bankruptcy and it was going
to be closed down if it would not have been acquired.
 Vysya Bank Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse, ING
of Dutch origin were merged in Oct 2002.
 Recently, on 28th February, 2008 HDFC Bank has acquired Centurion Bank of Punjab. The capital
base and market share of the bank has increased significantly.

6. Objectives of study:
To know the conceptual framework of mergers and acquisitions.
To know the impact of mergers on operating efficiency and profitability of the banks.
To find the impact of mergers and acquisition on employees and their working
conditions.

7. Review of Literature:
SPIEGAL JOHN W. , ALAN GART (1996); This paper explains that the banking industry is
undergoing a restructuring. This movement results from (1) the large number of bank and thrift
failures in the 1970s and 1980s , (2) the deregulation that followed, (3) technological change, and (4)
the desire to improve profitability by serving customers more efficiently and by increasing sources of
revenue in the highly competitive environment of the 1990s. There are different reasons and phases for
the continuing of M& A activity.
SCALISE JOSEPH M., GREGORY F. UDELL (May 1997); Udell examine the effects of bank M with
post-M&A refocusing of the consolidated institution. They are also the first to estimate the reactions of
other banks in local markets to M&As. They find that the static effects of consolidation which reduce small
business lending are mostly offset by the mergers. Their methodology permits empirical analysis of the
great majority of U.S. bank M&As since the late 1970s -- over 6,000 M&As involving over 10,000 banks
(some active banks are counted multiple times). They are the first to decompose the impact of M&As on
small business lending into static effects associated with a simple melding of the antecedent institutions and
dynamic effects associated e reactions of other banks in the market, and in some cases also by refocusing
efforts of the consolidating institutions themselves.
WEBER, TINA (1999); The impact of M&As on employees, staff representatives and their unions
European financial services sector is currently undergoing a period of major restructuring. Data from the
Eurostat Labour Force Survey show a significant decline in the employment in the EU financial services
sector between 1992 and 1998, the survey estimates that 130,000 jobs have been lost in the last 10 years as a
result of mergers and acquisitions alone in the financial services sector. On the whole, job losses in banking
have been more severe than in insurance, as the restructuring process began earlier in the banking industry.
KAKANI, RAM (2002); 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.

8. 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.
SHARMA, MEERA (2002); Indian banking industry is likely to see many more mergers as
competition intensifies. The mergers are most likely among the private sector and foreign banks. This
is because the public sector banks are still protected by their large branch network, which insulates
them from competition from new banks, which will take some time to develop a comparable network.
The private and foreign banks, on the other hand, have been most severely impacted by competition
and are likely to seek mergers to improve their competitive position. They are also likely to benefit
from such mergers on account of scale economies. This need will be felt more once the proposed rise
in net worth requirements takes place.
DATTA K. DEEPAK (2003); This study analyzes the empirical literature concerning the influence of
various factors on shareholder wealth creation in mergers and acquisitions using a multivariate
framework. Overall, results indicate that while the target firm's shareholders gain significantly from
mergers and acquisitions, those of the bidding firm do not. Findings also indicate that the use of stock
financing has a significant impact on the wealth of both the target and bidding firms' shareholders. The
presence of multiple bidders and the type of acquisition influence the bidders' return, while regulatory
changes and tender offers influence the targets' returns. The paper also provides a comparison of our
findings with that of previous narrative reviews and discusses their implications from the viewpoint of
managers and researchers.
SCOTT I. MEISEL (2003); The purpose of this paper is to determine firm characteristics that might
explain mergers and to predict the likelihood of a merger. Therefore, this study is different in that it
uses principal component analysis to determine independent variables for logistic regression and uses
a national sample. In addition, the effect of the Financial Services Modernization Act is tested in
regards to market structure. The study indicates which characteristics explain the decision to merge or

9. acquire. In addition, for the seller, the model may indicate the potential for being acquired. The model
may also be useful to investors because mergers lead to abnormal returns.
SETH, ANJU (2005); This study provides a conceptual framework and an empirical methodology to
assess the extent of value creation in acquisitions. Arguments are presented to examine why related
acquisitions might not outperform unrelated acquisitions on average. New measures of value creation
are developed which resolve the difficulties with measures used by earlier researchers. In addition, the
influence of the classification scheme used to identify acquisition types, and the impact of the relative
size of the target to the bidder, on the measurement of the extent of value creation, is examined. The
empirical results indicate that value is created in both unrelated and related acquisitions. Further, the
data do not appear to indicate that related acquisitions create more value than unrelated acquisitions on
average.
DIRK HACKBARTH, ERWAN MORELLEC (2006); The paper develops a real options
framework to analyze the behavior of stock returns in mergers and acquisitions. The implications of
the model for abnormal announcement returns are consistent with the available empirical evidence. In
addition, the model generates new predictions regarding the dynamics of firm-level betas for the time
period surrounding control transactions. They used primary data by taking a sample of 1090 takeovers
of publicly traded US firms between 1985 and 2002, and they present new evidence on the dynamics
of firm-level betas, which is strongly supportive of the model's predictions.
AHMED, WS (2007); This paper states the performance puzzle of mergers and acquisitions over a
past few decades, mostly on British results with minor results, covering Irish experience. It has been
seen in the recent past that, with the progression of takeover activity, the debate over its advantageous
aspects has considerably increased.
MANTRAVADI, PRAMOD (2007); In today's globalised economy, mergers and acquisitions are being
increasingly used the world over as a strategy for achieving a larger size and asset base, faster growth in
market share and for becoming more competitive through economies of scale. One of the important factors
that could affect the outcome of a merger is the relative size of the acquiring and acquired companies. This
paper studies the impact of mergers on the operating performance of acquiring corporates by examining

10. some pre- and post-merger financial ratios with a sample of firms chosen from all mergers involving public
limited and traded companies in India between 1991 and 2003.
PEIYI YU, WERNER NEUS (2007); The paper aims to investigate whether the wave of mergers observed
in other European countries is suitable for the German banking industry. This question is approached by
studying the relationship between market structure and profit (the so-called profit-structure relationship) in
the German banking industry using the model suggested by Berger. By extending his econometric model to
include portfolio and capital risk and using German banks' financial data, the authors are able to test
simultaneously for three competing theories of the profit-structure relationship
ANAND MANOJ, SINGH JAGANDEEP (2007); The study analyses five mergers in the Indian banking
sector to capture the returns to shareholders as a result of the merger announcements using the event study
methodology (Brown & Warner, 1980, 1985; and Mac Kinlay, 1997). These are merger of Times Bank with
the HDFC Bank, Bank of Madura with the ICICI Bank, ICICI with the ICICI Bank, Global Trust Bank with
the Oriental Bank of Commerce, and Bank of Punjab with the Centurion Bank. The Fama and Miller (1972)
market model and Cox and Portes (1998) two-factor model form the theoretical framework of this study.
The aim is to understand the shareholder wealth effects of bank mergers
RAINER LENZ, University of Applied Sciences, Bielefeld (2007); The valuation of synergy is vital to
the success of any merger, however, given current valuation methodologies and the complexity of the task;
it is also the most challenging element of merger and acquisition pricing. Conventional valuation methods
assume that sales figures and market share of the acquiring company are easily transferable within the new
entity. Current synergy practices also assume amalgamating various corporate functions will produce
significant cost reductions.
SHARMA RUCHI (2007); The regional strength is one of the benefits that HDFC Bank was looking
for, but the merger also offer several others. HDFC Bank says it was looking to supplement organic
growth with a merger that would add scale, geographical reach and experienced staff who are in short
supply. HDFC Bank has 23,000 employees while CBoP has about 7,500. The deal add 394 branches
and 452 ATMs to HDFC Bank's existing 754 branches and 1,906 ATMs, giving the combined entity
1,148 branches. That will be the country's largest private branch network, larger than private-sector
leader ICICI Bank's 955 branches

11. ROY ROBIN (2007); HDFC Bank has an asset size of Rs. 131,439 crore ($33 billion) as of the third
quarter of 2007-08, 1,100 branches and 21,477 employees. CBoP's equivalent figures are Rs. 25,404
crore ($6.3 billion), 390 branches and 7,500 employees. HDFC Bank has better asset quality with net
non-performing loans at 0.4% (with 2.5% provisioning) against 1.7% (1.5%) for CBoP. The latter,
however, has a higher share of retail (60%) in its total loan portfolio than HDFC Bank (51%). "It is not
quite a merger of equals or a large bank completely swallowing a smaller one," according to a report
by Macquarie Research, the Australia-headquartered provider of investment and financial services.
Both banks have been through mergers before
KUMAR, SATISH (2008); This paper states that while going for mergers and acquisitions (M&A)
management smell financial synergy or/and operating synergy in different ways. But actually are they
able to generate that potential synergy or not, is the important issue. The aim of this study is to find out
whether the claims made by the corporate sector while going for M&As to generate synergy, are being
achieved or not in Indian context. Measuring merger performance has been one of the most difficult
problems in front of researchers. Different tools and techniques in the forms of ratio analysis etc. are
used by scholars to identify the effects of M&As and interestingly different results are there in the
market.
ECONOMIST INTELLIGENCE UNIT VIEWS WIRE (2008); On February 25th the boards of
HDFC Bank and Centurion Bank of Punjab (CBoP) agreed to the biggest merger in Indian banking
history, valued at around Rs95.2bn (US$2.4 billion). The merger is subject to statutory and regulatory
approvals and will take some four months to go through. CBoP shareholders will get one share of
HDFC Bank for 29 shares of CBoP. The merged entity will be called HDFC Bank and CBoP's non-
executive chairman, Rana Talwar, and its managing director and CEO, Shailendra Bhandari, will join
the new board as a non-executive and executive director, respectively.
GEOFF, PARR (2009); This paper states the global credit crunch and the recession that will follow
will surely impact on the size and number of M&A deals in 2009, although there may well be more
distress sales than usual, whether of entire businesses or non-core assets. Also, the recession might
cause the exit of key competitors from certain markets, which might reduce the chances that the

12. authorities would allow further concentration by merger in those sectors. Against these considerations,
there are at least three reasons why the impending recession may lead to a more permissive stance
towards M&A deals by the competition authorities.

13. RESEARCH METHODOLOGY
Research methodology is careful investigation or inquiry in a systematic manner and finding solution
to a problem under investigation. It includes population, sampling of respondents, tools of
investigation and analysis.
Rationale of the Problem:
 Banking Industry has always contributed productively to the GDP of the economy that is
the reason of taking banking sector as a basis for the present study.
 The outcome of the present study is likely to offer far reaching implications for customers
(in terms of satisfaction), banks (improved functioning), banking industry as a whole (as
an important component of national income) and economy as a whole (as a major
contributor to GDP).
This study will also be undertaken with an objective to know how customers perceive different
banking services provided to them by different banks after merger or acquisition (as the case
may be) i.e. what are their preferences and expectations.
Research Methodology:
The methodology includes the research design of the study, sampling technique and data
collection methods.
Design of the Study:
The study is exclusively exploratory in nature. The research design is characterized by flexibility in
order to discover insight not previously recognized.
Sample design:
The data is required from one source keeping in mind the objectives of the study.

14. Sources of Data
Both Primary and Secondary Data is used to collect information for the present study.
Primary data: Primary data as defined is first time data collected. This type of data is collected
through the survey. For this purpose, a convenience sampling technique is used to select
respondents but the method used for collecting of primary data is personal interview, getting the
questionnaire filled.
Secondary data: These types of data have already been collected by someone else and which
have already been passed through the statistical process. The techniques/ methods used to collect
the secondary data are books, pamphlets and various websites.
Sampling plan:
The following factors have been decided within the scope of sampling plan:
 Sampling size: 100 employees
 Analysis: Analysis is done using bar graphs and pie diagrams.