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Merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. Mergers and acquisitions are almost a daily occurrence in the life sciences. Competition is fierce, and companies must team up to survive in an industry where specialized knowledge is king. One of the largest, most critical, and most difficult parts of a business merger is the successful integration of the enterprise networks of the merger partners. The prime objective of a firm is to grow profitably. The growth can be achieved either through the process of introducing or developing new products or by expanding or enlarging the capacity of existing products. This wave was driven by globalization, liberalization and technological changes.

Meaning of Mergers and Acquisitions

A complete combination of two separate corporations involving in a business is referred as business merger. A merger in the official sense is said to be worth when both businesses dissolve and double their assets and convert into a newly created third unit. This requires a creation of a new corporation. Most of the mergers are friendly rather being a forced affair. Acquisitions on the other hand are take-over. In this case one company actually buys another company. In take-over or acquisition generally a larger company buys a smaller one.

Reasons for Mergers and Acquisitions


Capacity refers to the amount of output that a firm is capable of producing given its existing assets. Acquiring another business might enable it to be able to increase its capacity relatively quickly.

o o

Economies of Scale
Economies of scale are the advantage of large scale production that result in lower cost per unit produced.

Accessing technology or skills

A firm may be targeted for acquisition because it has specific skills within its staff or has a particular technology that would be useful to another business.

Tax reasons
Businesses are always looking for ways to reduce their tax exposure. A firm has large sums of money lying idle, using these sums to acquire another business that would not only enhance its operations but would also reduce its tax liability

Benefits of Mergers and Acquisitions

Benefits of Mergers and Acquisitions are the main reasons for the companies enter into these deals.

o Greater Value Generation

Companies go for Mergers and Acquisition from the idea that, the joint company will be able to generate more value than the separate firms. When a company buys out another, it expects that the newly generated shareholder value will be higher than the value of the sum of the shares of the two separate companies. Mergers and Acquisitions can prove to be really beneficial to the companies when they are weathering through the tough times.

o Gaining Cost Efficiency

When two companies come together by merger or acquisition, the joint company benefits in terms of cost efficiency. A merger or acquisition is able to create economies of scale which in turn generates cost efficiency. Mergers and Acquisitions may generate tax gains, can increase revenue and can reduce the cost of capital

Mergers and acquisitions of

Hindalco- Novels



Novelis inherited huge debt
Financial losses High debt equity ratio of 7.23:1

Chaos in financial reporting

Loss of credibility Constant restructuring Search for CE

Two strategic businesses-Al, Cu
Asia's largest integrated primary producer of aluminum and among the most cost-efficient

producers globally Hindalco has operated at the lower end of the value chain

Novelis is a global leader with presence in four continents. It is very rare to be able to acquire a global leader in any industry.


Entry into new markets. 40% of Al consumed is in the form of rolled products. Will become 5th largest Al company in the world. Entry into list of Fortune 500 Co. Access to high technology Move up to the high end of the value chain Access to new customer base

Gains for Novelis.

Good value for share holders
Increase in credibility. Reduction in debt equity ratio.


$2.4 billion will be raised on the balance sheet of Novelis AV Minerals (Netherlands) a indirect subsidiary of Hindalco raised bridge loans of $2.13 billion [CR @ 7.2%] & 900 million Hindalco raised a debt of $2.8 billion. $450 million from its cash reserves Essel Mining, another A V Birla group company, chipped in with $300 million from its reserves. Tied up with ABN Amro Bank, Bank of America and UBS for the Asian leg of the transaction, The non-recourse debt raised on Novelis' books funded through ABN Amro and UBS


Market Share.
Expanding its wings. Perfect Synergy.

The Fusion Technology.

Forward Integration.



JAN-SEPT 2005 6,337

FY2005 8,363

FY2004 7,755

FY2003 6,221

Net sales


Operating expenses EBITDA Interest






153 149

399 148

401 194

610 48

484 33

Net Income









2,841 64


1,235 70 3 PLANTS




Expiry of can contracts
Business integration Sourcing of raw material from Hindalco at low cost

Geographical proximity to Malaysian production

facility of Novelis. Expiry of Hindalcos supply contracts

Deal structure
Divided into 2 parts1)100% of Novelis equity @44.93$ per share which add up to $3.6b 2)$2.4b debt on Novelis balance sheet - No Option of Leverage buyout unlike TATA Corus

Deal Financing :2008

Hindalco issued equity shares of Re. 1 each on

rights basis @ Rs. 96 per share Ratio of 3:7 in September, Aggregating to 525,802,403 shares. Total Amount receivable of Rs. 5,047.70 Cr Company has received Rs. 4,545 Cr Rs. 124.90 Cr spent on related expenses of the rights issue Balance amount utilized to repay the bridge loan taken for acquisition of Novelis.

Banks involved
2007 :Hindalco-Novelis deal, UBS (along with ABN AMRO & Bank of America) threw the Birla company a $2.8 billion debt lifeline. 2008: waiver due to default in Debt/EBITA ratio for novelis 2008: $1-billion loan was taken on Hindalcos books, and the banks that participated in the exercise included ABN Amro, Barclays Capital, Bank of Tokyo-Mitsubishi UFJ, Calyon, Citigroup, Deutsche Bank, HSBC, Mizuho Financial and Sumitomo Mitsui Financial. 2009:Hindalco took a syndicated loan of $982 million (Rs 4,910 crore at current rate) from 11 foreign banks to repay the bridge loan taken two years ago for the Novelis acquisition.

Valuation @ Premium

If we earn $10 for every $100 of aluminum we sell, we will now be able to earn another $10 for every $100 worth of aluminum that Novelis processes into rolled products. --Debu Bhattacharya. MD "Acquisitions are not geography dependent. They depend on value-creation and will have to be in sync with existing businesses Kumar Mangalam Birla, 2007 The valuation depends on the intrinsic capability of an asset. He points out that it would have taken Hindalco at least 10 years to create that kind of capacity on the downstream front. The acquisition is a good strategic fit and the way we see it, there is a lot of upside potential in aluminum as a commodity. He speaks of areas like transportation, architecture, packaging and pharmaceuticals which will be big markets in the future for aluminum. Sunirmal Talukdar, CFO, Hindalco Why pay 44.36$ a share for a 30$ share Analysts

Business Process Integration

Plain and simple techniques to manage business.
It set up a company to manage IT functions of Novelis

due to availability of inexpensive engineers. Hindalco has set Novelis a target of seven to 12 stock turns per year by 2010,which could free around $300 million in working capital

Post acquisitions, the company will get a strong global footprint. After full integration, the joint entity will become insulated from

the fluctuation of LME Aluminium prices The deal will give Hindalco a strong presence in recycling of aluminium business. Novelis has a very strong technology for value added products and its latest technology Novelis Fusion is very unique one Novelis being market leader in the rolling business has invested heavily in developing various production technologies. One of such technology is a fusion technology that increase formability of aluminium.(Useful in designing products like car)



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In 2008, RBI sanctioned merger of CBoP with HDFC
All branches of CboP => branches of HDFC Bank Nationwide network of 1,167 branches Deposit base

of around Rs. 1,22,000

Net advances of around Rs. 89,000 crores Balance

sheet size would be over Rs. 1,63,000 crores

History - CBOP
30 June 94 Incorporation of Centurion Bank
JV - Century Finance and Keppel Group 2005 - Bank of Punjab merges with Centurion bank -

Centurion Bank of Punjab

2006 - CBOP acquires Lord Krishna Bank

August 1994 Incorporation of HDFC Bank 2000- Times Bank Limited 2008- Centurion Bank of Punjab Limited

HDFC Strategy
Increase market share in India
Maintain low cost of funds Strong asset quality Disciplined risk management High earnings growth with low volatility

Despite the economic crunch worldwide Indian

banking houses had managed to show positive growth

While banks in the developed economies were on a

cost cutting spree Indian banks were on a growth phase

Metro licenses were hard to come by for most banks.

Nature and context of the merger

Horizontal merger
The principal objectives:

- Achieve economies of scale

Widening the line of products To get more dominance on the market

Nature and context of the merger

This merger was also important to face the

competition posed by foreign banks looking to enter on account of RBIs liberal policies and the domestic competition posed by ICICI bank CBoP had traditionally been strong in high yielding SME and retail segments, while HDFC Bank had an enviable retail deposit franchise Both the banks had a strong foothold in vehicle financing, which formed the basis for a natural synergy

Intent of Merger
Increase in scale of operations
Increase in geography Management bandwidth

Potential of Business synergy and cultural fit

HDFCs Brand leverage and increased utilization of

CBOP Branches CBOPs SME focus complement HDFCs Corporate focus

Deal Size and Structure

CBOP was valued at $2.63 billion (Rs 9510 crores)
All stock deal Swap ratio was fixed at 1:29 26,200,220 warrants convertible into an equivalent

number of equity shares to HDFC Limited on a preferential basis at a rate of Rs. 1,530.13 each.

Deal Size and Structure

Principal shareholders of CBoP Bank Muscat, Sabre

Capital and the Kephinance Investment (Mauritius) decided to move away from this partnership.
No single lay off of employee Pooling of interest method used for accounting

Technological Issues Finacle Vs Finware
HR Issues Mapping of Employees Operational Issues Account opening, cheque book

issue, net banking, Recurring Deposits

Infrastructural Issues Multiplicity of branches, ATMs
Risk Issues NPA , cost of funds, CASA Ongoing agitation by unions of public sector banks

against consolidation of SBI

Regulatory & Legal Frame Work

1. SEBI (substantial Acquisition of shares &Takeovers) Regulations 1997 2. The Securities and Exchange Board of India Act,1992 . 3. Security Contract Regulation Act ,1956 . 4. RBI Mergers & Acquisition Approval 5. The Depositories Act,1956. 6. SEBI Disclosure and Investor Protection Guidelines 2000. 7. Securities and Exchange Board of India (Prohibition of Insider Trading Regulation ),1992. 8. Securities and Exchange Board of India (Merchant Bankers) Rules/Regulation 1992. 9. SEBI (Delisting of Securities )Guidelines,2003. 10. Foreign Exchange Management Act,1999. 11. Companies Act,1956.

Impact of the Merger

Increased footprint and metro presence 7th largest bank with asset size of Rs.1097 billion Recorded growth figures as follows

Net profit by 44.6% to Rs. 4.6 billion Net Interest Income by 74.9% to Rs.17.2 billion Advances grew by 79.8% & deposits by 60.4% High level of write-offs due to bad asset quality of CBoP in personal loans and 2 wheeler loans Net interest margins and CASA were impacted adversely

Gains to Shareholders
The combined entity would have a nationwide network of 1167 branches; a strong deposit base of around Rs.1,22,000 crores and net advances of around Rs.89,000 crores. The balance sheet size of the combined entity would be over Rs.1,63,000 crores.

On March 27, 2008, the shareholders of the Bank accorded their consent to a scheme of amalgamation of Centurion Bank of Punjab Limited with HDFC Bank Limited. The shareholders of the Bank approved the issuance of one equity share of Rs.10/- each of HDFC Bank Limited for every 29 equity shares of Re. 1/- each held in Centurion Bank of Punjab Limited. This is subject to receipt of Approvals from the Reserve Bank of India, stock exchanges and
Other requisite statutory and regulatory authorities. The shareholders Also accorded their consent to issue equity shares and/or warrants

convertible into equity shares at the rate of Rs.1,530.13 each to HDFC Limited and/or other promoter group companies on preferential basis, subject to final regulatory approvals in this regard. The Shareholders of the Bank have also approved an increase in the authorized capital from Rs.450 crores to Rs.550 crores.

Key Learning
Integrating of IT systems without disrupting customer

service Mapping of Employees Customer communication Elimination of redundancies Top management vision Coordination between different functions Structuring of the deal and tax implications


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