Commercial banks may be well positioned to offer these services if they have established lending and other customer relationships with either party to a merger. During the course of a long-term customer relationship, a commercial bank obtains private information about a firm’s cash flows, financial resources, and other exposures that can be useful in estimating the future prospects of a proposed merger. Indeed, if the role of the financial advisor in a merger is to mobilize information, then commercial banks, especially those with prior lending relationships potentially have a comparative advantage over investment banks in advising their customers particularly since, until very recently, investment banks did not make commercial loans. The bankruptcy code of US prohibit the transfer of information from an investment bank subsidiary to a related commercial bank subsidiary, there are no restrictions on the reuse of information obtained in the course of a standard banking relationship (e.g., on information flows from the bank’s lending department to the investment bank).
Kumar and Bansal (2008), in their study “The Impacts of Mergers and Acquisitions on Corporate Performance in India” attempted to analyze whether the claims made by the corporate sector, while going for M & As to generate synergy are being achieved or not in the Indian context. They did so by studying the impact of M & As on the financial performance of the outcomes in the long- run and compared and contrasted the results of merger deals with acquisition deals. The study used ratios and correlation matrix for analysis, and found that in many cases of M & As, the acquiring firms were able to generate synergy in the long run, which might have been in the form of higher cash flow, more business, diversification, cost cuttings and more.
Haunschild based his study on inter-organizational imitation theory, took American listed companies’ M & A events as samples, he found that between two companies of Interlocking Directorate relations, one will mimic the M & A activity that has occurred in the other company in making its M & A decisions, including the fre- quency and the type of mergers and acquisitions. Such behavior leads to a high degree of similarity in M & A of interlocking directorates companies. Haunschild then took American companies as a sample, he found that the less certain the merger company is about the value of the targeted company, the greater the influence of previous M & A activities of interlocking directorates related Company has on its M & A pricing  ; Shihua Chen took Chinese listed companies as samples to explore the role of links between company executives in deci- sion-making of premium in the company’s M & A, and he found that the imitation existed in company’s deci- sion-making of premium in M & A. These studies are mainly based on inter-organizational imitation theory to discover the effect of the links among boards of companies on their merger decision.
This study focuses on how mergers and acquisitions (M&A) affect the consumer’s buying behavior, specifically the consumer’s perception, of both the parent and acquired brand in the IT industry. The empirical test of the theoretical model was conducted using data collected through a 5-point Likert-scaled survey administered to a sample of 512 university students in South Korea. The students were selected as respondents in order to increase the homogeneity of the sample and to minimize random error caused by selecting the general public. The survey was designed using real examples. Specifically, the first version of the survey used the “Facebook & WhatsApp” case, and the second version used the “Microsoft & Skype” case. Quantitative methodology was employed, using multi-group path analyses for testing the hypotheses developed. The results confirm that brand awareness and perceived brand value are important sources of brand equity and that the effects of these two components on brand equity after M&A are significantly larger than before M&A. The study provides insights into important issues regarding brand equity and how to strengthen the evaluation of M&A of online companies, which could also be useful for brand managers.
An analysis of the Indian banking industry shows that due to factors like stability, return to shareholders, adhering to regulatory norms, etc make m & a as an imperative. Also m & a gives an opportunity to these Indian banks of creating a universal bank. Also mergers can be used as a strategic tool and also there is a possibility of strategic investments where traditional M&A are not possible. In the changing economic and business environment characterized by speed, flexibility and responsiveness to customers, size has a lot to contribute to staying ahead in the competition. It is in this context that mergers and acquisitions (M & A‘s) as a tool to gain competitive strength comes into the forefront with partnering for competitiveness being a recognized strategic argument for the same.
Olubukunola R et.al (2009) while studying a psychological effects of mergers and acquisition on employees in selected banks in Nigeria found that mergers and acquisitions have had a significant impact on the banking industry in Nigeria and around the world, over the last decade. Due to this reason many bank employees have experienced numerous psychological effects of mergers and acquisition. Acquisition is often seen to have negative impacts on employee's behavior, resulting in counterproductive practices, absenteeism, low morale and job dissatisfaction. This paper studied the effects of merger and acquisition on the morale and psychology of employees in the Nigerian banking sector and how it affects employee's productivity. It identified the different stages in mergers and acquisition and also the problems that may emerge at each stage of mergers and acquisition integration process. The researcher in the study observed that various factors relate to pre and post mergers and acquisition stages among which communication seems to be the most vital. Thus it is concluded from the research that open, timely, and accurate communication with employees may effectively reduce the negative psychological and behavioral consequences, thereby reducing employee's anxiety, uncertainty, confusion, rumour activity and labour turnover.
Conclusion reached from the study shows that performance of ECO Bank Plc has been very encouraging after the merger and acquisition with Oceanic Bank. This has been the general trend among other banks in the Nigerian financial system since the merger and acquisition phenomenon in the year 2010. It was clear from the findings that there have been more patronage in ECO bank due to better performance after the merger. Customers now have more access to effective bank services as more availability of funds has led to more infrastructural facilities in the bank.
There various regulatory authorities involved in the merger and acquisition. Business combinations are always subject to the approval of Securities and Exchange Commission. According to Investment and Security Acts, 2007, entities must seek for the approval of SEC before such scheme could be adopted. Registered companies are subject to the authority of Corporate Affairs Commission in respect of all entities operations. Federal Inland Revenue Service comes in the aspect of the taxation. The commercial activities involved in the scheme of M& A make the tax consideration to be difficult. Even though the tax implication has the advantage and disadvantage, but the entities are expected to allow tax to have effect on various transactions taken place during merger and acquisition. From the start, the merging companies are required to submit to the FIRS, copies of the scheme of merger and acquisition scheme of arrangement on the consolidation request for its study and proper evaluation in order to ensure that taxes which may result from the companies’ transactions are correctly assessed and collected. Herein lies the relevance of the Service’s powers under section 29(9) (i) to require either of the companies directly affected by any direction which is under the consideration of the Service to guarantee or give security to its satisfaction for payment in full of all tax due or to become due by the company which is selling or transferring such asset or business.
This paper analyzes some critical issues of consolidation in Indian banking with particular emphasis on the views of two important stake-holders viz. shareholders and managers. First we review the trends in consolidation in global and Indian banking. Then to ascertain the shareholders‟ views, we conduct an event study analysis of bank stock returns which reveals that in the case of forced mergers, neither the bidder nor the target banks‟ shareholders have benefited. But in the case of voluntary mergers, the bidder banks‟ shareholders have gained more than those of the target banks. In spite of absence of any gains to shareholders of bidder banks, a survey of bank managers strongly favors mergers and identifies the critical issues in a successful merger as the valuation of loan portfolio, integration of IT platforms, and issues of human resource management. Finally we support the view of the need for large banks by arguing that imminent challenges to banks such as those posed by full convertibility, Basel-II environment, financial inclusion, and need for large investment banks are the primary factors for driving further consolidation in the banking sector in India and other Asian economies . Key words: Merger, Acquisition, stakeholders, share capital
According to Austin (2002) banking regulators are more inclined towards concentration in order to maintain and run a smooth banking industry. Contrary to that public wants more competition in the market so that they may get increased returns on their savings and investments. Due to this very factor, central banks are although suitable choice to review M&A proposals from the perspective of financial soundness of banks and overall industry, yet they are not suitable to review the proposal from antitrust perspective. The conclusion is Central bank should review the proposals of M&A to grant approval but at the same time; these proposals must also be reviewed by a competent antitrust authority having the powers to decline M&A having significant negative impacts on competition in the market. In case of Pakistan, approval for Mergers of banks falls under the purview of SBP along with Securities & Exchange Commission of Pakistan (abbreviated SECP). The criteria used for the purpose is not easily available, not even a proper system to consider public opinion or complaints of the stakeholders, particularly those of depositors. This study investigates the relationship of M&A and interest spread of the banking industry in Pakistan, and explores whether concentration ratio of banking sector of Pakistan after M&A is approaching the limit or not where there is a need for bringing banking mergers and acquisitions under the jurisdiction of antitrust authority.
Mergers and Acquisitions in the Indian Banking Sector are going to be the order of the day. India is slowly but surely moving from a regime of ‘large number of small banks’ to small number of large banks’. Clearly, therefore from the point of view of financial system, consolidation of banks is imperative. The objective would be strengthening of banks, economies of scale, global competitiveness, cheaper financial services and retaining of employees for merging skill sets. Consolidation will provide banks with new capabilities, technologies and products, help to overcome entry barriers, ensure immediate entry into new markets and lower operating costs through consolidation of resources. In India history of Mergers is as old as formation of Imperial Bank of India y merging Bank of Bengal, Bank of Bombay and Bank of Madras in 1921. Mergers in public sector mainly took place primarily to protect the interest of depositors of weak private banks like, Hindustan commercial Bank faced the moratorium in 1988 and was merger with PNB. Another example of merger is merger of Global Trust Bank with Oriental Bank of Commerce. In this moratorium, government imposes a freeze on the bank’s liabilities so that bank is not able to grant any loan or advances, incur any liability, make any investment or disburse any amount.
Waddock, Samuel B. Graves, 2006 the major findings of this study emerges from the relationship between acquiring firms and merged firms, James P. Walsh, 1988 the results of this study turnover rates in acquired top management teams are significantly higher than normal turnover rates, and that visible, very senior executes are likely to turnover sooner than their less-visible colleagues, Joao Corvalho Santos, 2011 the concluded by presenting a broad discussion comprising the methods used, the research questions investigated the type of articles, as well as limitations and avenues for future enquiry, Andreea Niccoleta POPOVICI, 2014 this study is to analyse the impact of M&A’s on the study shows that a merger or an acquisition does not improve the value market of the shares of the bidder bank.
Dr.Abhinn baxi bhatnagar and Ms. Nitu sinha (2012) in their article entitled to “Strategic move of ICICI bank; A case study of Merger of ICICI Bank and bank of Rajasthan,” have expressed that Changing is the regulation of nature. Any business organization undergoes change on a continuous basis, technically termed as Corporate Restructuring. It is a fundamental fact of finance that growth and capital employed are two basic drivers of the value of an organization. On the other hand neither growth nor improvement in ROCE is possible unless the company is under the control of competent, progressive and visionary management. The present paper is an attempt to understand the strategic move of ICICI bank. The case study will reveal the motives behind and synergies from such M&A activities. Why ICICI Bank has taken such a strategic move and many more questions will be solved from the case study.
to as the target. The benefit of consolidation is to improve the performance of weak banks in three ways; at first by improving shareholders’ value and efficiency, secondly by enhancing personal supremacy, thirdly by improving financial condition of weak banks. Moreover, mergers can reap the benefits of economies, gain synergy4 and trim down costs (Prompitak, 2009; Sinha & Kaushik, 2010). Eleven merging events have been taken place during 2006- 2010. Karachi Stock Exchange reported that 18% bidder banks had repeatedly merged during this time period, where 40% mergers took place only in 2006. Large numbers of empirical studies have been devoted towards the issue of merger and performance across the globe (Altunbas & Marques, 2007; Badreldin & Kalhoefer, 2009) while few researchers have worked in context of Pakistan (Arshad, 12; Kemal, 2011;). This research has been designed to inspect the relationship of mergers and performance and the extent of variation in post-merger performance of banks. This research is helpful for policy makers to rationalize their decision and for bidder banks to review their performance level after mergers. The main aim of this study is to empirically examine the relation of merger & acquisition with the profitability of banks and impact of foreign and local mergers on the profitability of banks in Pakistan.
Sinha Pankaj & Gupta Sushant (2011) studied a pre and post analysis of firms and concluded that it had positive effect as their profitability, in most of the cases deteriorated liquidity. After the period of few years of Merger and Acquisitions(M&As) it came to the point that companies may have been able to leverage the synergies arising out of the merger and Acquisition that have not been able to manage their liquidity. Study showed the comparison of pre and post analysis of the firms. It also indicated the positive effects on the basis of some financial parameter like Earnings before Interest and Tax (EBIT), Return on share holder funds, Profit margin, Interest Coverage, Current Ratio and Cost Efficiency etc.
In 1996, only 72% of the acquirer firms engaged a financial advisor. It is interesting to note that after 2001, every transaction included financial advisors for the acquiring firms. Previous research has shown that financial advisors are more likely to be hired in complex deals, when the bid is hostile, the deal value is large, and the bidder has less acquisition experience (Servaes and Zenner, 1996; Kale, Kini and Ryan, 2003; and da Silva Rosa, Skott and Walter, 2004). Since 2001, virtually all acquiring firms used a financial advisor. Legal advisors represented the acquirer for every transaction in our sample. Obviously, management believes that one should not undertake even relatively simple transactions without legal advice. But for our study, the interesting question is why firms moved increasingly to multiple legal advisors. The trend to engage multiple advisors is greater in the 2000s relative to the 1990s. In the 1990s, 11.4% of the acquirer firms elected to engage multiple financial advisors. This percentage increased to 20.0% in the 2000s. Multiple legal advisors were engaged in 34.5% of the transactions in the 1990s while 50% of the firms elected to engage multiple legal advisors in the 2000s.
Continuing its merger plan for public sector banks, the government has finally completed the mega-merger of one weaker lender Dena Bank and anchor lender Vijaya Bank with a 111-year-old Bank of Baroda (BOB). All these banks are different from each other, have different business operations, hold different positions and have different experiences. This would be second biggest merger plan of centre, after largest lender State Bank of India (SBI) acquisition with its own six associated banks. Dena Bank and Vijaya Bank on their official website stated that the process of amalgamation promises to leverage the specific skills of each bank and imbibe their best practices. This mega entity has the ability to do more and reach further to fulfil customers with world-class offerings backed by robust processes.
Vardhana Pawaskar (2001)in his paper “Effect of Mergers on Corporate Performance in India” has compared the pre- and post-merger operating performance of the corporations involved in merger between 1992 and1995 to identify their financial characteristics.The regression analysis explained that there was no increase in the post- merger profits. The study of a sample of firms, restructured through mergers, showed that the merging firms were at the lower end in terms of growth, tax and liquidity of the industry. The merged firms performed better than industry in terms of profitability.
The empirical survey of various empirical studies on mergers and acquisitions in the banking industry will be presented and discussed in this section. The wave of M&A has expanded scope for growth, particularly for the Indian banking sector. Walleghem and Willis (1998) measured the cost efficiency of a merger of 19 community banks in the United States. They found that cost efficiency increased in all cases. Garden and Ralston (1999) studied 16 Australian bankmerger cases and observed that most of the mergers did not boost efficiency. Only 3 banks reported gains in efficiency. Avkiran (2000) attempted to measure efficiency gains after a merger by applying DEA analysis. He used a small sample of four public sector merger cases. The study found that the efficiency of the acquirer banks more or less remained the same after merger. Liu and Tripe (2002) studied 6 New Zealand bankmerger cases and observed that 5 banks showed post-merger efficiency gains. Kim (2004) investigated pre- and post-merger branch efficiency of Canadian banks. They found that almost all merger cases led to efficiency gains. There are many studies which measure merger gains in Asian countries, such as Sufian (2004) which gauged post-merger efficiency in Malaysian commercial banks and found gains in efficiency and performance of banks. Randhawa and Lim (2005) measured the post-merger efficiency in 7 Hong-Kong and Singaporean banks. They reported that large banks benefited more from the merger in efficiency than small banks. Gourlay and Ravishankar (2006) measured merger gains in the Indian banking system. They reported a significant impact of merging on the efficiency of the merged banks. Joshua (2011) measured the postmerger efficiency gains in three Nigerian banks and observed that merger brought efficiency gains in all cases. Rasiah et al. (2014) measured the pre- and post-merger efficiency of Malaysian domestic banks from 2005 to 2009 and found that efficiency grew during the first year after the merger.
The banking industry plays a prominent role in the development of an economy. It supplies the funds that supports and enhances growth in all the industries. Growth of the banking sector is measured by the increase in the number of branches, deposits, credit, etc. Analysis of banking sector helps to study the direction in which the country’s economy is moving. In 2017, SBI and its associates merged into one. At present 1 SBI, 19 Nationalized Banks, IDBI Bank, 26 Private Banks, 43 Private Foreign Banks, 31 State Co-operative Banks and 56 Regional Rural Banks are in commercial banking business. State Bank of India (SBI) and ICICI Bank are the two largest banks in India in public and private sector. HDFC is the most successful bank and Andhra bank performing worst from couple of years. Two largest banks from public and private sector, one successful and one worst performing bank were selected for comparative study.