TABLE OF CONTENTS

Particulars
page no.
1.Introduction
1.1 Mergers and acquisitions
1.2 Mergers and acquisitions in banking sector

2. Literature Review

3.Research Methodology

4.Kotak Mahindra Bank and ING Vysaya Bank merger

5.Analysis

6.Findings.

7.Conclusion

8.Bibliography

9.Annexure

EXECUTIVE SUMMARY

Merger is a combination of two or more companies into one company. The acquiring
company, (also referred to as the amalgamated company or the merged company) acquires
the assets and the liabilities of the target company (or amalgamating company). Typically,
shareholders of the amalgating company get shares of the amalgamated company in exchange
for their shares in the Target Company.

There are two ways which company can grow; one is internal growth and the
othe one is external growth. The intenal growth suffers from drawbacks like the
problem of raising adequate finances, longer implementation time of the
projects, uncertain etc. in order to overcome these problems a company can
grow externally by acquiring the already existing business firms. This is the route
of mergers and acquisition.

MERGER AND ACQUISITION

Mergers and acquisitions (M&A) refers to the aspect of corporate strategy, corporate
finance and management dealing with the buying, selling and combining of different
companies that can aid, finance, or help a growing company in a given industry grow
rapidly without having to create another business entity. An acquisition, also known as a
takeover or a buyout, is the buying of one company (the target) by another. The
acquisition process is very complex and various studies shows that only

50% acquisitions are successful. An acquisition may be friendly or hostile. In a friendly

takeover a companys cooperate in negotiations. In the hostile takeover, the takeover target
is unwilling to be bought or the target's board has no prior knowledge of the offer.
Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes,
however, a smaller firm will acquire management control of a larger or longer established
company and keep its name for the combined entity. This is known as a reverse takeover.
Although merger and amalgamation mean the same, there is a small difference between the
two. In a merger one company acquires the other company and the other company ceases
to exist. In an amalgamation, two or more companies come together and form a new
business entity.
MERGERS - A merger is a combination of two companies into one larger
company, which involves stock swap or cash payment to the target.

ACQUISITION - When one company takes over another and clearly established
itself as the new owner, the purchase is called an acquisition.

CLASSIFICATIONS OF MERGERS
Horizontal merger is the merger of two companies which are in produce of
Same products.This can be again classified into large horizontal merger and
Small horizontal merger.Horizontal merger helps to come over from the competition
between two companies merging together strengthens the company to compete with

other companies. Horizontal merger between the small companies would not effect the
industry in large. But between the larger companies will make an impact on the economy

and gives them the monopoly over the market. Horizontal mergers between the two
small companies are common in India. When large companies merging together we

need to look into legislations which prohibit the monopoly.

Vertical merger If a merger between two companies producing different
goods or services for one specific finished product. Vertical merger takes between the
customer and company or a company and a supplier. IN this a manufacture may merge
with the distributor or supplier of its products. This makes other competitors difficult to
access to an important component of product or

to

an

important

channel

of

distribution which are called as "vertical foreclosure" or "bottleneck" problem.

Vertical merger helps to avoid sales taxes and other marketing expenditures.
Market-extension merger - is a merger of two companies that deal in same
products in different markets. Market extension merger helps the companies to
have access to the bigger market and bigger client base.
Product-extension merger takes place between the two or more companies
which sells different products but related to the same category. This type of
merger enables the new company to go in for a pooling in of their products so
as to serve a common market, which was earlier fragmented among them. This
merger is between two companies that sell different, but somewhat related
products, in a common market. This allows the new, larger company to pool
their products and sell them with greater success to the already common market
that the two separate companies shared. The product extension merger allows
the merging companies to group together their products and get access to a

bigger set of consumers. This ensures that they earn higher profits.
Conglomeration - Two companies that have no common business areas. A
conglomeration is the merger of two companies that have no related products or
markets. In short, they have no common business ties. Conglomerate merger in
which merging firms are not competitors, but use common or related production
processes and/or marketing and distribution channels. Co generic merger:
Merger between firms in the same general industry but having no Mutual
buyer-seller relationship, such as a merger between a bank and a leasing
company.

Purchase mergers - this kind of merger occurs when one company purchases
another. The purchase is made with cash or through the issue of some kind of
debt instrument; the sale is taxable. Acquiring companies often prefer this type
of merger because it can provide them with a tax benefit. Acquired assets can be
written-up to the actual purchase price, and the difference between the book
value and the purchase price of the assets can depreciate annually, reducing
taxes payable by the acquiring company.
Consolidation mergers - With this merger, a brand new company is formed and
both companies are bought and combined under the new entity. The tax terms are
the same as those of a purchase merger. A unique type of merger called a reverse
merger is used as a way of going public without the expense and time required
by an IPO. Accretive mergers are those in which an acquiring company's
earnings per share (EPS) increase. An alternative way of calculating this is if a
company with a high price to earnings ratio (P/E) acquires one with a low P/E

1.2 MERGER AND ACQUISITION IN BANKING SECTOR

PROCEDURE OF BANK MERGERS AND AQUISITIONS

The procedure for merger either voluntary or otherwise is outlined in the respective state statutes/ the
Banking regulation Act. The Registrars, being the authorities vested with the responsibility of
administering the Acts, will be ensuring that the due process prescribed in the Statutes has been
complied with before they seek the approval of the RBI. They would also be ensuring compliance
with the statutory procedures for notifying the amalgamation after obtaining the sanction of the RBI.

Before deciding on the merger, the authorized officials of the acquiring bank and the merging bank sit
together and discuss the procedural modalities and financial terms. After the conclusion of the
discussions, a scheme is prepared incorporating therein the all the details of both the banks and the
area terms and conditions. Once the scheme is finalized, it is tabled in the meeting of Board of
directors of respective banks. The board discusses the scheme threadbare and accords its approval if
the proposal is found to be financially viable and beneficial in long run.

After the Board approval of the merger proposal, an extra ordinary general meeting of the
shareholders of the respective banks is convened to discuss the proposal and seek their approval.

After the board approval of the merger proposal, a registered valuer is appointed to valuate both the
banks. The valuer valuates the banks on the basis of its share capital, market capital, assets and
liabilities, its reach and anticipated growth and sends its report to the respective banks.

Once the valuation is accepted by the respective banks, they send the proposal along with all relevant
documents such as Board approval, shareholders approval, valuation report etc to Reserve Bank of
India and other regulatory bodies such Security & exchange board of India (SEBI) for their approval.
After obtaining approvals from all the concerned institutions, authorized officials of both the banks sit
together and discuss and finalize share allocation proportion by the acquiring bank to the shareholders
of the merging bank (SWAP ratio)
After completion of the above procedures, a merger and acquisition agreement is signed by the bank.

RBI Guidelines on Mergers & Acquisitions of Banks

With a view to facilitating consolidation and emergence of strong entities and providing an
avenue for non disruptive exit of weak/unviable entities in the banking sector, it has been decided to
frame guidelines to encourage merger/amalgamation in the sector.

Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to
formulate a scheme with regard to merger and amalgamation of banks, the State Governments have
incorporated in their respective Acts a provision for obtaining prior sanction in writing, of RBI for an
order, inter alia, for sanctioning a scheme of amalgamation or reconstruction
.

The request for merger can emanate from banks registered under the same State Act or from
banks registered under the Multi State Co-operative Societies Act (Central Act) for takeover of a
bank/s registered under State Act. While the State Acts specifically provide for merger of co-operative
societies registered under them, the position with regard to take over of a co-operative bank registered
under the State Act by a co-operative bank registered under the CENTRAL

Although there are no specific provisions in the State Acts or the Central Act for the merger of
a co-operative society under the State Acts with that under the Central Act, it is felt that, if all
concerned including administrators of the concerned Acts are agreeable to order merger/
amalgamation, RBI may consider proposals on merits leaving the question of compliance with
relevant statutes to the administrators of the Acts. In other words, Reserve Bank will confine its
examination only to financial aspects and to the interests of depositors as well as the stability of the
financial system while considering such proposals.

. RESEARCH METHODOLOGY
OBJECTIVES
To study the purpose of mergers and acquisitions in the
Banking sector
To study the benefits of mergers and acquisitions.
To understand Bank merger/amalgamation under various Acts
To study the changes in the Indian Banking Scenario.
To study the Procedure of Bank Mergers and Acquisitions
To study the motives behind consolidation in the Banking sector.
To study the risk involved in merger and acquisition.
To study the HR issues during merger and acquisition.
To understand the challenges and opportunities in the Indian
Banking Sector.
To study the major Banks involved in Mergers and
Acquisitions. Case Study on the Merger of ICICI Bank and
Bank of Rajasthan.

DATA COLLECTION
The analysis is purely based on the secondary data.
Secondary Research based on:
Business Magazines
Internet Sources
Finance books

RISKS IN BANK MERGERS AND ACQUISITIONS

When two banks merge into one then there is an inevitable increase in the size
of the organization. Big size may not always be better. The size may get too
widely and go beyond the control of the management. The increased size may
become a drug rather than an asset.

Consolidation does not lead to instant results and there is an incubation period
before the results arrive. Mergers and acquisitions are sometimes followed by
losses and tough intervening periods before the eventual profits pour in.
Patience, forbearance and resilience are required in ample measure to make any
merger a success story. All may not be up to the plan, which explains why there
are high rate of failures in mergers.

Consolidation mainly comes due to the decision taken at the top. It is a topheavy decision and willingness of the rank and file of both entities may not be
forthcoming. This leads to problems of industrial relations, deprivation,
depression and demotivation among the employees. Such a work force can
never churn out good results. Therefore, personal management at the highest
order with humane touch alone can pave the way.

The structure, systems and the procedures followed in two banks may be vastly
different, for example, a PSU bank or an old generation bank and that of a
technologically superior foreign bank. The erstwhile structures, systems and
procedures may not be conducive in the new milieu. A thorough overhauling
and systems analysis has to be done to assimilate both the organizations. This is
a time consuming process and requires lot of cautions approaches to reduce the
frictions.

There is a problem of valuation associated with all mergers. The shareholder of

existing entities has to be given new shares. Till now a foolproof valuation
system for transfer and compensation is yet to emerge.

Further, there is also a problem of brand projection. This becomes more

complicated when existing brands themselves have a good appeal. Question
arises whether the earlier brands should continue to be projected or should they
be submerged in favour of a new comprehensive identity. Goodwill is often
towards a brand and its sub-merger is usually not taken kindly.

KOTAK MAHINDRA AND ING VYSAYA

BANK
About Kotak Mahindra Bank Limited (Kotak)
Kotak Mahindra Bank is an Indian private sector banking headquartered
in Mumbai, Maharashtra, India. In February 2003,Reserve Bank of India (RBI) gave the
licence to Kotak Mahindra Finance Ltd., the group's flagship company, to carry on banking
business.
It offers a wide range of banking products and financial services for corporate and retail
customers through a variety of delivery channels and specialized subsidiaries in the areas
of personal finance, investment banking, life insurance, and wealth management.
As of 30 September 2014, Kotak Mahindra Bank has a network of 641 branches and over
1,159 ATMs spread across 363 locations in the country. Kotak Mahindra bank has received
rave reviews from many customers and has been presented many awards by various bodies
in India. The bank, before its merger with ING Vysya, had around 29,000 employees.] In
2014, it was the fourth largest private bank in India by market capitalization

HISTORY
Kotak Mahindra group, established in 1985 by Uday Kotak, is one of Indias leading financial
services conglomerates. In February 2003, Kotak Mahindra Finance Ltd. (KMFL), the
Groups flagship company, received a banking licence from the Reserve Bank of India (RBI).

With this, KMFL became the first non-banking finance company in India to be converted into
a bank Kotak Mahindra Bank Limited (KMBL).
In a study by Brand Finance Banking 500, published in February 2014 by the Banker
magazine (from The Financial Times Stable), KMBL was ranked 245th among the worlds
top 500 banks with brand valuation of around half a billion dollars ($481 million) and brand
rating of AA+. KMBL is also ranked among the top 5 Best Ranked Companies for Corporate
Governance in IR Global Ranking.

ABOUT ING VYSYA BANK

ING Vysya Bank was a privately owned Indian multinational bank based in Bangalore, with
retail, wholesale, and private banking platforms formed from the 2002 purchase of an equity
stake in Vysya Bank by the Dutch ING Group. This merger marks the first between an Indian
bank and a foreign bank.[3] Prior to this transaction, Vysya Bank had a seven-year-old
strategic alliance with erstwhile Belgian bank Banque Bruxelles Lambert, which was also
acquired by ING Group in 1998.
As of March 2013, ING Vysya is the seventh largest private sector bank in India with assets
totaling 54836 crore (US$8.1 billion) and operating a pan-India network of over 1,000
outlets, including 527 branches, which service over two million customers.[1][4] ING Group, the
highest-ranking institutional shareholder, currently holds a 44% equity stake in ING Vysya
Bank, followed by Aberdeen Asset Management, private equity firm ChrysCapital, Morgan
Stanley, and Citigroup, respectively.[5]
ING Vysya has been ranked the "Safest Banker" by the New Indian Express and among
"Top 5 Most Trusted Private Sector Banks" by the Economic Times.[6]
On 20 November 2014, in an all stock amalgamation, ING Vysya Bank decided to merge
with Kotak Mahindra Bank, creating the fourth largest private sector bank in India.[7] On 1
April 2015, the Reserve Bank of India approved the merger.[8]

HISTORY
Established in 1930s, Vysya Bank was formally incorporated in the city
of Bangalore, Karnataka. The state of Karnataka is known as the "cradle of Indian banking"
due to the region's bygone banking relationship with several European East India
Companies during the 17th, 18th and 19th centuries. Seven of the country's leading banks
(Canara Bank,Syndicate Bank, Corporation Bank, Vijaya Bank, Karnataka Bank, State Bank
of Mysore, and ING Vysya Bank) were originally established in Karnataka.[9]
From the 1930s through the 1950s, Vysya Bank built its banking business organically in
southern India. The bank concentrated on serving the Vysya community, a merchant/trading
community operating across Karnataka and Andhra Pradesh.[3] In 1958, the bank was
licensed by the Reserve Bank of India (RBI) to expand its banking operations nationwide. In
1972, the RBI upgraded Vysya Bank to a national B class bank.
In 1987, Vysya Bank established two independently operating subsidiaries providing
equipment leasing and home mortgaging services (Vysya Bank Leasing Ltd and Vysya Bank
Housing Finance Ltd, respectively). In 1994, Vysya Bank began marketing several
innovative financial products to the fast-growing Indian middle-class segment.

The Deal
The proposed merger is an all stock merger. 1000 shares of Rs.10 each of ING Vysya will receive 725
shares of Rs.5 each of Kotak Mahindra Bank.
This exchange ratio indicates an implied price of Rs.790 for each ING Vysya share based on the
average closing price of Kotak shares during one month to November 19, 2014, which is a 16%
premium to a like measure of ING Vysya market price. The proposed merger will result in issuance of
approximately 15.2% of the equity share capital of the merged Kotak.

If we calculate the premium as on 01/12/2014:

Price of 1 share of Kotak Mahindra Bank

Rs. 1200

Therefore the price of 725 shares

Rs. 8,70,000

Price of 1 share of ING Vysya Bank

Rs. 834

Price of 1000 shares

Rs. 8,34,000

Premium to shareholders will be Rs.36,000 which is

4.31%

Shareholding Pattern

Rationale of the Merger

1.
o

Revenue Synergies & cost efficiency:

Less need for branch expansion.

Save on product introduction costs.

Origination cost savings higher throughput of products through network.

Save on overlap of infrastructure.

2. Benefits to Employees:
o
Experience, expertise and diversity of employees is a significant asset for ING Vysya
o

ING Vysya employees will have growth opportunities across Kotak group.

Kotak employees would be part of a larger and deeper pan India franchise.

The employees of ING Vysya will also be at benefit as Mr Kotak has announced that there will be no
drastic job cuts post-merger. Employees are the major concern in the service industry. As the
employees will be satisfied, there will be no post-merger difficulties.

3. To Customers:
o
ING Vysyas diverse customer segments with more than 2 million customers, will now have
access to Kotaks wide product suite across financial services.

Particulars

ING
Vysya

Kotak

Kotak
(Merged)

Branches (nos)

573

641

1214

ATMs (nos)

635

1159

1794

Employees (nos)

10,591

29,220

39,811

Customers
(millions)

10

After the acquisition, the prevailing interest rate of the acquiring bank is applicable on all savings
accounts. So the account holders of the acquired bank could gain if the rate is higher than that offered
by their existing bank. Since ING Vysya offers a 4 per cent annual interest rate and Kotak Mahindra
gives 6 per cent for a balance of over Rs 1 lakh, the ING Vysya account holders stand to gain. For a
balance of up to Rs 1 lakh, they can earn an interest rate of6 per cent per annum now.

4. Wider Coverage and Balanced Footprint:

Branch
Density
Complementary in ING
Key
Cities Vysya1
Branches

Kotak

Kotak
(Merged)

West

12%

46%

30%

North

20%

34%

27%

South

64%

15%

38%

East

4%

5%

5%

Total

573

641

1,214

If we go through the table of branch density, number of branches of ING Vysya are more in South
Region. As far as Kotak Mahindra is concerned it has less number of branches in South Region
whereas branch density in west and North Region is more. The merger would give Kotak Mahindra a
wider coverage and balanced footprint in three regions.

Financial Comparison of Kotak Mahindra Bank:

(Rs. In crores)

Particulars

20132014

Net
Total
10,923
Income
Profit
Tax

After

2,465

2013-14
( Merged)

Percentage
increase

13,576

24.29%

3,169

28.56%

Comparison for half yearly results for FY 2015:

(Rs. In crores)

Particulars

H1FY15

Net
Total
6,617
Income

H1FY15
( Merged)

Percentage
increase

8,057

21.76%

Profit
Tax

After

1,416

1,740

22.88%

It seems that in both of the cases, the percentage of Increase in PAT is more than Net Total
Income.
After announcement of merger share price Of Kotak Mahindra Bank rose from Rs.1078 to
Rs.1200 and the share price of ING Vysya increased from Rs.728 to Rs.816.