ABSTRACT

Changing is the regulation of nature. Any business organization undergoes change

on a continuous basis, technically termed as Corporate Restructuring. It can be
defined as a strategy to achieve faster growth, desired capital structure and change
in the ownership and control of company. The reasons behind change may be
external or internal factors. In the present scenario, business organization
undertakes changes to increase their cutting edge over the competition and enhance
their leadership positions. 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.
An attempt has been made to analyze, Is corporate restructuring a tool to enhance
the shareholders value. Why ICICI Bank has taken such a strategic move and
many more questions will be solved from the case study.

LIST CONTENTS
CHAPTER

CONTENTS

Nos

PAGE
NUMBE
RS

INTRODUCTION

3 - 10

II

LITERATURE REVIEW

11 16

III

COMPANY & INDUSTRY PROFILE

17 - 56

IV

DATA ANALYSIS

57 71

SUGGESSIONS,FINDINGS,CONCLUSION

71 - 75

AND BIBLIOGRAPHY

CHAPTER - I
INTRODUCTION

1. INTRODUCTION
Merger has been identified as an important tool to achieve profitable growth of business and to
limit competition, and increase in income with less investment, to gain economies of large scale
to access foreign market, to achieve diversification and utilize underutilized market
opportunities.
The merger of ICICI Bank and Bank of Rajasthan is substantially to enhance the network of
ICICI Banks Branch which is already the largest private sector bank in India which especially
strengthens its presence in northern and western India. To enhance the ability of the merged
entity to capitalize on the growth opportunities in the Indian economy it would combine Bank of
Rajasthan's branch franchise with ICICI Bank's strong capital base. Bank of Rajasthan is the
third acquisition by ICICI Bank. ICICI Bank had earlier acquired Bank of Madhura in 2001 and
Bank of Maharashtra-based Sangli Bank in 2007.

Need for the study

1. The main purpose of doing this project was to know about mutual fund and its functioning.
This helps to know in details about mutual fund industry right from its inception stage, growth
and future prospects.
2. It also helps in understanding different schemes of mutual funds. Because my study depends
upon prominent funds in India and their schemes like equity, income, balance as well as the
returns associated with those schemes. And how the fund managers diversify risk and obtain
maximum returns.
3. The project study was done to ascertain the asset allocation, entry load, exit load, associated
with the mutual funds.

Statement of the problem

Profitable growth constitutes one of the prime objectives of the business firms. This can be
achieved internally either through the process of introducing/developing new products or by
expanding/enlarging the capacity of existing product (s). Alternatively, growth process can be
facilitated externally by acquisition of existing firms. This acquisition may be in the form of
4

mergers, acquisitions, amalgamations, takeovers, absorption, consolidation, and so on. The

internal growth is also termed as organic growth while external growth is called inorganic growt
There are strengths and weaknesses of both the growth processes. Internal expansion apart from
enabling the firm to retain control with itself also provides flexibility in terms of choosing
equipment, mode of technology, location, and the like which are compatible witits exaction
operations. However internal expansion usually involves a longer implementations period and
also entails greater uncertainties particularly associated with development of new products.
Above all there might be sometimes problem of raising adequate finances required for the
implementation of various capital budgeting projects involving expansion. Acquisitions and
mergers obviates, in most of the situations, financing problems as substantial/full payments are
normally made in the form of the shares of the acquiring company. Further it also expedites the
pace of growth as acquired firm already has the facilities or products and therefore saves time
otherwise requires in building up new facilities from scratch as in the case of internal expansion.
ICICI Bank Ltds takeover of Bank of Rajasthan Ltd (BoR) will have to clear a new regulatory
hurdle before it can be completed, according to a senior official in the industry ministry. Most
banking mergers can move ahead once they get a green signal from the Reserve Bank of India
(RBI), but the deal between Indias largest private sector lender and the troubled regional bank
will need to be cleared by the government as well because of the provisions of a controversial
policy that categorizes ICICI Bank as a foreign-owned one; despite its local presence and Indian
management. The merger needs the approval of the FIPB (Foreign Investment Promotion
Board) under Press Note 3.
Under the Press Note 3 of 2009 series, if the ownership of an existing Indian company is
transferred to a non-resident entity, as a consequence of transfer of shares to nonresident entities
through amalgamation, merger or acquisition, then it would require FIPB approval.
Private sector lenders ICICI Bank and HDFC Bank Ltd were defined as foreign-owned under the
new rules since more than half their equity is owned by foreign entities, including foreign
institutional investors, who have no board presence or say in company policy.
This regulation is applicable in sectors with foreign direct investment (FDI) caps, such as
defense production, private sector banking, broadcasting, commodity exchanges, insurance, print
media, telecommunications and satellites, according to the press note. Any foreign firm trying to
gain control of local companies needs the prior approval of FIPB.
5

A spokesperson for ICICI Bank said the bank would not comment on any issue relating to BoR
till the conclusion of its board meeting on 23 May. The two banks agreed this week to merge in a
deal that has met with a cold reception from investors and analysts. An analyst with a consulting
firm, who spoke on condition of anonymity, said either of the banks needs to approach FIPB for
approval. It does not matter which bank approaches FIPB. One entity can also approach FIPB
on behalf of the other, he said.
Under the new regulations, ICICI Bank, with another six banks, has become a foreign- owned
lender as overseas entities hold more than 50% of the company's stake. The shareholding of
foreign institutional investors in ICICI Bank as on 31 March was 65.30%.
RBI had pointed out that the new norms will create a new set of banks that are owned by
foreigners, but controlled by Indians, thus creating a regulatory challenge for the central bank.
However, commerce and industry minister Anand Sharma recently said that no change in the
new FDI regulation was needed as it was working just fine.

What is shareholder value?

Value is a very subjective term. There are many factors, which influence a person to invest in a
particular company. For some it may be capital appreciation, for some it may be consistency in
the earnings of the company, for some it may be the dividends that the company pays or it may
be the reputation of the company. But normally the market price of the shares is prime
motivation factor behind an investment by an investor.
Hence we can say that a company has created wealth has created wealth when there is an
increase in the market price of the shares. Theoretically also, the financial goal of a company is
to maximize the owners economic welfare. Owners economic welfare can be maximized when
shareholders wealth is maximized which is reflected in the increased market value of the shares.

Objectives of the Study

It is seen that, most of the works have been done on trends, policies & their framework, human
aspect which is needed to be investigated, whereas profitability and financial analysis of the
mergers have not give due importance. The present study would go to investigate the detail of
Merger and Acquisitions (M&As) sector. The objective of the study is to make a comparative
analysis of the pre and the post merger performance of the selected entity.

Methodology of the study

Data collection
To conduct a study properly designing of the process is essential because reliability and validity
of the outcomes of a study depends on the reliable data and information. In this connection some
activities has been carried out to collect data and information. For the purpose of evaluation of
investigation data is collected from merger and Acquisition (M$A s) of Indian Banking Industry.
The data is collected from secondary sources such aso Annual Reports of Bank of Rajasthan and ICICI Bank
o Website of the banks
o Internet

Methodology
To analyze the post and pre-merger financial performance of the banks various financial ratios
and common size financial statements are used for comparison.

RESEARCH TOOLS
Financial ratios, Economic Value added and Market Value Added. The above tools which are
used to evaluate whether mergers and acquisitions create any shareholder value or not signify the
following:

The financial ratios that are used in the study are:

1. Return on capital employees
2. Return on Net worth
3. Return on equity
4. Earnings per share
5. Cash earnings per share

Return on capital employed

7

ROCE = PBIT/ CAPITAL EMPLOYED

PBIT = PBDT + Non- RECURRING EXPENSES Non recurring income
CAPITAL EMPLOYED = Net fixed assets + Net Current Assets fictitious assets

Return on net worth

RONW = PAT / NETWORTH
PAT = profit after tax
NETWORTH = equity share capital +reserves and surplus fictitious assets

Earnings per share

EPS = PAT / number of shares

Cash earnings per share

CEPS = (PAT + DEPRICIATION) / number of shares

Economic Value Added

Economic value added (EVA) is the after-tax cash flow generated by business minus the cost of
capital it has deployed to generate that cash flow. Representing real profit versus paper profit,
EVA underlies shareholder value, increasingly the main target of leading companys strategies.
Share holders are the players who the firm with its capital; they invest to gain a return on that
capital.
EVA can be defined as the net operating profit minus the charge of opportunity cost of all the
capital employed into the business. As such , EVA is an estimate of true economic profit that
means to say the amount that the shareholders or lenders would get by investing in the securities
of comparable risk.
The capital charge is an important and distinctive aspect of EVA. Many a times under traditional
accounting system many companies report profits but it is not so actually. According to Peter.F
Drucker unless a company is earning more than its cost of capital, it is operating at loss.
8

Thus EVA is the profit as shareholders define it. To illustrate it, suppose a person invested Rs.100
in a company. The company is earning at the rate of 20% that means to say the earnings of the
company is Rs 20 while its cost of capital is 15% that means to say that the company has to pay
Rs. 15 to its shareholders . Thus the amount of profit in excess of the cost of capital that is Rs
5(20-15) id the EVA

Mathematically,
EVA = NOPAT (capital employed * weighted average cost of capital
But for Banking and Financial sector,
EVA=NOPAT (net worth * cost of equity)
Where, NOPAT = net operating profit adjusted to taxes

Market value added (MVA)

MVA = market value added, is a measure of the value added by the companys management over
and above the capital invested in the company by its investors. It is the value added in excess of
economic capital employed.
MVA=market value of the firm-economic capital.
Where, Market value of the firm-market price*number of shares.
Economic capital=capital employed.

Limitations of the study

Though humble attempt is made to analyze the pre and post merger financial performance of the
selected banks it is difficult to narrate all incidents and change brought up due to merger and
acquisitions.
Secondly, the study is based purely on secondary data which are taken from financial statement
of the case through Internet only and therefore cannot be denied for any ambiguity in the data
used for the analysis.

Hypothesis
H0 (1): There is no significance difference in financial performance amongst the selected Banks
With respect to their pre and post Merger Analysis.
H1 (1): There is a significante difference in financial performance amongst the selected Banks
with respect to their pre and post Merger Analysis.
H0 (2): There is no significante difference in Earning per Share (EPS) amongst the selected
Banks with respect to their pre and post Merger Analysis.
H1 (2): There is a significante difference in Earning per Share (EPS) amongst the selected.

10

CHAPTER II
LITERATURE REVIEW

11

Gallet C.A (1996), had examine the relationship between mergers in the U.S. steel industry and
the market power, which estimates the degree of market power from a system of demand and
supply equations. Anup Agraval Jeffrey F. Jaffe (1999), they examines the literature on long-run
abnormal returns following mergers. The paper also examines explanations for any findings of
underperformance following mergers. We conclude that the evidence does not support the
conjecture that underperformance is specifically due to a slow adjustment to merger news. Saple
V. (2000), he found that the target firms were better than industry averages while the acquiring
firm shad lower than industry average profitability. Overall, acquirers were high growth firms
which had improved the performance over the years prior to the merger and had a higher
liquidity. Beena P.L (2000), she attempts to analyze the significance of merger and their
characteristics. The paper establishes that acceleration of the merger movement in the early
1990s was accompanied by the dominance of merger between firms belonging to the same
business group of houses with similar product line.
1.

AN ANALYTICAL STUDY ON ICICI AND BANK OF

RAJASTHAN MERGER

ABSTRACT
The primary objective of an organization towards M &A's is to create a niche of core
competencies and improve transform the organizational culture to a better and improved form. It
helps in design and develops systems in accordance to the changing face of business across all
industrial sectors. An organization aims in Mergers and acquisitions are committed to extend the
relationship with clients beyond the professional horizons to provide them high level of
satisfaction and assurance. Merger deals are grouped into 3 categories viz, Voluntary Merger,
Compulsory Merger and Universal Banking Model which is based on the motives. The ICICI
Bank Merger with Bank of Rajasthan is the seventh voluntary merger and the latest in India after
the merger of HDFC Bank - Centurion Bank of Punjab in the year 2008, compared with other
voluntary mergers. This deal also has background of the merger including various regulatory
interventions of authorities like the Reserve Bank of India (RBI), Securities and Exchange Board
of India (SEBI) and Foreign Investment Promotion Board (FIPB). Because of poor corporate
governance of the target bank and cancellation of Extra Ordinary General Meeting (EGM) by the
12

Calcutta District Civil Court this deal also got lots of attention. In this case, an attempt has been
made to analyze the probable impact of strategic tools and features of the banks on pre and post
merger performance.

INTRODUCTION
Merger has been identified as an important tool to achieve profitable growth of business and to
limit competition, and increase in income with less investment, to gain economies of large scale
to access foreign market, to achieve diversification and utilize underutilized market
opportunities.
The merger of ICICI Bank and Bank of Rajasthan is substantially to enhance the network of
ICICI Banks Branch which is already the largest private sector bank in India which especially
strengthen its presence in northern and western India. To enhance the ability of the merged entity
to capitalize on the growth opportunities in the Indian economy it would combine Bank of
Rajasthan's branch franchise with ICICI Bank's strong capital base. Bank of Rajasthan is the
third acquisition by ICICI Bank. ICICI Bank had earlier acquired Bank of Mdhura in 2001 and
B.
2. BANKS PERSPECTIVE IN MERGERS: A CASE STUDY ON MERGER OF THE BANK
OF RAJASTHAN LTD. WITH ICICI BANK LTD.

3.
ABSTRACT
Merger is the primary growth and expansion strategy of present corporate world. Every
business always focuses to maximize profit as well as improve growth and improvement. In
this regard, merger can contribute as tremendous role model. Merger occurs when two or more
enterprises combine into one entity. Or one enterprise mixes its existence into another entity.
Merger activities having a very long history with more than 100 years this section is full with
lot of research activities with quantum suggestions. This research is also a brief attempt to
analyze the impact of merger with reference to successful movements of merger in between
two banks. The main objective of this paper is to analyze the pre and post merger impact of
share price fluctuations on selected sample of study. This study is exploratory and descriptive
in nature. Secondary source for data and information has been used in the study. As per the
requirements of the research, data are taken from the website of NSE (National Stock
13

Exchange).Basically; this paper investigates the impact of merger on ICICI Bank Ltd. The
analysis of the collected data is based on appropriate statistical methods/tools.

INTRODUCTION
Business environment of business is changing so rapidly, the present corporate scenario
hastotally changed; during this changing scenario it is very difficult for every business
organization to achieve its objectives like as maximize its profit and improve growth and
development of the entity. Association along with the changing scenario of the business is a
primary activity of every concern to achieve its goal. Growth potentiality drives every business
organization for internal and external changes. With internal changes an organization go for
new product development or expand the market of existing product, but its not much
sufficient way to run business organization with market for a long time. Todays business
world is just like a global village, therefore external changes are the main requirement to
maintain and improve the position of the business it can be possible through mergers,
acquisitions, amalgamations and takeovers activities. These are the basic growth and
improvement strategies which eliminate the weak points of businesses and make them
attainable many benefits synergy effect is one of them.
This study concerned with merger activity of managing the business environmental in changes
scenario. Merger activities full with a great history of more than 100 years. Its also full with a
lot of research works which provides a huge quantum suggestion for this subject matter.
Mergers are increasing in every section of the corporate sector. Financial sector i.e. banks
mergers activities are also one of them. Merger is the combination of two or more firms, in
other words it can be state that when two or more firms which are in same or in different
product or service line decide to carry their work simultaneously in future. It is also resulted
from a various number of studies, although mergers also having some failure results in some of
industries. But now a days it is very popular growth oriented strategy especially in developing
countries like as India. There are various motives behind Mergers, which force this activity
very rapidly, these courses of actions done to expand business, to get synergic advantages, to
minimize costs, to maintain strong distribution chain, Tax planning, new product development
and to face rapid competition, etc. The news of Mergers are very sensitive, it influence the
companies involved as well as customers, investors, share prices and other part of an economy
in positive or negative way, in form of financial as well as non-financial point of view.

14

Here, the main focus of study is to discuss about impacts of the Merger in banking sector with
special, reference the study of The Bank of Rajasthan Ltd. with ICICI Bank Ltd. This study
contains information about effect of merger announcement by board of both banks on share
price (Daily Closing Prices and turnover) prices of ICICI Bank Ltd. and effect of merger
permission by RBI on the share prices (Daily Closing Prices and turnover) of ICICI Bank Ltd.
Both effects are studied through share price performance of ICICI Bank Ltd. in former case
before (21 Days) and after (21 Days) and 19 days (pre-post effect) in lateral case of the above
shown activities as well as to study of few financial report related data. For the requirement of
the study, data are taken from the website of NSE.
Reviews of literature always play a very significant role in every research study. This can be
treated as the back-support of the study. Tour on historical literature helps the researcher to
explore and develop his ideas on the concerned topic. This chapter deals with the historical
background on the concerned research topic. It provide base to the researcher to conduct a
successful research study. Historically, mergers and acquisition activity started way back in
1920 when the imperial Bank of India was born when three presidency banks (Bank of Bengal,
Bank of Bombay and Bank of Madras) were reorganized to form a single banking entity, which
was subsequently known as State Bank of India (Mor, et al., 2012). Prajapati (2010) analysis
was based on around 45 banks; data for study were taken from public sector banks, private
sector banks and foreign banks in India. His study resulted mergers performed a very well task
in access to new markets for business and operations. He founds many banks attained a number
of benefits like reduction in cost of funds, diversification of loan portfolio and expansion of
range of services available to the public. Goyal and Joshis study about mergers in banking
sector initiated from the merger case of the Bank of Rajasthan Ltd. and ICICI Bank Ltd. The
main objective of their study was to test the motives of banks for mergers and acquisition with
15

special reference to Indian banking Industry. For this purpose sample of 17 mergers (post
liberalization) of Banks has been taken. The results of their study founds small and local banks
face difficulty in bearing the impact of global economy therefore, they need support and it
covered as one of the main reason for merger. Due to huge potential in rural markets of India,
the task of mergers also takes place. Jayadev and Sensarma analysis of this great attempt to
construct results on the merger trends in Indian banking with study of impacts on shareholders
and managers. They founded after that study both acquiring and merged banks share value in
market showed negative impact on the immediate announcement of mergers. Pautler (2001)
analysed on the basis of event study for research. This research study showed M&As
significantly beneficial to target/merging firms shareholders and not much beneficial for
acquiring firms shareholders. Sinha, Kaushik and Chaudhary (2010) pointed in their study
Indian M&A cases show a positive correlation between financial performance and the M&A
deal. On the basis of studied sample financial sector in India showed more than half of the
merging firms improved financial performance after the merger.

16

CHAPTER III
COMPANY & INDUSTRY PROFILE

PROFILE OF ICICI BANK

17

HISTORY
In 1955, ICICI Limited was incorporated with the collective efforts of the major 3, named World
Bank, Government of India and Indian Industrys representatives. The establishment has been
taken place with a view to aid Indian businesses by acting as a source of finance to medium and
long term projects. In 1990s, the ICICI institution started diversifying its operations, and end up
at the wholly owned subsidiary called ICICI Bank. The Bank was established in 1994 and
became the first bank listed on NYSE (New York Stock Exchange).
Few merger related details:Years

Particulars

2001

Bank of Madura (est. 1943) was acquired by ICICI , an all-stock

amalgamation

2002

Integration of banking operations and groups financing of ICICI in to

individual entity, consisting both wholesale and retail.

2007

ICICI amalgamated Sangli Bank, the deal costing Rs. 302 crores

CORPORATE PROFILE
ICICI bank with the asset base of Rs. 363,399.71 crore (US $ 81 Billion) and net profit after tax
Rs. 4,024.98 crore (US $ 896 million) turned out to be the second largest bank in Indian Territory
for the year ended 31st Mach 2010. The Bank has its spread over 19 countries with 2530 branches
and approx 6102 ATMs in India.

18

An extensive range of Product and services offered by ICICI though diverse delivery channels
are personal banking, corporate banking, NRI banking, finance and insurance, retail banking,
commercial banking, mortgages, credit cards, asset management, investment banking
PROFILE OF BANK OF RAJASTHAN
HISTORY
The bank of Rajasthan was established as Joint Stock Bank by Mansingka brothers at Udaipur on
8th May, 1943.The Bank served The Government of Rajasthan as Scheduled bank for more than
14 years starting from 1948. The founder Chairman of Bank of Rajasthan was an industrialist
named Late Seth Shri Govind Ram Seksaria who started the bank with initial investment of Rs.
10 lacs.
Ties up Details:-

Year

Particulars

2000

Bind off with Infosys Technology in order to get fully automated

2002

MoU signed by Bank of Rajasthan with Bajaj Allianz General Insurance

Company and Birla Sun Life Insurance

2003

MoU signed with Bank of Baroda to issue co-branded international Visa

Electron Debit Card

2005-06

Termination of ties up with Bajaj Allianz General Insurance Company and

Birla Sun Life Insurance

2008

The Bank signed an MoU with ICRA Ltd. in September

19

CORPORATE PROFILE
The Bank of Rajasthan with the asset base of Rs. 17,300.06 crores incurred the net loss after
provisions and taxes remained at Rs. 102.13 crores for the year ended 31st Mar 2010. The bank
operates through all over India as a private sector bank with 463 branches works as network. It
includes 67 onsite and 29 offsite ATMs in 230 cities along with specialized Industrial and forex
branches.
The bank provided a broad range of products and services includes commercial banking,
Personal banking ,merchant banking, auxiliary services, consumer banking, deposit and money
placement services, trusts and custodial services, international banking, private sector banking
and depository, Credit facilities to SMEs ,gold facilities internet banking mobile banking, life
insurance, mutual fund services, western union money transfer services and many more. The
above mentioned products and services can be divided into 3 segments called treasury
operations, Banking operations and residuals.

A GLIMPSE OF THE BANKS

S. No. Key Rationale

ICICI Bank

Bank of Rajasthan

Type

Private sector

Private sector

Industry

Banking financial services

Banking, Loan, Capital

market and allied
industries

Year of Incorporation

1994 (promoted by ICICI)

1943, Udaipur

Traded as

NSE: ICICIBANK
BSE: 532174
NYSE: IBN
NASDAQ: IBN

NSE: BANKRAJAS

20

BSE: 500019

Products

Finance and insurance

Retail Banking
Commercial Banking
Mortgages
Credit Cards

Corporate or

wholesale banking,

Personal banking ,
Commercial banking,
Retail banking,
Finance and

Private Banking
Asset Management

Investment Banking

insurance,
Investment Banking,

Auxiliary services,

Merchant banking,
Trust and custodial
services,

Business presence

19 countries

All over India

Number of offices

1717*

478*

Number of employees

35256*

3983*

Total Income

32,999.36**

1,489.48**

10

Profit

4,024.98**

(102.13)**

11

Total Assets

363,399.71**

17,300.06**

12

CRAR (Capital to Risk Asset

Ratio)

19.41*

7.52*

13

Net NPA Ratio

2.12*

1.60*

ICICI Bank Board approves merger of Bank of Rajasthan

21

The Board of Directors of ICICI Bank Limited (NYSE: IBN) has at its Meeting held in Mumbai
today granted its approval for the amalgamation of The Bank of Rajasthan Limited (Bank of
Rajasthan) with ICICI Bank. The proposed amalgamation is subject to the approval of
shareholders of both banks and Reserve Bank of India (RBI).
The Board considered the results of due diligence covering advances, investments, deposits,
properties & branches and employee-related liabilities, and the valuation report of Haribhakti &
Co., Chartered Accountants. Haribhakti & Co. have recommended a share exchange ratio range
of one share of ICICI Bank for 4.70-4.80 shares of Bank of Rajasthan.
The Board has approved a share exchange ratio of 25 shares of ICICI Bank for 118 shares of
Bank of Rajasthan, which works out to one ICICI Bank share for every 4.72 Bank of Rajasthan
shares, and falls within the range recommended by Haribhakti & Co.
The proposed amalgamation would substantially enhance ICICI Banks branch network, already
the largest among Indian private sector banks, and especially strengthen its presence in northern
and western India. It would combine Bank of Rajasthans branch franchise with ICICI Banks
strong capital base, to enhance the ability of the merged entity to capitalize on the growth
opportunities in the Indian economy.
JM Financial Consultants Private Limited and ICICI Securities Limited were the financial
advisers to ICICI Bank on the proposed merger. Amarchand & Mangaldas & Suresh A. Shroff &
Co. were the legal advisers to ICICI Bank.
Except for the historical information contained herein, statements in this Release which contain
words or phrases such as 'would, 'will, seek to, growth etc., and similar expressions or
variations of such expressions may constitute 'forward-looking statements'. These forwardlooking statements involve a number of risks, uncertainties and other factors that could cause
actual results to differ materially from those suggested by the forward-looking statements. ICICI
Bank undertakes no obligation to update forward-looking statements to reflect events or
circumstances after the date thereof. Information on Bank of Rajasthan contained in this release
is based on its annual report and other public sources.

22

The proposed amalgamation would be governed by the provisions of Section 44A of the Banking
Regulation Act, 1949. The proposed amalgamation needs the approval of the respective Boards
of ICICI Bank and Bank of Rajasthan and to become effective, requires the consent of a majority
in number representing two-thirds in value of the shareholders of ICICI Bank and Bank of
Rajasthan, present in person or by proxy, at their respective meetings called for this purpose, the
sanction of Reserve Bank of India by an order in writing and sanction or approval, if required,
under any law or regulation, of the Government of India, or any other authority, agency,
department or persons concerned.
There can be no assurance that these approvals will be obtained or of the time involved therein.
This release does not constitute an offer of securities. The terms of the proposed amalgamation
would be contained in the scheme of amalgamation once approved by the respective Boards of
ICICI Bank and Bank of Rajasthan and requires approval by the shareholders of ICICI Bank and
Bank of Rajasthan and Reserve Bank of India. Reserve Bank of India may modify the scheme
approved by the shareholders. There can be no assurance that terms of the scheme will not have
an adverse impact on ICICI Bank. The proposed amalgamation and any future acquisitions or
mergers may involve a number of risks, including deterioration of asset quality, diversion of our
managements attention required to integrate the acquired business and the failure to retain key
acquired personnel and clients, leverage synergies or rationalise operations, or develop the skills
required for new businesses and markets, or unknown and known liabilities, some or all of which
could have an adverse effect on our business. For further press queries please call Charudatta
Deshpande at 91-22-2653 8208 or e-mail:
charudatta.deshpande@icicibank.com.
For investor queries please call Anindya Banerjee at 91-22-2653 7131 or Ranju Sigtia at 9122-2653 6198 or email at ir@icicibank.com.
OPERATING TRENDS INCOME AND PROFITABILITY

Total income received from interest and others income registered a growth of 25.8% from FY

2008 at Rs. 1513.40 crores as on 31 st March 2009.the reason behind the growth was increment in

23

the yield on advances, where as total income was declined by 1.11% from FY 2009 to Rs.
1496.67 crores as on year ended 2010.

The Profit after tax for the year 2008 and 2009 were remained at similar levels due to increase

in provision of Non-Performing Assets. The bank of Rajasthan reported net loss at the year ended
2010 (after provisions and taxes) stood at Rs. 102.13 crore against the net profir of Rs. 117.71
crores for the previous year.
As Bank of Rajasthan was facing losses during the year 2009-2010, the shareholders were not
proposed for any dividend.
BALANCE SHEET

The bank of Rajasthan has been showing increasing trend but at a low pace. It has
increased by 0.49% from Rs. 17235.09 crores as on year ended 2009, and grow by 8.99%
over the previous year.

The quality of assets at Bank of Rajasthan have been continuously deteriorating since
from 2007 stood at Rs. 293.81 crores as on year ended 2010 as compared to Rs. 160.9
crores at the year ended 2009.

Although investment at Bank of Rajasthan has been shown positive sign from the year
2006 to 2008 but it got off track to Rs. 6722.51 crores as on year ended 2010 which is
1.27% reduced from previous year.

The balance sheet showing the freeze of equity capital infusion to the Bank of Rajasthan
remained at Rs. 161.35 crores as on year ended 2010. The bank also has not issued fresh
shares to the market.

The growth in deposits at Bank of Rajasthan was moderate during 2008 to 2009 as per
industry trend line but got hurdled in FY 2010 stood at Rs. 1506.35 crores, which is
0.82% down the line.

Borrowings at Bank of Rajasthan have shown good sign for the bank as it has been
continuously decreasing since from FY 2006. Currently the banks borrowings stood at

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Rs. 0.65 crores as on year ended 2010.

Continuous growth in other liabilities and provisions over the years reported Rs. 1320.72
crores amount as on year ended 2010.
CURRENT SCENARIO [2010]
The Bank of Rajasthan has been facing the problem of deteriorated market conditions due to
banks substantial exposure in sectors like textiles and real estates. It was the key sensitive area
for Bank of Rajasthan to maintain its assets quality.
The bank had the opportunity to build a good deposit base as it was the established franchise in
the state of Rajasthan, but due to low cost Current Accounts and Saving Accounts (CASA)
deposits the bank faced declining trend from past 4 years. With the decline in CASA and side by
side high interest rate heated up the cost of deposits.

Due to lack of capital Bank of Rajasthan has facing low credit growth of 4.69% due to lower
disbursement and large prepayments by some of its clients. The credit growth was remain stable
with advances during FY 2010.
CAPITAL ADEQUACY RATIO (CAR)
As per Basel I, the Bank of Rajasthans CAR stood at 7.74% as on year ended 2010 as compared
to 12% of previous financial year. The below mentioned graph depicts the trend lines of NonPerforming assets and CAR. Tier 1 CAR was marginally above the prescribed regulatory
requirement of 6% but had declined in March 31st 2010 stood at 3.87%.
The overall condition of Bank of Rajasthan was seen continuously deteriorating due to various
legal issues. Some of those were:

Notice from Jaipur Stock exchange limited for alleged violation of clause 36 of the listing
agreement.

Penelty by RBI on Bank of Rajasthan of Rs. 25 lakhs.

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Union strike by 3 major employee union of Bank of Rajasthan i.e., AIBOREF,

AIBOROA and ABBOR.

Notice by Rajasthan high court.

www.zenithresearch.org.in Source: Asian CERC (Amount in Crores)

PROCESSION OF MERGER
I. FIRST CALL
GENERAL STATE OF ICICI BANK
The ICICI Bank has become a drawing card in insurance and asset management through its
subsidiaries. The strategic focus of the bank has shifted to balance sheet growth and market share
heighten in order to improvise returns and profitability index. The merger with Bank of
Rajasthan could be one of the strategic moves of ICICI bank to attain its vision.
26

GENERAL STATE OF BANK OF RAJASTHAN

The condition of Bank of Rajasthan had been seeing in under pressure after a series of probes
continued by RBI. Irregular performance of the bank gave rise to several investigations along
with the order of RBI for a special audit. The decision of audit had been taken when Bank of
Rajasthan corresponded to give prominent intraday overdraft which was beyond the limit to the
Sahara Group, Lucknow based. The Central Banking Institution of India had appointed Deloitte
Haskin & Sells to look after the banks lending policies and information security system.
On 25th Feb 2010, Reserve Bank of India has imposed a pecuniary penalty of Rs. 25 lakh(Rupees
Twenty Five Lakh only) on The Bank of Rajasthan Ltd. in exert of powers enthroned under the
provisions of Section 47A(1)(b) of the Banking Regulation Act, 1949. On the following grounds
the penalty were imposed:i. Acquisition of Immovable properties- Violation the RBIs guidelines/directions issued
under Section 35A of the Banking Regulation Act, 1949.
ii. Blue-penciled the records banks IT system
iii. Non-adherence of guidelines related to Know Your Customers and anti money laundering
in opening and conduct of accounts.
iv. Irregular accounts conduct of a corporate group
v. Misrepresentation of facts- unable to produce documents sought by the Reserve Bank of
India.
The issue of Corporate Governance Standards was also one of the key areas which acted as a
loophole for the merger. Past from several years the bank has been in the eyeshot of RBI.
During the annual inspection of BoR, RBI found out unconventional disclosure of Shareholding
patterns of the promoter group. The shareholding pattern had been declined from 55% to 28.6%
between June 2007 and 2009 revealed by Market watchdog, SEBI.
The Tayals, Controllers of the Bank of Rajasthan started their search for suitable deal with
heading bank in order to enter into merger deal after the series of probes.
27

The discussions were held with many leading banks named ICICI Bank, HDFC Bank, Axis Bank
etc. The HDFC Bank has not shown any positive concern in this preposition. The officials of
Axis bank have denied the deal as they were not ready to pay demanded price. Somehow The
ICICI bank becomes ready to pay the price higher than the market valuation of Bank of
Rajasthan. However, the deal would mean little dilution for ICICI, as the market capitalization of
ICICI registered at Rs. 1, 00,717 crore whereas, BoR had Rs. 1323 crore only.
AI. SECOND CALL: - A non-cash merger deal was approved by the board of directors of
the Indias second largest private sector bank. It was estimated that the merger would
further flourish the ICICIs branch network by 25 percent approximately.
It was decided that the report will be presented to Board of Directors after the approval of
independent valuer and further to Shareholders & Reserve Bank of India. The deal in its
intermediation decided that the swapping ration will be at 1:4.72 which will inferred as The
ICICI Bank would allot 25 shares for every 118 shares of Bank of Rajasthan.

The deal was based on the internal analysis of the proposed amalgamation which certainly be
calculated considering the followings:i. Strategic value of the deal
ii. Market capitalization per branch of the former private sector banks
iii. And comparison of deal with the relevant precedent transactions.
On May 18th 2010, Bank of Rajasthans closing price mounted 52-weeks high at 99.50 while the
benchmark SENSEX grew only by 0.24 percent whereas ICICI Bank closed at 1.45 percent
lower at 889.35. Along with Share prices the ADR trading of ICICI bank has also fell down by
2.18 percent at $ 38.61 on the New York Stock Exchange (NYSE).
After consideration of share prices the swap deal indicated that 90 percent premium has been
given by ICICI bank to Bank of Rajasthan.

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The Bank of Rajasthan cost to ICICI bank at nearly Rs. 3041 crore on the basis of internal
valuation. In elaborated form, ICICI bank have to pay about 6.6 crore* for each of the BoR
Branch.
*valuation= Rs. 3041/ 463 branches (Rs. 6.6 crore at an average rate)
In line with market capitalization of the BoRs branches, an implied valuation by the exchange
ratio was scheduled to be decided but due diligence, freelance valuation and approvals will be
considered as the finale valuation.
Although valuation in monetary terms does have a strong impact in any merger but without
consideration of about 30 lakh customers and approx. 4000 employees, the deal might turned to a
big failure. Haribhakti & co. has been appointed as an independent valuer by both the banks to
evaluate the valuation.
BI. FINAL DAY
On 12th of August 2010, Alpana Killawala, CGM, department of communication, RBI has
published a press release that All branches of Bank of Rajasthan Ltd. will function as branches
of ICICI Bank Ltd. with effect from August 13, 2010. This is consequent upon the Reserve Bank
of India sanctioning the Scheme of Amalgamation of Bank of Rajasthan Ltd. with ICICI Bank
Ltd. The Scheme has been sanctioned in exercise of the powers contained in Sub-section (4) of
Section 44A of the Banking Regulation Act, 1949. The Scheme will come into force with effect
from close of business on August 12, 2010.
PRE-POST MERGING CHALLENGES
At the time, when the Tayal Family decided to undergo for change through merger with ICICI
bank, lots of problems were already aroused which acted as the strong base to merger. The Bank
of Rajasthan was facing following challenges before amalgamation:-

Pre merging challenges

Post merging challenges

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Regulatory Concerns

Corporate governance

Asset Quality Management

Risk of asset quality deterioration

Legal Issues related to EGM

Justify operations or leverage synergy

Union Strike and violation of Company Law

REGULATORY CONCERNS
Lots of litigation was charged on Bank of Rajasthan related to misrepresentation of promoter s
stake which was unveiled by Security and Exchange Board of India on the pointers of Reserve
Bank of India. Others were distortion of documents and violation of regulatory norms pertaining
to accounts of the corporate group. For these regulatory proceedings, RBI had imposed 25 lacs as
a penalty on BoR for concealing the necessary facts.
ASSET QUALITY MANAGEMENT
In a merger asset quality always being a major concern for both the parties as the factor can turn
out the profitability or synergy. The ICICI bank raised its quarterly profit 44% by showing a
downfall in bad loans provisions and in the retail lending. It infers that ICICI bank s NonPerforming Assets (NPA) Ratio improved to 0.945 from 1.87% in previous year.
In contrast the NPA ratio in Bank of Rajasthan has been showed increasing trend since from
2007 as shown in graph above.
Before amalgamation ICICI bank has assess the risk by Bors loan portfolio, Deposit base staff
liabilities and Investments. In the deal Amarchand & Mangaldas & Suresh A Shroff & Co were
acting as the legal advisors whereas ICICI securities and JM Financials were the Financial
Advisors for valuation purpose.

30

LEGAL ISSUES RELATED TO EGM

The issue rose of legal binding of Shareholders decision on the BoR. The Extraordinary General
Meeting was cancelled by Kolkata civil court as the shareholders of BoR got the stay order
against the meeting. The reason found behind the merger was that the employees at BoR were
filed a complaint against the holding of EGM as they were opposed of the amalgamation.
UNION STRIKE AND VIOLATION OF COMPANY LAW
Around 4300 employees of BoR in all 463 branches across the country announced union strike to
protest against the proposed deal. The three major employees unions participated in the same
were All India Bank of Rajasthan Employees Federation (AIBOREF), All India Bank of
Rajasthan officers Association (AIBOROA) and Akhil Bhartiya Bank of Rajasthan Karamchari
Sangh (ABBORKS). The act performed by the employees in fear of thousands of job losses and
incompatible work cultures.
According to Companies Act 1956, 10% of the shareholders can requisition a meeting with the
permission of the Board of the company. After that the board has to hold the meeting within 3
weeks of the requisition. The decision of appointment of own chairman by the shareholders of
BoR was continued after knowing the fact of void as per company Act 1956.
POST MERGING CHALLENGES
The amalgamation of ICICI bank with Bank of Rajasthan came in to effect on August 13, 2010
when RBI approved the deal. The key issues that hindered the proposed merger have been
discussed earlier, now the focus of ICICI bank should be on followings:HR ISSUES
Human capital has always being a major concern for the merging firms. The integration of
human resource of both the entities sets the path of growth through synergy. Work cultures have
always differed from organization to organization. To cope up with the change depends on the
ability of the organization and its problem solving approach.

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In the amalgamation of ICICI bank and BoR, the issue related to the fear in the minds of
employees of being sacked by the transferee bank should be considered as major challenge after
merger. It was already assured by Ms. Chanda Kochhar, CEO and Managing Director of ICICI
bank that no employee will lose job after merger.
RISK OF DETERIORATION OF QUALITY OF ASSET
As Bank of Rajasthan have members of branch in the interior and rural area of Rajasthan,
number of loans disbursed to agricultural workers and the low profile people of the rural areas.
In future, there may be problem of recovery and chances of delinquency of such pre merge loans
by Bank of Rajasthan. It may increased the of NPA in the near future.
LEVERAGE AND SYNERGY
Before the deal announcement the share price of the ICICI bank was Rs. 889 where the swap
ratio implied substantial premium to the Bank of Rajasthans present price which was almost
89% higher. Do this high amount paid for synergy? The major challenge before this merger deal
would be to gain synergies which could be in any flow such as cost optimization through better
negotiation with vendors, economies of scale, eliminating overlaps and many more. Secondly,
through revenue enhancement this infers new market access (as ICICI bank will be able to get
readymade access to Bank of Rajasthans wide branch network in north and west India). Thirdly,
by way of technological leverage and forth could be forward and backward integration.
We have been learning about the companies coming together to from another company and
companies taking over the existing companies to expand their business.

With recession taking toll of many Indian businesses and the feeling of insecurity surging over
our businessmen, it is not surprising when we hear about the immense numbers of corporate
restructurings taking place, especially in the last couple of years. Several companies have been
taken over and several have undergone internal restructuring, whereas certain companies in the
same field of business have found it beneficial to merge together into one company.

32

In this context, it would be essential for us to understand what corporate restructuring and
mergers and acquisitions are all about.

All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers, &
other forms of corporate restructuring. Thus important issues both for business decision and
public policy formulation have been raised. No firm is regarded safe from a takeover possibility.
On the more positive side Mergers & Acquisitions may be critical for the healthy expansion and
growth of the firm. Successful entry into new product and geographical markets may require
Mergers & Acquisitions at some stage in the firm's development. Successful competition in
international markets may depend on capabilities obtained in a timely and efficient fashion
through Mergers & Acquisition's. Many have argued that mergers increase value and efficiency
and move resources to their highest and best uses, thereby increasing shareholder value.
.

To opt for a merger or not is a complex affair, especially in terms of the technicalities involved.
We have discussed almost all factors that the management may have to look into before going for
merger. Considerable amount of brainstorming would be required by the managements to reach a
conclusion. e.g. a due diligence report would clearly identify the status of the company in respect
of the financial position along with the networth and pending legal matters and details about
various contingent liabilities. Decision has to be taken after having discussed the pros & cons of
the proposed merger & the impact of the same on the business, administrative costs benefits,
addition to shareholders' value, tax implications including stamp duty and last but not the least
also on the employees of the Transferor or Transferee Company.

Merger:
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 assets as

33

well as liabilities of the merged company or companies. Generally, 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.
All 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.

Acquisition:
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.

Methods of Acquisition:
An acquisition may be affected by
(a) agreement with the persons holding majority interest in the company management like
members of the board or major shareholders commanding majority of voting power;
(b) purchase of shares in open market;
(c) to make takeover offer to the general body of shareholders;
34

(d) purchase of new shares by private treaty;

(e) Acquisition of share capital through the following forms of considerations viz. means of
cash, issuance of loan capital, or insurance of share capital.

Takeover:
A takeover is acquisition and both the terms are used interchangeably.
Takeover differs from merger in approach to business combinations i.e. the process of takeover,
transaction involved in takeover, determination of share exchange or cash price and the
fulfillment of goals of combination all are different in takeovers than in mergers. For example,
process of takeover is unilateral and the offeror company decides about the maximum price.
Time taken in completion of transaction is less in takeover than in mergers, top management of
the offeree company being more co-operative.

De-merger or corporate splits or division:

De-merger or split or divisions of a company are the synonymous terms signifying a
movement in the company.

What will it take to succeed?

Funds are an obvious requirement for would-be buyers. Raising them may not be a problem for
multinationals able to tap resources at home, but for local companies, finance is likely to be the
single biggest obstacle to an acquisition. Financial institution in some Asian markets are banned
from leading for takeovers, and debt markets are small and illiquid, deterring investors who fear
that they might not be able to sell their holdings at a later date. The credit squeezes and the
depressed state of many Asian equity markets have only made an already difficult situation
worse. Funds apart, a successful Mergers & Acquisition growth strategy must be supported by

35

three capabilities: deep local networks, the abilities to manage uncertainty, and the skill to
distinguish worthwhile targets. Companies that rush in without them are likely to be stumble.

Assess target quality:

To say that a company should be worth the price a buyer pays is to state the obvious. But
assessing companies in Asia can be fraught with problems, and several deals have gone badly
wrong because buyers failed to dig deeply enough. The attraction of knockdown price tag may
tempt companies to skip crucial checks. Concealed high debt levels and deferred contingent
liabilities have resulted in large deals destroying value. But in other cases, where buyers have
undertaken detailed due diligence, they have been able to negotiate prices as low as half of the
initial figure.
Due diligence can be difficult because disclosure practices are poor and companies often lack the
information buyer need. Moreover, most Asian conglomerates still do not present consolidated
financial statements, leaving the possibilities that the sales and the profit figures might be bloated
by transactions between affiliated companies. The financial records that are available are often
unreliable, with different projections made by different departments within the same company,
and different projections made for different audiences. Banks and investors, naturally, are likely
to be shown optimistic forecasts.
The purpose for an offeror company for acquiring another company shall be reflected in the
corporate objectives. It has to decide the specific objectives to be achieved through acquisition.
The basic purpose of merger or business combination is to achieve faster growth of the corporate
business. Faster growth may be had through product improvement and competitive position.
Other possible purposes for acquisition are short listed below: (1)Procurement of supplies:
1. to safeguard the source of supplies of raw materials or intermediary product;
2. to obtain economies of purchase in the form of discount, savings in transportation costs,
overhead costs in buying department, etc.;
36

3. to share the benefits of suppliers economies by standardizing the materials.

(2)Revamping production facilities:
1. to achieve economies of scale by amalgamating production facilities through
more intensive utilization of plant and resources;
2. to standardize product specifications, improvement of quality of product,
expanding
3. market and aiming at consumers satisfaction through strengthening after sale
4. services;
5. to obtain improved production technology and know-how from the offeree
company
6. to reduce cost, improve quality and produce competitive products to retain and
7. improve market share.
(3) Market expansion and strategy:
1. to eliminate competition and protect existing market;
2. to obtain a new market outlets in possession of the offeree;
3. to obtain new product for diversification or substitution of existing products and to
enhance the product range;
4. strengthening retain outlets and sale the goods to rationalize distribution;
5. to reduce advertising cost and improve public image of the offeree company;
6. strategic control of patents and copyrights.
(4) Financial strength:
1. to improve liquidity and have direct access to cash resource;

37

2. to dispose of surplus and outdated assets for cash out of combined enterprise;
3. to enhance gearing capacity, borrow on better strength and the greater assets
backing;
4. to avail tax benefits;
5. to improve EPS (Earning Per Share).
(5) General gains:
1. to improve its own image and attract superior managerial talents to manage its affairs;
2. to offer better satisfaction to consumers or users of the product.
(6) Own developmental plans:
The purpose of acquisition is backed by the offeror companys own developmental plans.
A company thinks in terms of acquiring the other company only when it has arrived at its own
development plan to expand its operation having examined its own internal strength where it
might not have any problem of taxation, accounting, valuation, etc. but might feel resource
constraints with limitations of funds and lack of skill managerial personnels. It has to aim at
suitable combination where it could have opportunities to supplement its funds by issuance of
securities; secure additional financial facilities eliminate competition and strengthen its market
position.
(7) Strategic purpose:
The Acquirer Company view the merger to achieve strategic objectives through alternative type
of combinations which may be horizontal, vertical, product expansion, market extensional or
other specified unrelated objectives depending upon the corporate strategies. Thus, various types
of combinations distinct with each other in nature are adopted to pursue this objective like
vertical or horizontal combination.
(8) Corporate friendliness:

38

Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite
competitiveness in providing rescues to each other from hostile takeovers and cultivate situations
of collaborations sharing goodwill of each other to achieve performance heights through business
combinations. The combining corporate aim at circular combinations by pursuing this objective
(9) Desired level of integration:
Mergers and acquisition are pursued to obtain the desired level of integration between the two
combining business houses. Such integration could be operational or financial. This gives birth to
conglomerate combinations. The purpose and the requirements of the offeror company go a long
way in selecting a suitable partner for merger or acquisition in business combinations.
Merger or acquisition depends upon the purpose of the offeror company it wants to achieve.
Based on the offerors objectives profile, combinations could be vertical, horizontal, circular and
conglomeratic as precisely described below with reference to the purpose in view of the offeror
company.
(A) Vertical combination:
A company would like to takeover another company or seek its merger with that company to
expand espousing backward integration to assimilate the resources of supply and forward
integration towards market outlets. The acquiring company through merger of another unit
attempts on reduction of inventories of raw material and finished goods, implements its
production plans as per the objectives and economizes on working capital investments. In other
words, in vertical combinations, the merging undertaking would be either a supplier or a buyer
using its product as intermediary material for final production.
The following main benefits accrue from the vertical combination to the acquirer company i.e.
(1) it gains a strong position because of imperfect market of the intermediary products,
scarcity of resources and purchased products;
(2) Has control over products specifications.
(B) Horizontal combination:

39

It is a merger of two competing firms which are at the same stage of industrial process. The
acquiring firm belongs to the same industry as the target company. The mail purpose of such
mergers is to obtain economies of scale in production by eliminating duplication of facilities and
the operations and broadening the product line, reduction in investment in working capital,
elimination in competition concentration in product, reduction in advertising costs, increase in
market segments and exercise better control on market.
(C) Circular combination:
Companies producing distinct products seek amalgamation to share common distribution and
research facilities to obtain economies by elimination of cost on duplication and promoting
market enlargement. The acquiring company obtains benefits in the form of economies of
resource sharing and diversification.
(D) Conglomerate combination:
It is amalgamation of two companies engaged in unrelated industries like DCM and Modi
Industries. The basic purpose of such amalgamations remains utilization of financial resources
and enlarges debt capacity through re-organizing their financial structure so as to service the
shareholders by increased leveraging and EPS, lowering average cost of capital and thereby
raising present worth of the outstanding shares. Merger enhances the overall stability of the
acquirer company and creates balance in the companys total portfolio of diverse products and
production processes.
Mergers and takeovers are permanent form of combinations which vest in management
complete control and provide centralized administration which are not available in combinations
of holding company and its partly owned subsidiary. Shareholders in the selling company gain
from the merger and takeovers as the premium offered to induce acceptance of the merger or
takeover offers much more price than the book value of shares. Shareholders in the buying
company gain in the long run with the growth of the company not only due to synergy but also
due to boots trapping earnings.

40

Motivations for mergers and acquisitions

Mergers and acquisitions are caused with the support of shareholders, managers ad
promoters of the combing companies. The factors, which motivate the shareholders and
managers to lend support to these combinations and the resultant consequences they have to bear,
are briefly noted below based on the research work by various scholars globally.

(1) From the standpoint of shareholders

Investment made by shareholders in the companies subject to merger should
enhance in value. The sale of shares from one companys shareholders to another and holding
investment in shares should give rise to greater values i.e. the opportunity gains in alternative
investments. Shareholders may gain from merger in different ways viz. from the gains and
achievements of the company i.e. through
(a) realization of monopoly profits;
(b) economies of scales;
(c) diversification of product line;
(d) acquisition of human assets and other resources not available otherwise;
(e) Better investment opportunity in combinations.

One or more features would generally be available in each merger where

shareholders may have attraction and favour merger.
(2) From the standpoint of managers
Managers are concerned with improving operations of the company, managing the affairs of the
company effectively for all round gains and growth of the company which will provide them
41

better deals in raising their status, perks and fringe benefits. Mergers where all these things are
the guaranteed outcome get support from the managers. At the same time, where managers have
fear of displacement at the hands of new management in amalgamated company and also
resultant depreciation from the merger then support from them becomes difficult.
(3) Promoters gains
Mergers do offer to company promoters the advantage of increasing the size of their company
and the financial structure and strength. They can convert a closely held and private limited
company into a public company without contributing much wealth and without losing control.
(4) Benefits to general public
Impact of mergers on general public could be viewed as aspect of benefits and costs to:
(a) Consumer of the product or services;
(b) Workers of the companies under combination;
(c) General public affected in general having not been user or consumer or the
worker in the companies under merger plan.
(a) 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 favour 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
sales service, etc.
(b) Workers community
The merger or acquisition of a company by a conglomerate or other acquiring company may
have the effect on both the sides of increasing the welfare in the form of purchasing power and
other miseries of life. Two sides of the impact as discussed by the researchers and academicians
are: firstly, mergers with cash payment to shareholders provide opportunities for them to invest
42

this money in other companies which will generate further employment and growth to uplift of
the economy in general. Secondly, any restrictions placed on such mergers will decrease the
growth and investment activity with corresponding decrease in employment. Both workers and
communities will suffer on lessening job opportunities, preventing the distribution of benefits
resulting from diversification of production activity.
(c) General public
Mergers result into centralized concentration of power. Economic power is to be understood as
the ability to control prices and industries output as monopolists. Such monopolists affect social
and political environment to tilt everything in their favour to maintain their power ad expand
their business empire. These advances result into economic exploitation. But in a free economy a
monopolist does not stay for a longer period as other companies enter into the field to reap the
benefits of higher prices set in by the monopolist. This enforces competition in the market as
consumers are free to substitute the alternative products. Therefore, it is difficult to generalize
that mergers affect the welfare of general public adversely or favorably. Every merger of two or
more companies has to be viewed from different angles in the business practices which protects
the interest of the shareholders in the merging company and also serves the national purpose to
add to the welfare of the employees, consumers and does not create hindrance in administration
of the Government polices.
Mergers and takeovers are two different approaches to business combinations. Mergers
are pursued under the Companies Act, 1956 vide sections 391/394 thereof or may be envisaged
under the provisions of Income-tax Act, 1961 or arranged through BIFR under the Sick Industrial
Companies Act, 1985 whereas, takeovers fall solely under the regulatory framework of the SEBI
Regulations, 1997.

Minority shareholders rights

SEBI regulations do not provide insight in the event of minority shareholders not agreeing to the
takeover offer. However section 395 of the Companies Act, 1956 provides for the acquisition of
shares of the shareholders. According to section 395 of the Companies Act, if the offerer has
43

acquired at least 90% in value of those shares may give notice to the non-accepting shareholders
of the intention of buying their shares. The 90% acceptance level shall not include the share held
by the offerer or its associates. The procedure laid down in this section is briefly noted below.
1. In order to buy the shares of non-accepting shareholders the offerer must have reached
the 90% acceptance level within 4 months of the date of the offer, and notice must have
been served on those shareholders within 2 months of reaching the 90% level.
2. The notice to the non-accepting shareholders must be in a prescribed manner. A copy of a
notice and a statutory declaration by the offerer (or, if the offerer is a company, by a
director) in the prescribed form confirming that the conditions for giving the notice have
been satisfied must be sent to the target.
3. Once the notice has been given, the offerer is entitled and bound to acquire the
outstanding shares on the terms of the offer.
4. If the terms of the offer give the shareholders a choice of consideration, the notice must
give particulars of options available and inform the shareholders that he has six weeks
from the date of the notice to indicate his choice of consideration in writing.
5. At the end of the six weeks from the date of the notice to the non-accepting shareholders
the offerer must immediately send a copy of notice to the target and pay or transfer to the
target the consideration for all the shares to which the notice relates. Stock transfer forms
executed on behalf of the non-accepting shareholders by a person appointed by the
offerer must also be sent. Once the company has received stock transfer forms it must
register the offerer as the holder of the shares.
6. The consideration money, which is received by the target, should be held on trust for the
person entitled to shares in respect of which the sum was received.
7. Alternatively, if the offerer does not wish to buy the non-accepting shareholders shares,
it must still within one month of company reaching the 90% acceptance level give such
shareholders notice in the prescribed manner of the rights that are exercisable by them to
require the offerer to acquire their shares. The notice must state that the offer is still open
for acceptance and specify a date after which the right may not be exercised, which may
44

not be less than 3 months from the end of the time within which the offer can be
accepted. If the offerer fails to send such notice it (and its officers who are in default) are
liable to a fine unless it or they took all reasonable steps to secure compliance.
8. If the shareholder exercises his rights to require the offerer to purchase his shares the
offerer is entitled and bound to do so on the terms of the offer or on such other terms as
may be agreed. If a choice of consideration was originally offered, the shareholder may
indicate his choice when requiring the offerer to acquire his shares. The notice given to
shareholder will specify the choice of consideration and which consideration should
apply in default of an election.
9. On application made by an happy shareholder within six weeks from the date on which
the original notice was given, the court may make an order preventing the offerer from
acquiring the shares or an order specifying terms of acquisition differing from those of
the offer or make an order setting out the terms on which the shares must be acquired.
In certain circumstances, where the takeover offer has not been accepted by the required 90% in
value of the share to which offer relates the court may, on application of the offerer, make an
order authorizing it to give notice under the Companies Act, 1985, section 429. It will do this if it
is satisfied that:
a. the offerer has after reasonable enquiry been unable to trace one or more shareholders to
whom the offer relates;
b. the shares which the offerer has acquired or contracted to acquire by virtue of acceptance
of the offerer, together with the shares held by untraceable shareholders, amount to not
less than 90% in value of the shares subject to the offer; and
c. the consideration offered is fair and reasonable.
The court will not make such an order unless it considers that it is just and equitable to do so,
having regard, in particular, to the number of shareholder who has been traced who did accept
the offer.
Alternative modes of acquisition
45

The terms used in business combinations carry generally synonymous connotations and can be
used interchangeably. All the different terms carry one single meaning of merger but each term
cannot be given equal treatment in the discussion because law has created a dividing line
between take-over and acquisitions by way of merger, amalgamation or reconstruction.
Particularly the takeover Regulations for substantial acquisition of shares and takeovers known
as SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 vide section 3
excludes any attempt of merger done by way of any one or more of the following modes:
(a) by allotment in pursuant of an application made by the shareholders for right issue
and under a public issue;
(b) preferential allotment made in pursuance of a resolution passed under section 81(1A)
of the Companies Act, 1956;
(c) allotment to the underwriters pursuant to underwriters agreements;
(d) inter-se-transfer of shares amongst group, companies, relatives, Indian promoters and
Foreign collaborators who are shareholders/promoters;

(e) acquisition of shares in the ordinary course of business, by registered stock brokers,
public financial institutions and banks on own account or as pledges;
(f) acquisition of shares by way of transmission on succession or inheritance;
(g) acquisition of shares by government companies and statutory corporations;
(h) transfer of shares from state level financial institutions to co-promoters in pursuance
to agreements between them;
(i) acquisition of shares in pursuance to rehabilitation schemes under Sick Industrial
Companies (Special Provisions) Act, 1985 or schemes of arrangements, mergers,
amalgamation, De-merger, etc. under the Companies Act, 1956 or any other law or
regulation, Indian or Foreign;
46

(j) acquisition of shares of company whose shares are not listed on any stock exchange.
However, this exemption in not available if the said acquisition results into control of
a listed company;
(k) such other cases as may be exempted from the applicability of Chapter III of SEBI
regulations by SEBI.
The basic logic behind substantial disclosure of takeover of a company through
acquisition of shares is that the common investors and shareholders should be made aware of the
larger financial stake in the company of the person who is acquiring such companys shares. The
main objective of these Regulations is to provide greater transparency in the acquisition of shares
and the takeovers of companies through a system of disclosure of information.
Escrow account
To ensure that the acquirer shall pay the shareholders the agreed amount in redemption of his
promise to acquire their shares, it is a mandatory requirement to open escrow account and
deposit therein the required amount, which will serve as security for performance of obligation.

The Escrow amount shall be calculated as per the manner laid down in regulation 28(2).
Accordingly:
For offers which are subject to a minimum level of acceptance, and the acquirer does want to
acquire a minimum of 20%, then 50% of the consideration payable under the public offer in cash
shall be deposited in the Escrow account.
Payment of consideration
Consideration may be payable in cash or by exchange of securities. Where it is payable in cash
the acquirer is required to pay the amount of consideration within 21 days from the date of
closure of the offer. For this purpose he is required to open special account with the bankers to an
issue (registered with SEBI) and deposit therein 90% of the amount lying in the Escrow Account,
if any. He should make the entire amount due and payable to shareholders as consideration. He
can transfer the funds from Escrow account for such payment. Where the consideration is
47

payable in exchange of securities, the acquirer shall ensure that securities are actually issued and
dispatched to shareholders in terms of regulation 29 of SEBI Takeover Regulations.
Generally, a company with the track record should have a less profit earning or loss making but
viable company amalgamated with it to have benefits of economies of scale of production and
marketing network, etc. As a consequence of this merger the profit earning company survives
and the loss making company extinguishes its existence. But in many cases, the sick companys
survival becomes more important for many strategic reasons and to conserve community interest.
The law provides encouragement through tax relief for the companies that are profitable but get
merged with the loss making companies. Infact this type of merger is not a normal or a routine
merger. It is, therefore, called as a Reverse Merger.
The allurement for such mergers is the tax savings under the Income-tax Act, 1961. Section 72A
of the Act ensures the tax relief which becomes attractive for amalgamations of sick company
with a healthy and profitable company to take the advantage of carry forward losses. Taking
advantage of the provisions of section 72A through merger or amalgamation is known as reverse
merger, which gives survival to the sick unit by merging it with the healthy unit. The healthy unit
extincts loosing its name and the surviving sick company retains its name. Companies to take
advantage of the section follow this route but after a year or so change their names to the one of
the healthy company as were done amongst others by Kirloskar Pneumatics Ltd. The company
merged with Kirloskar Tractors Ltd, a sick unit and initially lost its name but after one year it
changed its name as was prior to merger.
Reverse Merger under Tax Laws
Section 72A of the Income-tax Act, 1961 is meant to facilitate rejuvenation of sick industrial
undertaking by merging with healthier industrial companies having incentive in the form of tax
savings designed with the sole intention to benefit the general public through continued
productive activity, increased employment avenues and generation of revenue.
(1) Background
Under the existing provisions of the Income-tax Act, so much of the business loss of a year as
cannot be set off by him against the profits of the following year from any business carried on by
48

him. If the loss cannot be so wholly set off, the amount not so set off can be carried forward to
the next following year and so on, up to a maximum of eight assessment years immediately
succeeding the assessment year for which the loss was first computed. The benefit of carry
forward and set off of business loss is, however, not available unless the business in which the
loss was originally sustained is continued to be carried on by the assessee. Further, only the
assessee who incurred the loss by his predecessor. Similarly, if a business carried on one assessee
is taken over by another, the unabsorbed depreciation allowance due to the predecessor in
business and set off against his profits in subsequent years. In view of these provisions, the
accumulated business loss and unabsorbed depreciation allowance of a company which merges
with another company under a scheme of amalgamation cannot be carried forward and set off by
the latter company against its profits.

The very purpose of section 72A is to revive the business of an undertaking, which is financially
non-viable and to bring it back to health. Sickness among industrial undertakings is a matter of
grave national concern. Experience has shown that taking over of such units by Government is
not always the most satisfactory or the most economical solution. The more effective course
suggested was to facilitate the amalgamation of sick industrial units with sound ones by
providing incentives and removing impediments in the way of such amalgamation. To save the
Government from social costs in terms of loss of production and employment and to relieve the
Government of the uneconomical burden of taking over and running sick industrial units is one
of the motivating factors in introducing section 72A. To achieve this objective so as to facilitate
the merger of sick industrial units with sound one, the general rule of carry forward and set off of
accumulated losses and unabsorbed depreciation allowance of amalgamating company by the
amalgamated company was statutorily related. By a deeming fiction, the accumulated loss or the
unabsorbed depreciation of the amalgamating is treated to be the loss or, as the case may be,
allowance for depreciation of the amalgamated company for the previous year in which
amalgamation was affected.
There are three statutory conditions which are to be fulfilled under section 72A (1) for the
benefits prescribed therein to be available to the amalgamated company, namely

49

(i)

The amalgamating company was, immediately before such amalgamation, financially

non-viable by reason of its liabilities, losses and other relevant factors;

(ii)

The amalgamation is in the public interest;

(iii)

Such other conditions as the Central Government may by notification in the Official

Gazette specify, to ensure that the benefit under this section is restricted to amalgamation,
which would facilitate the rehabilitation or revival of the business of amalgamating
company.

(2) Reverse merger

As it can be now understood, a reverse merger is a method adopted to avoid the stringent
provisions of Section 72A but still be able to claim all the losses of the sick unit. For doing so, in
case of a reverse merger, instead of a healthy unit taking over a sick unit, the sick unit takes over/
amalgamates with the healthy unit.
High Court discussed 3 tests for reverse merger:
a. assets of transferor company being greater than transferee company;
b. equity capital to be issued by the transferee company pursuant to the acquisition
exceeding its original issued capital, and
c. the change of control in the transferee company clearly indicated that the present
arrangement was an arrangement, which was a typical illustration of takeover by
reverse bid.
Court held that prime facie the scheme of merging a prosperous unit with a sick unit could not be
said to be offending the provisions of section 72A of the Income Tax Act, 1961 since the object
underlying this provision was to facilitate the merger of sick industrial unit with a sound one.
(3) Salient features of reverse merger under section 72A
50

1. Amalgamation should be between companies and none of them

should be a firm of partners or sole-proprietor. In other words,
partnership firm or sole-proprietary concerns cannot get the benefit
of tax relief under section 72A merger.
2. The companies entering into amalgamation should be engaged in
either industrial activity or shipping business. In other words, the
tax relief under section 72A would not be made available to
companies engaged in trading activities or services.
3. After amalgamation the sick or financially unviable company
shall survive and other income generating company shall extinct.
In other words essential condition to be fulfilled is that the
acquiring company will be able to revive or rehabilitate having
consumed the healthy company.
4. One of the merger partner should be financially unviable and have
accumulated losses to qualify for the merger and the other merger
partner should be profit earning so that tax relief to the maximum
extent could be had. In other words the company which is
financially unviable should be technically sound and feasible,
commercially and economically viable but financially weak
because of financial stringency or lack of financial recourses or its
liabilities have exceeded its assets and is on the brink of
insolvency. The second requisite qualification associated with
financial unavailability is the accumulation of losses for past few
years.
5. Amalgamation should be in the public interest i.e. it should not be
against public policy, should not defeat basic tenets of law, and
must safeguard the interest of employees, consumers, creditors,
customers and shareholders apart from promoters of company
through the revival of the company.
51

6. The merger must result into following benefit to the amalgamated

company i.e. (a) carry forward of accumulated business loses of
the amalgamated company; (b)

carry forward of unabsorbed

depreciation of the amalgamating company and (c) accumulated

loss would be allowed to be carried forward set of for eight
subsequent years.
7. Accumulated loss should arise from Profits and Gains from
business or profession and not be loss under the head Capital
Gains or Speculation.
8. For qualifying carry forward loss, the provisions of section 72
should have not been contravened.
9. Similarly for carry forward of unabsorbed depreciation the
conditions of section 32 should not have been violated.

10. Specified authority has to be satisfied of the eligibility of the

company for the relief under section 72 of the Income Tax Act. It is
only on the recommendations of the specified authority that
Central Government may allow the relief.
11. The company should make an application to a specified
authority for requisite recommendation of the case to the Central
Government for granting or allowing the relief.
12. Procedure for merger or amalgamation to be followed in such
cases is same as in any other cases. Specified Authority makes
recommendation after taking into consideration the courts
direction on scheme of amalgamation.
Public announcement:
To make a public announcement an acquirer shall follow the following procedure:
52

1. Appointment of merchant banker:

The acquirer shall appoint a merchant banker registered as category I with SEBI to advise him
on the acquisition and to make a public announcement of offer on his behalf.
2. Use of media for announcement:
Public announcement shall be made at least in one national English daily one Hindi daily and
one regional language daily newspaper of that place where the shares of that company are listed
and traded.
3. Timings of announcement:
Public announcement should be made within four days of finalization of negotiations or entering
into any agreement or memorandum of understanding to acquire the shares or the voting rights.
4. Contents of announcement:
Public announcement of offer is mandatory as required under the SEBI Regulations. Therefore, it
is required that it should be prepared showing therein the following information:
(1)

Paid up share capital of the target company, the number of fully paid up and
partially paid up shares.

(2)

Total number and percentage of shares proposed to be acquired from public

subject to minimum as specified in the sub-regulation (1) of Regulation 21
that is:
a) The public offer of minimum 20% of voting capital of the company to the
shareholders;
b) The public offer by a raider shall not be less than 10% but more than 51%
of shares of voting rights. Additional shares can be had @ 2% of voting
rights in any year.

(3)

The minimum offer price for each fully paid up or partly paid up share;

(4)

Mode of payment of consideration;

53

(5)

The identity of the acquirer and in case the acquirer is a company, the identity
of the promoters and, or the persons having control over such company and
the group, if any, to which the company belong;

(6)

The existing holding, if any, of the acquirer in the shares of the target
company, including holding of persons acting in concert with him;

(7)

Salient features of the agreement, if any, such as the date, the name of the
seller, the price at which the shares are being acquired, the manner of
payment of the consideration and the number and percentage of shares in
respect of which the acquirer has entered into the agreement to acquirer the
shares or the consideration, monetary or otherwise, for the acquisition of
control over the target company, as the case may be;

(8)

The highest and the average paid by the acquirer or persons acting in concert
with him for acquisition, if any, of shares of the target company made by him
during the twelve month period prior to the date of the public announcement;

(9)

Objects and purpose of the acquisition of the shares and the future plans of
the acquirer for the target company, including disclosers whether the acquirer
proposes to dispose of or otherwise encumber any assets of the target
company:

Provided that where the future plans are set out, the public announcement shall also set out how
the acquirers propose to implement such future plans;
(10)

The specified date as mentioned in regulation 19;

(11)

The date by which individual letters of offer would be posted to each of the
shareholders;

(12)

The date of opening and closure of the offer and the manner in which and the
date by which the acceptance or rejection of the offer would be
communicated to the share holders;
54

(13)

The date by which the payment of consideration would be made for the
shares in respect of which the offer has been accepted;

(14)

Disclosure to the effect that firm arrangement for financial resources required
to implement the offer is already in place, including the details regarding the
sources of the funds whether domestic i.e. from banks, financial institutions,
or otherwise or foreign i.e. from Non-resident Indians or otherwise;

(15)

Provision for acceptance of the offer by person who own the shares but are
not the registered holders of such shares;

(16)

Statutory approvals required to obtained for the purpose of acquiring the

shares under the Companies Act, 1956, the Monopolies and Restrictive Trade
Practices Act, 1973, and/or any other applicable laws;

(17)

Approvals of banks or financial institutions required, if any;

(18)

Whether the offer is subject to a minimum level of acceptances from the

shareholders; and

(19)

Such other information as is essential fort the shareholders to make an

informed design in regard to the offer.

Revenue deserves more attention in mergers; indeed, a failure to focus on this important factor
may explain why so many mergers dont pay off. Too many companies lose their revenue
momentum as they concentrate on cost synergies or fail to focus on post merger growth in a
systematic manner. Yet in the end, halted growth hurts the market performance of a company far
more than does a failure to nail costs.

55

CHAPTER IV

DATA ANALYSIS

56

RONW

RONW = PAT / NET WORTH

PAT = PROFIT AFTER TAX

ICICI BANK

2009:- PAT
NW

= 258.30 4.50

= 962.55+5632.41

6594.96

00.385 //

RONW=

2010

:-

NW

PAT

253.8 / 6594.96

1206.18-58.91

= 962.66+6320.65+0 =

57

253.8

1147.27

7283.31

RONW=

2011

:-

PAT

NW

RONW=

2012

:-

PAT

NW

2013

:-

NW

1147.27 / 7283.31=

= 1637.11 - 69.71

966.40 + 7394.16-0

1567.4 / 8360.56

= 2005.20 90.10

0.1575 //

1567.4

8360.56

0.1875//

1915.1

1086.76 - 11813.1 0= 12899.96

RONW= 1915.1 / 12899.96 =

0.1484

PAT

2433.57

= 2540.07 106.50

= 1239.83 - 21316.16=

22555.99

RONW= 2433.57 / 22555.99=

0.1079 //

58

BANK OF RAJASTHAN
2009

:- PAT

NW

= 11.13 - 0

= 11.61 + 90.41

RONW=

2010

:- PAT

NW

2011

11.13 / 102.02

= 25.77 - 0

102.02

0.109 //

25.77

= 11.61 + 112.13

123.74

RONW= 25.77 / 123.74

0.208 //

:-

NW

PAT

= 34.19 - 0.59

:-

33.6

= 11.77 + 141.42 +34.88= 188.07

RONW= 33.6 / 188.07=

2012

11.13

PAT

= 30.13 - 0.59

59

0.179 //

29.54

NW

= 11.77 + 199.56

RONW= 29.54 / 211.33

2013:-

PAT

15.58 - 1.43

NW

211.33

0.139 //

44.15

= 11.77 - 203.94 +32.13=

RONW= 44.15 - 247.84

CEPS

( PAT

:-

CEPS=

0.178 //

DEPRECIATION ) / NO. OF SHARES

ICICI
2009
=
2010:=
2011:=
2012:=

2013:=

253.8 + 64.10 /

22.036

14.43 //
CEPS=

1147.2 + 505.94 / 61.266

26.98 //
CEPS=

156.74 + 539.44 / 61.64

34.18 //
CEPS=

1915.1 + 590.36 / 73.676

34.01 //

CEPS=

247.84

2433.57 + 623.79 /

34.39 //
60

88.893

BANK OF RAJASTHAN
2009:=

CEPS=

11.13

+ 14

1.161

25.77

+ 20.67

1.161

1.177

21.64 //

2010:=
2011:=
2012:=
2013:=

CEPS=
40 //
CEPS=

33.6

25.22

49.97 //
CEPS=

29.54

+ 30.60

1.177

44.15

+ 17.80 /

1.177

51.09 //
CEPS=
52.63 //

ICICI
ROCE

PBIT / CAPITAL EMPLOYED

PBIT

PBDT + NON REC EXP - NON REC INCOME

C.E

NET. FA + NET C.A - FICTITIOUS ASSETS.

2009

:-

PBIT =

C.E =
=

2010:-

322.4

4239.34 + 12786.35

17025.69

ROCE
=

258.3 + 64.1 + 0 - 0 =

322.4

/ 17025.69

0.0789 * 100 = 1.89 //

PBIT =

1206.18 + 505.94 + 0 - 0

C.E =

4060.73

10549.73

+ 6489
61

1712.12

ROCE

1712.12

/ 10549.73

0.1622

PBIT =

1637.11 + 539.44 + 0 - 0

2176.55

C.E =

4056.41 + 847.064

12527.05

ROCE

0.1737

* 100 = 16.22 //
2011:-

2176.55 / 12527.05
= 17.37 //

2012:-

PBIT =

2005.20 + 590.36 =

16967.04

C.E =

4.038.04 + 12929 =

16967.04

`ROCE

PBIT =

2540.07 + 623.79 =

3163.86

C.E =

3980.71 + 17040.22=

21020.9

ROCE

2595.56

/ 16967.04=

0.1529

15.29 //
2013:-

3163.86

/ 21020.9=

0.1505

= 15.05 //
BANK OF RAJASTHAN
2009:-

PBIT =

11.13 + 14 + 0 - 0

CE

81.11

426.16

+ 345.05

25.13

/ 426.16

25.13

ROCE

0.0589

PBIT =

25.77 + 20.67 + 0 0= 46.44

CE

122.88 + 398.66

5.89 //
2010:-

2011:-

46.44

/ 521.54

521.54

ROCE

PBIT =

34.19 + 25.22 + 0 0=
62

8.90 //
59.41

CE

2012:-

2013:-

198.99 + 877.19

/ 1076.18

1076.18

ROCE

PBIT =

30.13 + 30.60

60.73

CE

179.20 + 813.93

993.13

59.41

PBIT =

45.58 + 17.80+ 0 0= 63.38

CE

174.68 + 763.32

938

6.75

ROCE

63.38

/ 938

ICICI
63

5052 //

ROCE

60.73 / 993.13

6.11 //

Particulars

2009 2010 2011 2012 2013

EPS

11.52 18.73 25.43 25.99 27.35

RONW

0.038 0.157 0.187 0.148 0.107

5

ROCE
CEPS
MVA

EVA

1.89

16.22 17.37 15.29 15.05

14.43 26.98 34.18 34.01 34.39

-

5712.

1198

3141

1429

2343.

7.5

2.3

3.2

23

467.8 1396. 2971. 3567.

9

98

2009

2010

13

----

58

BOR
Particu

2011
64

2012

2013

lars
EPS

9.59

22.2

28.55

25.1

37.5

RONW

0.109

0.208

0.179

0.139

0.178

ROCE

5.89

8.9

5.52

6.11

6.75

CEPS

21.64

40

MVA

----

----

----

----

----

EVA

----

----

----

----

----

49997 51.09

52.63

The above table shows the position of ICICI Bank and Bank of
Rajasthan Ltd. During pre and post merger period, ICICI Bank
acquired Bank of Rajasthan Ltd., raising the share value of ICICI
Bank to new heights and making the former a stronger bank with
a stronger balance sheet.
When we start comparing the ration of both the banks pre and
post merger, one very important ration which indirectly tells the
strength of the companies operation is operating ratio which was
29.05% for ICICI Bank pre merger while it was 36.34% for Bank of
Rajasthan. Post merger the ratio changed to 24.81% indicating a
decline. This clearly indicates that the Company has realized
some losses which might be due to the high costs incurred during
the merger period.

Pre and Post Merger Operating Profit Ratio of ICICI Bank

65

Taking the Net profit ratio for the acquirer company before merger
was 12.17% while the net profit ratio for the acquired company
was 10.04%. During post merger the Net Profit ratio was 15.91%
which shows a significant increase from 12.17% to 15.91% and a
clear communication that the company has made profits after
merger. It can be suggested that the company has gained
monopoly and the advantages of goodwill are helping the
company gain some substantial profit.

66

Pre and Post Merger Net Profit Ratio position of ICICI Bank

The pre-merger ROI for the acquirer company was 44.72% while
the return on investment for the acquired company was 177.48%.
Post merger the ROI declined to 42.97%. Also the average of Net
worth before merger for the acquiring company was 7.79% while
the return on Net worth for the target company was -18.86%.
After merger the return on net worth increased to 9.35% for the
acquired company. This indicates that less was incurred at the
time of merger.
Pre and Post Merger ROI position of ICICI Bank

67

Taking the financial condition of the bank in consideration average

EPS during pre merger for ICICI Bank was 36.1 while that of the
target company was -6.33. Post merger the average EPS
increased to 44.73. This might be attributed that the shareholders
had retained some profits or dividends to make the company a
stronger financial organization
Figure 7: Pre and Post Merger EPS position of ICICI Bank

68

The operating ratio, ROI has indicated a slight decline in their

performance. The company has shown potential in attaining high
profits as the main parameter i.e. net profit ratio; EPS have shown
significant increase in their performance.
Further the table shows that dividends payout ratio was 32.33%
for the acquirer company while of the target company it was
2.91%. After Merger payout ratio changed to 31.76% This
indicates a slight decrease in the post merger period for the
acquirer company from 32.33% to 31.76%.
Pre and Post Merger Dividend Payout Ratio position of
ICICI Bank

69

The average of Debt-Equity ratio before merger for the acquirer

company was 3.91 and that of the target company was 27.82.
Post merger the ration had declined to 4.10.

Pre and Post Merger Debt Equity Ratio position of ICICI

Bank

70

CHAPTER V
CONCLUSION AND BIBLIOGRAPHY

71

Conclusion
ICICI Bank- Bank of Rajasthan Merger of banks are one of the major outcomes of the financial
transformation process. ICICI Bank- Bank of Rajasthan Merger are considered as corporate
events which helps an organization to create synergy and provide sustainable competitive
advantage, but, simultaneous these sorts of corporate events have the potential to create severe
personal trauma and stress which can result in psychological, behavioral, health, performance,
and survival problems for both the individuals and companies, whether it is a bank or a non
banking financial corporation, involved in it. It is evident from the case of ICICI Bank Ltd. that
how an organization can become market leader by adopting some strategic tools like ICICI
Bank- Bank of Rajasthan Merger. From the study, one can come to a definitive conclusion that
the primary reason for the merger between ICICI Bank and the Bank of Rajasthan, a major
landmark in Indian Banking history, has occurred due to the regulatory interventions of the
authorities. The analysis showed that the merger has increased the net profit, value and overall
financial performance of the bank which justify the decision of merger undertaken by ICICI
Bank.

RECOMMENDATIONS AND SUGGESSIONS

Brokerage can be reduced to the possible extent, so that new customers can be attracted. Some
customers are not trading online even after open an account because they are not having enough
knowledge about site. This can be solved with proper demonstration of site to customer who had
opened an account.

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After opening of account, customer should provide a guidebook, so that they can easily learn and
transact with ICICI Direct.Com. Stalls can be installed at public places and browsers can be
distributed among public. Some discount/offer can be given to those who are opening accounts in
groups. Offer can be give to the existing demat account holder.

FINDINGS
On the basis of the analytical study of the sample merger case following findings can be
drawn From the shareholders point of view of Profitability the ICICI Bank attained
positive results in the post merger period.
The merger increased the market value of ICICI Bank which indicates that the
merger had generated synergy.
The earnings growth after merger was found at much higher rate resulted in value
addition to shareholder.
A substantial dividend growth was observed after merger in ICICI Bank.

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BIBLIOGRAPHY
http://wiki .answer.com
http://www.moneycontrol.com/financials/bankrajasthan/capital-structure/BR
in.finance.yahoo.com
www.marketobservation.com
www.icicibank.com
http://articles.economictimes.indiatimes.com/2002-07-02/news/27364631_1_icici-bank-largestprivate-sector-bank-branch
http://www.ukessays.com/essays/finance/study-on-icici-and-rajasthan-bank-merger-financeessay.php#ftn14#ixzz2fCiZn6kt
ICICI Bank- Bank of Rajasthan Merger: An analysis of strategic Features and Valuation Sony
Kuriakose, *M S Senam Raju and **G S Gireesh Kumar
http://www.business-standard.com/article/finance/bank-of-rajasthan-to-merge-with-icici-bank110051900028_1.html
http://www.dnaindia.com/money/1384635/report-bank-of-rajasthan-to-merge-with-icici-bank

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