UNIVERSITY OF MUMBAI

“A STUDY OF MEREGR AND ACQUISITION”

BACHELOR OF COMMERCE (ACCOUTING & FINANCE)

SUBMITTED BY
KRUTIKA BABU SUTAR
TYBAF (2019-2020)
ROLL NO: 49
SEMESTER VI

UNDER THE GUIDANCE OF

MRS BABITA KANOJIYA

CLARAS COLLEGE OF COMMERCE

 UNIVERSITY OF MUMBAI
“A STUDY OF MEREGR AND ACQUISITION”
(VODAFONE MERGER WITH IDEA COMPANY)
BACHELOR OF COMMERCE (ACCOUTING & FINANCE)

SUBMITTED BY
KRUTIKA BABU SUTAR
TYBAF (2019-2020)
ROLL NO: 49
SEMESTER VI

UNDER THE GUIDANCE OF

MRS BABITA KANOJIYA

CLARAS COLLEGE OF COMMERCE

CERTIFICATE
DECLARATION BY LEARNER
ACKNOWLEDGMENT
INDEX
 SUMMARY
Merger is a combination of two or more companies into one company. The acquiring company, (also referred
to as the amalgamated company or the merged company) acquires the assets and the liabilities of the target
company (or amalgamating company). Typically, shareholders of the amalgamating company get shares of
the amalgamated company in exchange for their shares in the target market or company.
There are two ways which company may grow; one is internal growth and the other one is external growth.
The internal growth suffers from drawbacks like the problem of raising adequate finances, longer
implementation time of the projects, uncertain etc. in order to overcome these problems a company may
grow externally by acquiring the already existing business firms. This is the route of mergers and acquisition
 CHAPTER 1
1.1 INTRODUCTION TO MERGER AND ACQUISITION
Mergers and acquisitions are transactions in which the ownership of companies, other business
organization, or their operating units are transferred or consolidated with other entities. As an aspect of
strategic management, mergers and acquisition (M&A) can allow enterprises to grow or downsize and
change the nature of their business or competitive position.
From a legal point of view, a merger is a legal consolidated of two entities into one, whereas an
acquisition occurs when one entity takes ownership of another entity’s stock, equity interests or assets. From
a commercial and economic point of view, both types of transaction generally result in the consolidated of
assets & liabilities under of entity, and the distinction between merger and acquisition is less clear.
The phrase mergers and acquisition refer to the aspect of corporate strategy, corporate finance and
management dealing with the buying, selling and combing of different companies that can finance or help a
growing company in a given industry grow rapidly without having to create another business entity.
Decision has to be taken after having discussed the pros & cons of the proposed merger and the impact of
the same on the business, administrative costs benefits, addition to shareholders value, tax implications
including stamp duty and last but not least also on employee of the transferor or transferee company.
 MERGERS
Merger is defined as combination of two or more companies into a single company where one survives and
the others lose their corporate existence. The survivor acquires all the asset as well as liabilities of the
merged company or companies. General the surviving company is the buyer, which retains its identity, and
the extinguished company is the seller.
Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies.
Further All the assets, liabilities and the stock of one company stand transferred to transferee company in
consideration of payment in the form of:
. Equity shares in the transferee company
. Debentures in the transferee company
. Cash or
. A mix of the above modes
Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations.
Mergers occur when the merging companies have their mutual consent as different from acquisitions, which
can take the form of hostile takeover. The business laws in US vary across states and hence the companies
have limited option to protect themselves from hostile takeovers. One way a company can protect itself from
hostile takeovers is by planning shareholders rights, which is alternatively known as poison pill.

ACQUISTION
An acquisition usually refers to a purchase of smaller firm by a larger one. Acquisition also known as a
takeover or a buyout, is the buying of one company by another. Acquisition or takeovers occur between the
bidding and the target company. There may be either hostile or friendly takeovers. Acquisition in general
sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is
the purchase by one company of a controlling interest in the share capital of another existing company.
An increase in acquisitions in the global business environment requires enterprises to evaluate the key stake
holders of acquisition very carefully before implementation. It is imperative for the acquirer to understand
this relationship and apply it to its advantage. Employee retention is possible only when resources are
exchanged and managed without affecting their independence.
An acquisition is when one company purchases most or all of another company’s shares to gain control
of that company. Purchasing more than 50% of a target firms stock and other assets allow the acquirer
to make decisions about the newly acquired assets without the approval of the company’s shareholders.
Companies acquire other companies for various reasons. They may seek economics of scale, diversification,
greater market share etc.
 1.2 TYPES OF MERGER

Horizontal merger: It refers to two firms operating in same industry or producing ideal products combing
together. The main objective of horizontal mergers are to benefit from economics of scale, reduce
competition, achieve monopoly status and control the market. Horizontal merger is a business consolidation
that occurs between firms who operate in the same space, often as competitors offering the same good or
service. Two or more companies that are in the direct competitive edge in the same product lines and
markets, when merging together we can that a horizontal merger took place.
Examples: The merger of Tata Oils Mills Company Ltd with Hindustan Lever
The merger of Bank of Mathura with ICICI.
The merger of Lipton India and Brook Bond.

vertical merger: A merger is said to be vertical in nature if it involves merging of two firms which are at
different stage of the manufacturing operation. A vertical merger can happen in two ways. One is which
firms acquires another firm which produces raw material used by it. Another form of vertical merger
happens when a firm acquires another firm which would help it get closer to the customer. Thus it means a
merger of a customer company with a supplier company. This merger is basically executed so as to ensure
smooth supply of raw materials to the acquiring firm. This means the main product manufacturing company
can directly source the main ingredients from the merged company without bothering for the other supply
chain company. This merger is basically executed to take advantage of the reduced production cost,
increased efficiency and profit maximization. If a clothing stores take over a textile factory, this would ne
termed as vertical merger, since the industry is same, i.e. clothing, but the stage of production is different:
one firm is territory sector, while the other works in secondary sector.

Examples: The merger of Reliance Petrochemicals Ltd with Reliance industries Ltd.
The merger Time Warner Inc and The Turner Corporation. (CARTOON NETWORK).

Conglomerate mergers: It refers to the combination of two firms operating in industries unrelated to each
other. In this case, the business of the target company is entirely different from those of the acquiring
company. The main objective of a conglomerate merger is to share assets or reduce their business risk. It
involves the integration of companies entirely involved in a different set of activities, products or services.
When the management of acquiring and target companies mutually and willingly agrees for takeover it is
called friendly mergers. When the merger is forced or against the wish of the target company it is called
hostile merger. Hostile merger takes the form of tender offer wherein the offers to buy the shares by
acquiring company will be made directly to the target shareholders without the consent of the target
company. For example a steel manufacturer acquiring a software company.

Examples: The merger and acquisition of Ranbaxy and Daiichi Sankyo

The merger of Ashok Leyland and Hindujas.
The merger of L&T with Voltas Ltd.
Concentric mergers: It refers to combination of two or more firms which are related to each other in
terms of customer groups, function or technology. Concentric mergers take place between firms that serve
the same customers in a particular industry, but they don’t offer the same products or services. Their
products may be complements, product which go together, but technically not the same products. These are
usually undertaken to facilitate consumers, since it would be easier to sell these products together. Also, are
us This would help the company diversify, hence higher profits. The two companies in this case are
associated in some way or the other. Usually they have the production process, business markets or the basic
technology in common. It also includes extension of certain product lines. These kinds of mergers offer
opportunities for businesses to venture into other areas of the industry reduce risk and provide access to
resources and markets unavailable previously. For example, if a company that produces DVDs mergers with
a company that produces DVD players, this would be termed as concentric mergers, since DVD players and
DVDs are complements products which are usually purchased together.

Market expansion merger: Market expansion takes place between two companies that deal in the same
products but in separate markets. The main purpose of the market extension merger is to make sure that the
merging companies can get access to a bigger market and that ensures of bigger client base. Thus, this
merger enables the acquiring company to utilize the synergy of the acquired company. A market extension
merger is a type of merger in which two or more companies in the same industry sector combine in order to
expand their market reach.

Example: Dells Alienware Gaming Laptops.

Product Extension Merger: A product extension merger differs a bit from a market extension merger.
Product extension merger take place between two business organization that deals in products that are
related to each other and operate in the same market. The product extension merger allows the merging
companies to group together their products and get access to bigger set of customers. This ensures that they
earn higher profits.

Example: Broadcam’s acquisition of Moblink Telecom Inc.

Forward Merger: A forward merger is a vertical integration of those firms or vendors which buy raw-
material or semi-finished goods from a supplier. These are the firms that make the final goods or finished
goods. This could be done to increase the market share, and for product and price efficiency.

Consolidation merger: A consolidation merger is one where in both the companies are dissolved and a
new entity is formed. This form of a merger is used when one wants to introduce a new product to attain a
higher market share, to increase product efficiency and to attain tax benefits.

1.3 TYPES OF ACQUISITION

Friendly Acquisition- It is a condition in which a target company's management and board of directors
agree to a merger or an acquisition by another company. In a friendly acquisition, a public offer of cash or
stock is made by the acquirer firm and the board of the target firm publicly approves the buyout terms,
which may yet be approved by the shareholders or regulatory bodies. Before a bidder makes an offer for
another company, it usually first informs that company's board of directors. If the board feels that accepting
the offer serves shareholders better than rejecting it, it recommends the offer be accepted by the
shareholders. In a private company, because the shareholders and the board are usually the same people or
closely connected with one another, private acquisitions are usually friendly. If the shareholders agree to sell
the company then the board is usually of the same mind or sufficiently under the orders of the shareholders
to cooperate with the bidder.

Hostile Acquisition- The acquisition of one company (Target Company) by another (Acquirer Company)
that is completed not by common agreement but rather by going specifically to the organization's
shareholders or battling to supplant administration with a specific end goal to get the acquisition approved.
A hostile takeover can be achieved, either by a tender offer or by an intermediary battle. A hostile takeover
allows a suitor to bypass a target company's management unwilling to agree to a merger or takeover.
A takeover is considered "hostile" if the target company's board rejects the offer, but the bidder continues to
pursue it, or the bidder makes the offer without informing the target company's board beforehand. A hostile
takeover can be conducted in several ways. A tender offer can be made where the acquiring company makes
a public offer at a fixed price above the current market price. Tender offers in the USA are regulated with the
Williams Act. An acquiring company can also engage in a proxy fight, whereby it tries to persuade enough
shareholders, usually a simple majority, to replace the management with a new one which will approve the
takeover. Another method involves quietly purchasing enough stock on the open market, known as a
creeping tender offer, to effect a change in management. In all of these ways, management resists the
acquisition but it is carried out anyway.

Reverse Acquisition: A reverse takeover is a type of takeover where a private company acquires a public
company. This is usually done at the instigation of the larger, private company, the purpose being for the
private company to effectively float itself while avoiding some of the expense and time involved in a
conventional IPO. However, under AIM rules, a reverse take-over is an acquisition or acquisitions in a
twelve month period which for an AIM company would:
 exceed 100% in any of the class tests; or
 result in a fundamental change in its business, board or voting control; or
in the case of an investing company, depart substantially from the investing strategy stated in its admission
document or, where no admission document was produced on admission, depart substantially from the
investing strategy stated in its pre-admission announcement or, depart substantially from the investing
strategy.
Independent of the class or structure, all mergers and acquisitions have one basic yearning i.e. they are
intended to make “synergy” that makes the value of the joined organizations more prominent than the
aggregate of the two individual parts. The success of a merger or acquisition relies on upon whether this
synergy is accomplished.
 1.4 MOTIVES FOR MERGERS AND ACQUSITION
Companies make merger and acquisitions for a long list of reasons. Most of these reasons are good, in that
the motivation for the transaction is to maximize shareholder value. Theoretically, companies should pursue
a merger or an acquisition only if it creates value—that is, if the value of the acquirer and the target is greater
if they operate as a single entity than as separate ones. Put another way, a merger or acquisition is justified if
synergies are associated with the transaction. Synergies can take three forms: operating, financial, or
managerial. Two companies may undertake merger to increase the wealth of their shareholders. Generally,
the consolidation of two business results in synergies that increase the value of a newly created business
entity. Synergy means that the value of merged company exceeds the sum of the value of two individual
companies.

Revenue synergies
Synergies that primarily improve the company revenue generating ability. For example, market expansion,
product diversification and research and development activities are only a few factors that can create revenue
synergies.

Cost synergies
Synergies that reduce the company cost structure. Generally, successfully merger may result in economies of
scale, access to new technologies, and even elimination of certain costs. All these events may improve the
cost structure of a company.

Diversification
Mergers are frequently undertaken for diversification reasons. For example, a company may use a merger to
diversify its business operations by entering into a new markets or offering new products or service.
Additionally, it is common that the managers of company may arrange a merger deal to diversify risks
relating to the company operation.
Acquisition of assets
A merger can be motivated by a desire to acquire certain assets that cannot be obtained using other methods.
In merger and acquisition transactions, it is quite common that some companies arrange mergers to gain
access to assets that are unique or to assets that usually take a long time to develop internally. For example,
access to new technologies is a frequent objective in many mergers.
Increase in financial capacity
Every company faces a maximum financial capacity to finance its operations through either debt or equity
markets. Lacking adequate financial capacity, a company may merger with another. As a result, a
consolidated entity will secure a higher financial capacity that can be employed in further business
development process.
Tax purposes
If a company generates significant taxable income, it can merger with company with substantial carry
forward tax losses. After the merger, the total tax liability of the merged company will be much lower than
that tax liability of the independent company.

Incentives for managers

Sometime mergers are primarily motivated by the personal interests and goals of the top management of a
company. For example, a company created as a result of a merger guarantees more power and prestige that
can be viewed favourably by managers. Such a motive can also be reinforced by the managers ego as well as
his or her intention to build the biggest company in the industry in term of size. Merger do offer to company
managers the advantage of increasing the size of their company and the financial structure and strength.
They can covert a closely held and private limited company into a public company without contributing
much wealth and losing control.
Consumers
The economic gains realized from mergers are passed on to consumers in the form of lower prices and better
quality of the product which directly raise their standard of living and quality of life. The balance of benefits
in favor of consumers will depend upon the fact whether or not the mergers increase or decrease competitive
economic and productive activity which directly affects the degree of welfare of the consumers through
changes in price level, quality of products , after sale service, etc.

Unique capabilities
Not every companies can have all the resources or strengths required for a successful growth. There will
come a time when the company wants to acquire the competencies and resources that it lacks. This can be
easily done through mergers and acquisition in a very cost- effective way as compared to developing the
capabilities internally.

International goals
International mergers and acquisition have become more common and important in today’s business world.
Like with mergers in one own country, these international deals are also motivated by the above- mentioned
reasons. However, there are several reasons specially for international mergers as follows:

A) Unique products can be marketed in new markets.

B) Transfer of technology to new markets
C) Exploiting market inefficiencies
D) Overcoming disadvantageous policies of the government
E) Continued support to international clients

1.5 HISTORY OF MERGERS & ACQUSISTIONS

The development of mergers & acquisitions (M&A) is not an invention of recent times. The first
appearance of M&A in a high frequency evolved at the end of the 19th century. Since then, cyclic waves are
observed with different waves emerging due to radical different strategic motivations. The following table
draws out the timeline of M&A development and clarifies strategic motivations underlying each wave.
The activity in mergers and acquisitions in the past century shows a clustering pattern. The clustering
pattern is characterized as a wave and they occur in burst interspersed with relative inactivity. When we
discuss these merger waves, economics usually refer to 6 specific waves starting from 1890. The length and
start of each wave is not specific, but the end of each wave usually falls with a major war or the beginning a
recession/crisis. Furthermore, the first and second wave was only relevant for the US market while the other
waves had more geographical dispersion. Especially in wave five, where besides US, UK and continental
Europe, Asia also had a significantly increased M&A market,
A general conclusive theory about the M&A waves is not available yet, although there seems to be
industry-specific factors that trigger the waves because different industries experience increased M&A
activity at different times. The following table shows the summary of the Mergers and Acquisitions waves.

MERGERS AND ACQUISITION WAVES

WAVES PERIODS FACET

First wave 1897-1904 Horizontal mergers
Second wave 1916-1929 Vertical mergers
Third wave 1965-1969 Diversified conglomerate mergers
Fourth wave 1984-1989 Co-generic merger, hostile takeovers, corporate
raiders
Fifth wave 1992-2000 Cross border, mega mergers
Sixth wave 2003-2008 Globalization, private equity, shareholder
activism

WAVE-1: 1897-1904
The first wave followed after a period of economic expansion, and an important characteristic
was the simultaneous consolidation of manufacturers within one industry. This within industry consolidation
led to horizontal consolidation of major industries and created the first “giants” in the oil, mining and steel
industries, among others. Furthermore, the horizontal mergers led to the creation of monopolies. According
to Stigler (1950), mergers “permit a capitalization of prospective monopoly profits and a distribution of
portions of the capitalized profit”. In 1890 the Sherman Antitrust Act 1, which limits cartels and monopolies,
was passed but it was not yet clear in the beginning so the direct impact was limited. The creation of
monopolies was therefore not being restricted.
The first wave was also characterized by “friendly” deals and by cash financing. Having said
this, we still do not know why the merger wave started in the first place.
 In the first place, laws on incorporations were evolving and were implemented more rigorously at the end of
the nineteenth century. Before proper legislation, entrepreneurs had an unlimited liability on their assets
which means that growth of your company also means greater exposure and greater risk. Improvement of
laws on incorporations led to limited liability for entrepreneurs. Furthermore, economic expansion and the
development of the modern capital market, i.e. the improvement of the New York Stock exchange, also
boosted the number of mergers because capital needed to acquire, or merge, became more accessible.
The end of the first wave came due to a more rigorous enactment of the new antitrust laws,
e.g. the Sherman Antitrust Act. Besides this, the stock market crashed around 1905 which resulted in a
period of economic stagnation. Furthermore, the beginning or threat of the First World War is also pointed as
a cause of the end of the first identified wave, also known as the “Great Merger Wave”.

WAVE-2: 1916-1929
The second merger wave started in the 1910s, where the primary focus of merger activity was
in the food, paper, printing and iron industry but the wave was significantly smaller in magnitude than the
first wave. Where the first wave exceeded more than 15% of the total assets in the US market, the second
wave had in impact of less than 10%. The second wave followed after the First World War in times of
economic recovery and increasing concerns about monopoly power. As opposed to the first wave, this wave
characterizes itself as a creator of oligopolies. At the end of the wave, industries were no longer dominated
by one large corporation, but rather by two or more. Especially small companies, which “survived” the
previous wave, were active on the M&A market. The objective of these companies was to gain economies of
scale so that they were better equipped against the power of the previous monopolist. Logic behind the
emergence of the oligopolies is that the merged companies of the previous wave were faced with restricted
resources due to the pervious crisis and greater enforcement of antitrust laws, especially the Sherman act.
Similar to the first wave was the “friendly” character of the deals, but the prevalent source of
financing switched from cash to equity. The end of the second merger wave was caused by the market crash
of 1929 which started the “Great Depression” which led to a world-wide depression in the following years.

WAVE-3: 1965-1969
Due to the “Great Depression” and the following Second World War, the activity on the M&A
market slowed down significantly. The new wave started only in the 1950’s and coincided with further
restrictions which needed to prevent anticompetitive mergers and acquisitions. This resulted in the
development of a new business organization. Mergers in the first and second wave usually involved
horizontal (wave 1) or vertical (wave 2) integration, but the third wave gave rise to the concept of
diversification. Similar to the second wave was that equity was the dominant source of financing.
The method of diversification led to the rise of conglomerates, which are large corporations that consists
of numerous businesses not necessarily related. Example of a conglomerate is General Electric, which has
interest in a vast number of businesses including healthcare, transportation and energy. Diversification can
be a method to reduce the cash flow volatility through reduction in the exposure to industry specific risk.
The conglomerate will be less vulnerable to shocks in one industry because it generates income in different,
maybe unrelated, industries so that loss of income in one industry can be offset by other industries. Due to
conglomerate creation, growth opportunities in unrelated businesses can be exploited. Finally, a
conglomerate will create its own internal capital market which is especially useful when outside capital is
expensive.
 The diversification process also led to changes in the market structure. Chandler (1991) with his
concept of the Multidivisional Enterprise stated that:
“structure follows strategy and the most complex type of structure is the result of concatenation of several
basis strategies”. Interpretation can be that the strategy of corporations leads to changes in the market
structure. The diversification led to an increased distance between the managers at the headquarters and the
divisional managers. Besides possible inefficiencies associated with increased communication lines, the
addition of the numerous businesses also led to a decision overload at the company headquarters.
Whether the third wave began due to the stricter enactment of antitrust laws which led to increased
diversification and “empire” building is still up for debate. Clear is that in the third wave the percentage of
corporations active in unrelated business increased from 9% to 21% among the Fortune 500 companies,
which suggest that diversification plays a key role in the third wave. The third merger wave slowed down
and the end of the 1970s and collapsed completely in 1981 when there was an economic recession due to a
significant oil crisis.

WAVE-4: 1984-1989
The fourth merger wave started in the 80s, and was quite different then its previous one. Foremost,
the bids were usually hostile which meant that the bids did not have the target’s management approval.
Second, the size of the target was also significantly larger than in the previous wave. Furthermore, the
dominant source of financing shifted from equity to debt and cash financing.
According to Ravens craft (1987) the beginning of the wave could have been a bargain hunt taken
place in a depressed stock market, where the conglomerates of the previous wave divested their divisions.
Sudi Sudarsanam (2003) states that in the fourth wave divestitures constituted about 20-40% of the M&A
activity. Apparently, there was a simultaneously expansion and downsizing of businesses, where the
expanding corporations made use of the divestitures to increase their competitive position.
Schleifer and Vishny (1991) view the new merger wave as one that is characterized by “bust-up”
takeovers, where large parts of the target were divested after acquiring. Besides these bust-ups, the concept
of leveraged buy-out (LBO) emerged. In a LBO, the firms’ own management uses large amounts of outside
debt to acquire the company. After acquisition, large fractions of the assets are sold as was the case with the
bust-up takeovers.
The fourth wave started to eliminate the inefficiencies that were created by the conglomerate
mergers in the third merger wave. Morck, Schleifer and Vishny (1990) show that in the 1980s a bid on a
target firm, which is competing in the same industry, has a positive relationship with stock market return for
the shareholders of the bidding firm. For bids on unrelated targets the opposite holds. This indicated that the
market had a negative attitude towards unrelated diversification, a strategy appreciated in the third merger
wave. After 1989 M&A activity gradually slowed down and yet another stock market crash led to the end of
the wave.
WAVE-5: 1992-2000
The 1990s was a decade of great economic prospect. The financial markets were booming and a
globalization process was developing. The merger activity also boomed in continental Europe where it
almost equal the US market. Due to globalization the number of cross border acquisitions increased
significantly. In order to keep up with the economic growth and the global opportunities, organizations
searched outside their domestic borders to find a target company. Growth was an important driver for
merger activity. Corporations wanted to participate in the globalization of the economy. This created some
“mega” deals that were unthinkable before this wave. Some major mergers were: Citibank and Travelers,
Chrysler and Daimler Benz and Exxon and Mobil.
The fifth wave started due to technological innovations, i.e. information technology, and a refocus of
corporations on their core competences to gain competitive advantage. This resource-based view leads to a
better focus to gain a sustainable competitive advantage through the best use of their resources and
capabilities.
The nature of the merger was prevalent friendly, and the dominant source of financing was equity.
The end of the wave was once again caused by an economic recession. The beginning of the new
millennium started with the burst of the internet bubble, causing global stock markets to crash.

WAVE-6: 2003-2007
The Sixth Wave saw the introduction of globalization, as established corporate companies
emphasized the need to create a multi-national reach. Private Equity boomed as shareholders looked to
spread ownership of their companies between themselves, day-to-day management and institutional
investors.
At the time when the sixth merger wave started, interest rates were low after the recession in the
economy. The interest rates were kept low even though the economy was starting to recover, and as a result
it gave a major boost to the private equity business. Like the fifth wave, companies financed mergers
through the use of equity and a new wave was triggered. On the other hand, Martynova and Renneboog
(2005) claim that the reason why the merger wave occurred was mainly due to the delay of transactions after
the 9/11 terrorists attack in the US. At that time there was a highly unsecure market and investments were
hold. As the market began to return to normal and the uncertainty vanished, investments exploded and
triggered a new wave. Sudarsanam (2010) explained the merger wave as a result of emerging markets. UK
and the EU have the same characteristics of their merger waves during this period. Thus it was a relatively
short, but nonetheless intense merger wave. It came to a rapid end when the subprime crisis started in 2007.

FUTURE OUTLOOK: SEVENTH WAVE

In the context of finance, there is little interest in the history of M&A, and it is likely that many
errors that occurred in earlier periods will reoccur. Understanding history can help us identify the proximity
to a new wave of M&A.
In 2014, optimism seems to be returning to the market, and the value of mergers and acquisitions
globally reached 1.75 trillion U.S. dollars in the first six months of the year, an increase of 75% over the
same period last year and the largest volume of transactions since 2007. What is observed is that the
business environment after the 2008 crisis, characterized by risk aversion and a focus on organic growth by
firms, is dissipating.
It is true that we are living in a more volatile era in terms of market growth, but companies are beginning to
understand that this volatile world is the new standard; after all, there will always be wars and countries with
difficulty to honour their sovereign debt payments. In such an environment, it may not be possible to rely
only on organic growth and cost cutting to deliver consistent financial results. Managers seem to once again
believe that it is easier to buy growth than build it.

SUMMARIZED MERGERS AND ACQUISITION WAVES

WAVE-1 WAVE-2 WAVE-3 WAVE-4 WAVE-5

Period 1893-1904 1910-1929 1955-1975 1984-1989 1993-2000

Means of cash equity equity Cash / debt equity

payments

Diversification Bust-up
M&A Creation of Creation of / conglomerate Takeover, Globalization
outcomes Monopolies Oligopolies Building LBO

Nature of friendly friendly friendly hostile friendly

M&A

Economic Economic Strengthening Deregulation Strong

Beginning of Expansion, recovery, law on of Financial Economic
wave new laws on Better Anticompetitiv Sector, Growth,
Incorporation, enforcement e M&A’s, Economic Deregulation
Technological of antitrust Economic Recovery and
Innovation law recovery after Privatization
WW-II.
Burst of the
End of wave Stock Market The great Market crash Stock market Internet
Crash, WW-I depression Due to an oil crash Bubbles, 9/11
Crises Terrorist
Attack
 1.6 MERGERS AND ACQUISITION IN DIFFERENT SECTOR

BANKING SECTOR
In Indian banking sector Mergers and acquisitions has become admired trend throughout the
country. A large number of public sector bank, private sector bank and other banks are engaged in mergers
and acquisitions activities in India. The Main motive behind Mergers and acquisitions in the banking sector
is to harvest the benefit of economies of scales. Merger and acquisition have played an important role in the
transformation of industrial sector of India since the Second World War period. During the Second World
War Economic and political conditions give rise to effective Mergers and acquisitions (M&A). Mergers can
be a large source of growth in any economy but particularly in one that’s comparatively stagnant and mired
in deep uncertainty.
Mergers and acquisitions in the banking sector is a common phenomenon across the world. The
primary objective behind this move is to attain growth at the strategic level in terms of size and customer
base. This, in turn, increases the credit-creation capacity of the merged bank tremendously. Small banks
fearing aggressive acquisition by a large bank sometimes enter into a merger to increase their market share
and protect themselves from the possible acquisition. Banks also prefer mergers and acquisitions to reap the
benefits of economies of scale through reduction of costs and maximization of both economic and non-
economic benefits. The process of merger and acquisition is not a new happening in case of Indian banking.
As the entire Indian banking industry is witnessing a paradigm shift in systems, processes, strategies, it
would warrant creation of new competencies and capabilities on an on-going basis for which an environment
of continuous learning would have to be created so as to enhance knowledge and skills.
A large number of international and domestic banks all over the world are engaged in merger and
acquisition activities. One of the principal objectives behind the mergers and acquisitions in the banking
sector is to reap the benefits of economies of scale. Mergers and Acquisitions are important corporate
strategy actions that aid the firm in external growth and provide it competitive advantage. In today’s
globalized economy, mergers and acquisitions (M&A) are being increasingly used world over, for
improving competitiveness of companies through gaining greater market share, business risk, for entering
new markets and geographies, and capitalizing on economies of scale etc. Today, the banking industry is
counted among the rapidly growing industries in India. It has transformed itself from a sluggish business
entity to a dynamic industry. The growth rate in this sector is remarkable and therefore, it has become the
most preferred banking destinations for international investors. A relatively new dimension in the Indian
banking industry is accelerated through mergers and acquisitions. It will enable banks to achieve world
class status and throw greater value to the stakeholders. The main objective of this paper is to analysis
whether the bank has achieved financial performance efficiency during the post, merger & acquisition
period specifically in the areas of profitability, leverage, liquidity, and capital market standards. This study
is testing the impact of merger and acquisition of banks and provides insights about their role after merger on
banks profitability.

Significant mergers and acquisition:

Bank of Mathura with ICICI Bank
Bank of Rajasthan with ICICI Bank
Times Bank with HDFC Bank
Vijaya Bank and Dena Bank with Bank of Baroda.
TELECOM SECTOR
The number of mergers and acquisitions in Telecom sector has been increasing significantly.
Telecommunications industry is one of the most profitable and the rapidly developing industries in the world
and it is regarded as an indispensable component of the worldwide utility and services sector.
Telecommunications industry deals with various forms of communications mediums for example mobile
phones, fixed line phones, as well as internet and broadband services. Currently, a trend of merger and
acquisition in telecom sector are going on throughout the world.
The aim behind such mergers and acquisition is to attain competitive benefits in the
telecommunications industry. The mergers and acquisition in telecom sectors are regarded as horizontal
mergers simply because of the reason that the entities going for merger and acquisition are operating in the
same industry that is telecommunications industry. In the majority. Of the developed and developing
countries around the world, mergers and acquisition in the telecom sector have became necessity. This kind
of mergers also assists in creation of jobs. Both transnational and domestic telecom service providers are
keen to try merger and acquisition options because this will help them in many ways. They can cut down
theirs expenses, achieve greater market share and accomplish market control. Merger and acquisition in the
telecom sectors have been showing a prospectus trend in recent past and the economists are advocating that
they will continue to do so.
Private sector investment and foreign direct investment have also boosted the growth of mergers
and acquisition in telecommunications sector. Over the last few years a phenomenal growth has been
witnessed in the number of mergers and acquisition taking place in the telecommunication industry.
Economic reforms have spurred the growth in the mergers and acquisition in telecommunication
sector to a satisfactory level. Mergers and acquisitions in telecom sector can also have negative effects.
Which may include monopolization of the telecommunications products and services, unemployment, etc.
However, the governments of various countries take appropriate steps the overcome these problems.
In countries like India, mergers and acquisitions have increased to a considerable level from the mid- 1990s.
in the united states, the merger and acquisition in the telecom sector are going on in a full-fledged manner.
The merger and acquisition in the telecom sector are governed or supervised by the regulatory authority of
the telecom sector of India or a particular country. The telecom regulatory always keep a tab on the
telecommunications industry that no monopoly can formed.
Indian Telecommunication Industry is the second-largest telecommunications market in the world
after the USA, with 1,058.86 Million subscribers by the end of the financial year (FY) 2016, according to
Telecom Regulatory Authority of India (TRAI). It stood third-highest in terms of total internet users in 2015,
with 164.81 million internet subscriptions. It is one of the fastest growing industries in India with an annual
growth of 12% to 13 %. The rapid pace in the telecom sector have been alleviated by liberal policies of the
Government of India that give trouble-free market access for telecom equipment and a fair regulatory
framework for offering telecom services at affordable prices
Significant mergers and acquisition:
Idea-Vodafone merger
Bharti Airtel to buy Tikona Digital Networks Ltd
Takeover of Hutchison Essar by the Vodafone group
Pharmacy sector
In the health sector, the industry that is the first thing come to mind in terms of company mergers and
acquisitions is the pharmaceutical industry. Until last twenty years, the understanding of getting benefit from
scale economy and turning the market inconveniences into advantage come to the forefront in obtaining
competitive advantage for pharmaceutical companies. Nowadays, proliferation of globalization and increase
of the competition day by day have to lead to occurrence of issue of that the pharmaceutical companies are
not able to gain sufficient profit as a significant problem. Therefore, the effort of high income and
dominating the market in the global market through mergers and acquisitions has become popular among the
pharmaceutical companies. With the effect of this popularity, many companies in the world have started to
try merger and acquisition methods as a dominant growth way.
The bio-pharma industry is dynamic and is currently changing focus from Research and
development to licensing and outsourcing. So, before any Merger and acquisition activity a strategy
formulation is very essential with emphasis on creating a competitive advantage for the business. There are
several causes of mergers and acquisition in the global pharmacy industry. Among them are the absence of
proper research and development facilities, gradual expiry of patents and competition within specific
pharmacy genres. The high profiles product recalls have also played a major role in the continuing merger
and acquisition in the industry.
The Indian Pharmaceutical Sector is currently the largest amongst the developing nations. There is a
worldwide structural trend evolving in pharmaceuticals and Indian companies play a key role in this
framework, driven by their superior biotech and drug synthesis skills, high quality and vertically integrated
manufacturing assets, differentiated business models and significant cost advantages. Companies across the
world are reaching out to their counterparts to take mutual advantage of the other’s core competencies in
research and development, Manufacturing, Marketing and the niche opportunities offered by the changing
global pharmaceutical environment. The pharmaceutical sector offers an array of growth opportunities. This
sector has always been dynamic in nature and the pace of change has never been as rapid as it is now. To
adapt to these changing trends, the Indian pharmaceutical and biotechnology companies have evolved
distinctive business models to take advantage of their inherent strengths and the “Borderless” nature of this
sector.
The changing environment in the bio-pharma industry is driving an increased activity of Mergers
and acquisitions. In 2008, sales growth of prescribed drugs globally has reached the lowest rate in since
2001. Along with this slowdown, the pharmaceuticals sector is faced with an increasingly challenging
environment resulting from increasing patent expirations, growing generic sales, reducing new drug
pipelines and stricter regulations. The biotechnology sector also faces increased regulatory challenges as
well as shortage of credit.

Significant mergers and acquisition

Merger between Ranbaxy and Sun Pharma
Acquisition of Primal healthcare by Abbott
Daiichi sankya acquisition of Ranbaxy
Dr Reddy’s Laboratories acquisition of Betapharm and UCB India
 CHAPTER 2
RESEACH METHODOLODY
Research Methodology is a way to systematically solve the research problem. It may be understood as a
science of studying how research is done systematically. We study the various steps that are generally taken
by the researcher in studying the research problem along with the logic behind it. The research methodology
includes over all research design, the sampling procedure, the data collection method, research objectives
along with its limitations, advantages, assumptions and analysis procedure.

2.1 METHOD OF DATA COLLECTION

PRIMARY RESEARCH
Primary research is conducting original research to obtain a variety of social indicators that can help to
determine the risk of community and protective factors identity community resources, and determine
community readiness for prevention efforts. For instance, primary research can involve researching
community laws and surveys to determine norms, gaps, attitudes or social service. Some methods of
conducting primary research are as follows:

 Questionnaires
 Experimentation
 Observation
 Documentary sources

SECONDARY RESEARCH
Secondary research is a data which already exists in some form having collected for a different
purpose, perhaps even by a different organization, and which might be useful in solving a current problem.
Although secondary research is less expensive than primary research, it is not always accurate, useful, as
specific, custom-made research. There are various sources available to marketer and the following list is by
no means conclusive:

 Census data
 Public records
 Business libraries
 Trade directories
 Trade associations
 Websites
 Published company accounts
 Previously gathered marketing research
 Informal contracts

In my study I have selected secondary research along with the case study of Bank of Rajasthan
merged with ICICI Bank.

2.2 OBJECTIVES

 To study the concept of merger and acquisition

 To study the procedure of merger and acquisition banking sector in India
  To analysis the impact of merger on both the banks
 To study the financial statement before and after merged.
 To study the reason of merger of BANK OF RAJASTHAN AND ICICI BANK.
 To study the advantages and disadvantages of merger and acquisition
 To study the activities performed by both banks after merger.

2.3 MAJOR MERGERS AND ACQUSITION IN INDIA

Tata Steel acquired 100% stake in Corus Group on January 30, 2007. It was an all cash deal which
cumulatively amounted to $12.2 billion.

Vodafone purchased administering interest of 67% owned by Hutch-Essar for a total worth of $11.1 billion
on February 11, 2007.

India Aluminium and copper giant Hindalco Industries purchased Canada-based firm Novelis Inc in
February 2007. The total worth of the deal was $6-billion.

Indian pharma industry registered its first biggest in 2008 M&A deal through the acquisition of Japanese
pharmaceutical company Daiichi Sankyo by Indian major Ranbaxy for $4.5 billion.

The Oil and Natural Gas Corp purchased Imperial Energy Plc in January 2009. The deal amounted to $2.8
billion and was considered as one of the biggest takeovers after 96.8% of London based companies'
shareholders acknowledged the buyout proposal.

In November 2008 NTT DoCoMo, the Japan based telecom firm acquired 26% stakein Tata Teleservices for
USD 2.7 billion.

India's financial industry saw the merging of two prominent banks - HDFC Bank and Centurion Bank of
Punjab. The deal took place in February 2008 for $2.4 billion.

Tata Motors acquired Jaguar and Land Rover brands from Ford Motor in March 2008. The deal amounted to
$2.3 billion
 2.4 ADVANTAGES OF MERGER AND ACQUISITION

Expansion:
Most of the companies enter into M&A agreements to increase their size and to eliminate their rivals from
the market. In the normal circumstances, it can take many years for a company to double its size, but the
same can be achieved much more rapidly through mergers or acquisitions.

Eliminate competition:
M&A deals are usually done so as to allow the acquirer company to eliminate the future competition by
gaining a larger market share in its product’s market. However, there is a con attached to it, which is that a
large premium is usually required to convince the shareholder of the target company to accept the offer. In
such cases, the shareholders of the acquiring companies get disappointed by the fact that their company is
issuing huge premiums to another companies shareholder’s, and thus the shareholders of the acquiring
company sell their shares which further results in decreasing their value.

Synergies and economies of scale:

This is usually one of the primary motivating factors for small companies as they have limited resources and
usually deal with financial constraints. Companies merge to take advantage of synergies and economies of
scale. Synergies occur when two companies who deal with the similar type of business combine with each
other, as they can then consolidate or eliminate duplicate resources like a branch and regional offices,
manufacturing facilities, research projects etc. Every amount of money which is saved goes straight to the
bottom line, boosting earnings per share and making the M&A transaction an “accretive” one.