Merger

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Meaning of Merger: Merger or amalgamation contemplates joining two or more companies to form a new company, an altogether a new entity or absorbing of one or more companies by an existing company.

Examples of Merger: Company A + Company B = Company C Company A & Company B = Transferor/Amalgamating Company

New Company C = Transferee/Amalgamated Company

Company A + Company B + Company C = Existing Company A OR

Company B and Company C = Transferor/Amalgamating Company

Company A = Transferee/Amalgamated Company

Varieties of Merger: From the perspective of business structures, there are a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging. Horizontal merger:- Two Companies that are in direct competition in the same product lines and markets. Vertical merger:- A customer and company or a supplier and company. Think of a cone supplier to an ice cream maker Market-extension merger:- Two companies that sell the same products in different markets. Product-extension merger:- Two companies selling different but related products in the same market Conglomeration:- Two companies that have no common business areas.

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From the perspective of how the merge is financed, there are two types of mergers. Purchase mergers and consolidation mergers. Each has certain implications for the companies involved and for investors. Purchase Mergers:- As the name suggests, this kind of merger occurs when one company purchases another one. The Purchase is made by cash or through the issue of some kind of debt instrument, and 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 book value and purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company (we discuss this further in part four of this tutorial) 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.

Accounting for Mergers: The two principal accounting methods used in mergers are the pooling of interests method and the purchase method. The main difference between them is the value that the combined firms balance sheet places on the assets of the acquired firm, as well as the depreciation allowances and charges against income following the merger. Under the Pooling of Interest Method: The assets, liabilities and reserves of the transferor company are to be recorded at their existing carrying amounts and in the same form as it was appearing in the books of the transferor company. The identity of the reserves of the transferor company is to be kept intact in the balance sheet of the transferee company.

Difference between the amounts of share capital issued plus any other additional consideration paid by Transferee Company and the amount of the share capital of the transferor company should be adjusted in Reserves.

Accounting for Mergers Continue .

Under Purchase Method: The assets and the liabilities of the transferor company are to be recorded at their existing carrying amounts or alternatively the consideration should be allocated to individual assets and liabilities on the basis of fair values at the date of amalgamation while preparing the financial statements of Transferee Company. The identity of the reserves of the transferor company other than the statutory reserves is not preserved. The identity of the statutory reserves is preserved in the same form and is recorded in the books of the transferee company by a corresponding debit to the amalgamation adjustment account. Excess or shortfall of consideration over the value of net assets acquired should be credited/ debited as capital reserve/goodwill, as the case may be. It is appropriate to amortize goodwill over a period of not exceeding 5 years unless a longer period is justified.

Merger of HDFC Bank and Centurion Bank of Punjab : Share Swap Ratio of 1:29

The merger of Centurion Bank of Punjab Ltd (CBoP) with HDFC Bank Limited became effective on May 23, 2008 as per the order of Reserve Bank of India (RBI) with April 1, 2008 as the appointed date. The results for the period ended June 2008 are therefore for the merged entity, whilst the results for the period ended June 2007 are on a standalone basis for HDFC Bank.

About HDFC Bank: Promoted in 1995 by Housing Development Finance Corporation (HDFC), India's leading housing finance company, HDFC Bank is one of India's premier banks providing a wide range of financial products and services to its over 11 million customers across over three hundred cities using multiple distribution channels including a pan-India network of branches, ATMs, phone banking, net banking and mobile banking. Within a relatively short span of time, the bank has emerged as a leading player in retail banking, wholesale banking, and treasury operations, its three principal business segments. The bank's competitive strength clearly lies in the use of technology and the ability to deliver world-class service with rapid response time. Over the last 13 years, the bank has successfully gained market share in its target customer franchises while maintaining healthy profitability and asset quality. As on December 31, 2007, the Bank had a network of 754 branches and 1,906 ATMs in 327 cities.

About Centurion Bank of Punjab: Centurion Bank of Punjab is one of the leading new generation private sector banks in India. The bank serves individual consumers, small and medium businesses and large corporations with a full range of financial products and services for investing, lending and advice on financial planning. The bank offers its customers an array of wealth management products such as mutual funds, life and general insurance and has established a leadership 'position'. The bank is also a strong player in foreign exchange services, personal loans, mortgages and agricultural loans. Additionally the bank offers a full suite of NRI banking products to overseas Indians. Centurion Bank of Punjab now operates on a strong nationwide franchise of 394 branches and 452 ATMs in 180 locations across the country, supported by employee base of over 7,500 employees. In addition to being listed on the major Indian stock exchanges, the Banks shares are also listed on the Luxembourg Stock Exchange.

Purpose of Merger: Comments by Managing Director of HDFC Bank Ltd. HDFC Bank was looking for an appropriate merger opportunity that would add scale, geography and experienced staff to its franchise. This opportunity arose and we thought it is an attractive route to supplement HDFC Banks organic growth. Centurion Bank of Punjab would be the right fit in terms of culture, strategic intent and approach to business.\ The proposed merger will position the combined entity to significantly exploit opportunities in a market globally recognized as one of the fastest growing entity. A merger between the banks provides significant synergies to the combined entity. The proposed merger would further improve the franchise and customer proposition offered by the individual banks.

Balance Sheet of HDFC Bank

Mar '12 12 mths Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities ------------------- in Rs. Cr. ------------------Mar '11 Mar '10 Mar '09 12 mths 12 mths 12 mths Mar '08 12 mths

469.34 469.34 0.3 0 29,455.04 0 29,924.68 246,706.45 23,846.51 270,552.96 37,431.87 337,909.51 Mar '12 12 mths

465.23 465.23 0 0 24,914.04 0 25,379.27 208,586.41 14,394.06 222,980.47 28,992.86 277,352.60 Mar '11 12 mths

457.74 457.74 0 0 21,064.75 0 21,522.49 167,404.44 12,915.69 180,320.13 20,615.94 222,458.56 Mar '10 12 mths

425.38 425.38 400.92 0 14,226.43 0 15,052.73 142,811.58 2,685.84 145,497.42 22,720.62 183,270.77 Mar '09 12 mths

354.43 354.43 0 0 11,142.80 0 11,497.23 100,768.60 4,478.86 105,247.46 16,431.91 133,176.60 Mar '08 12 mths

Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets Contingent Liabilities Bills for collection Book Value (Rs) Source : Dion Global Solutions Limited

14,991.09 5,946.63 195,420.03 97,482.91 5,930.24 3,583.05 2,347.19 0 21,721.64 337,909.49 844,374.61 39,610.71 127.52

25,100.82 4,568.02 159,982.67 70,929.37 5,244.21 3,073.56 2,170.65 0 14,601.08 277,352.61 559,681.87 28,869.10 545.53

15,483.28 14,459.11 125,830.59 58,607.62 4,707.97 2,585.16 2,122.81 0 5,955.15 222,458.56 466,236.24 20,940.13 470.19

13,527.21 3,979.41 98,883.05 58,817.55 3,956.63 2,249.90 1,706.73 0 6,356.83 183,270.78 396,594.31 17,939.62 344.44

12,553.18 2,225.16 63,426.90 49,393.54 2,386.99 1,211.86 1,175.13 0 4,402.69 133,176.60 582,835.94 17,092.85 324.38

Profit & Loss account of HDFC Bank

------------------- in Rs. Cr. ------------------Mar '11 Mar '10 Mar '09 12 mths 12 mths 12 mths

Mar '12 12 mths

Mar '08 12 mths

Income Interest Earned Other Income Total Income

Expenditure Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalised Operating Expenses Provisions & Contingencies Total Expenses Net Profit for the Year Extraordionary Items Profit brought forward Total Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total

27,286.35 5,333.41 32,619.76

19,928.21 4,433.51 24,361.72

16,172.90 3,810.62 19,983.52

16,332.26 3,470.63 19,802.89

10,115.00 2,205.38 12,320.38

14,989.58 3,399.91 2,647.25 542.52 5,873.42 0 9,241.64 3,221.46 27,452.68 5,167.09 -2.12 6,174.24 11,339.21 0 1,009.08 163.7 22.02 215 127.52 1,250.08 516.7 1,172.78 8,399.65 11,339.21

9,385.08 2,836.04 2,510.82 497.41 5,205.97 0 8,045.36 3,004.88 20,435.32 3,926.40 -2.65 4,532.79 8,456.54 0 767.62 124.53 84.4 165 545.53 997.52 392.64 892.15 6,174.24 8,456.55

7,786.30 2,289.18 3,395.83 394.39 3,169.12 0 7,703.41 1,545.11 17,034.82 2,948.70 -0.93 3,455.57 6,403.34 0 549.29 91.23 64.42 120 470.19 935.15 294.87 640.52 4,532.79 6,403.33

8,911.10 2,238.20 2,851.26 359.91 3,197.49 0 7,290.66 1,356.20 17,557.96 2,244.94 -0.59 2,574.63 4,818.98 0 425.38 72.29 52.77 100 344.44 641.25 224.5 497.67 3,455.57 4,818.99

4,887.12 1,301.35 974.79 271.72 3,295.22 0 3,935.28 1,907.80 10,730.20 1,590.18 -0.06 1,932.03 3,522.15 0 301.27 51.2 44.87 85 324.38 436.05 159.02 352.47 2,574.61 3,522.15