CHAPTER - I

INTRODUCTION

In general Investment banking is the intermediary service that provided by many

professional bodies called investment bankers. The services offered by these investment
banks are many like Project appraisal and structured financing, Capital markets issues,
Mergers and Acquisitions and others. Coming to the topic it’s so simple that to learn,
analyze one of the major functions of investment banking that is merger and acquisition
in respect to investment banker as the role.

Investment Banking, branch of finance concerned with the underwriting, distribution,

and maintenance of markets in securities issued by business firms and public agencies.
Investment bankers are primarily merchants of securities; they perform three basic
economic functions:

(1) Provide capital for corporations and local governments by underwriting and
distributing new issues of securities; (2) maintain markets in securities by trading and
executing orders in secondary market transactions; and (3) provide advice on the
issuance, purchase, and sale of securities, and on other financial matters. In contrast to
commercial banks, whose chief functions are to accept deposits and grant short-term
loans to businesses and consumers, investment bankers engage primarily in long-term
financing.

Investment banking is a field of banking that aids companies in acquiring funds. In

addition to the acquisition of new funds, investment banking also offers advice for a wide
range of transactions a company might engage in. Traditionally, banks either engaged in
commercial banking or investment banking. In commercial banking, the institution
collects deposits from clients and gives direct loans to businesses and individuals

An investment bank is a financial institution that raises capital, trades in securities

and manages corporate mergers and acquisitions. Investment banks profit from
companies and governments by raising money through issuing and selling securities in
the capital markets (both equity, bond) and insuring bonds (selling credit default swaps),
as well as providing advice on transactions such as mergers and acquisitions. A majority
of investment banks offer strategic advisory services for mergers, acquisitions, divestiture
or other financial services for clients, such as the trading of derivatives, fixed income,
foreign exchange, commodity, and securities. Trading securities for cash or securities
(i.e., facilitating transactions, market-making), or the promotion of securities (i.e.,
underwriting, research, etc.) was referred to as the "side”. Dealing with the pension
funds, mutual funds, hedge funds, and the investing public who consumed the products
and services of the sell-side in order to maximize their return on investment constitutes
the "buy side". Many firms have buy and sell side components. An investment banking
firm also does a large amount of consulting. Investment bankers give companies advice
on mergers and acquisitions, for example. They also track the market in order to give
advice on when to make public offerings and how best to manage the business' public
assets. Some of the consultative activities investment banking firms engage in overlap
with those of a private brokerage, as they will often give buy-and-sell advice to the
companies they represent. The line between investment banking and other forms of
banking has blurred in recent years, as deregulation allows banking institutions to take on
more and more sectors. With the advent of mega-banks which operate at a number of
levels, many of the services often associated with investment banking are being made
available to clients who would otherwise be too small to make their business profitable.

All the Basic terms to understand the investment banking and introduction topics to
mergers and acquisitions and major the clear procedure of investment bankers role in
mergers and acquisitions is clearly determined considering many live examples as to
understand the concept clearly.

Finally in this project considering ING Vysya Bank Ltd., as the investment banker the
case with BOR and ICICI merger is studied and analyzed and interpreted.
 OBJECTIVES OF THE STUDY

• The main objective is to determine clearly “The role of Investment banker in

Mergers and Acquisitions”.

• Presenting the practical view of Investment banking functions that is followed by

various investment banks.

• To study the process of mergers and acquisitions of the banking companies

• To study the motives of behind the merger

• To study the guidelines to be observed in the process of restructuring

• Analysis with the available data to determine the clear procedure of the role of
investment banker in merger and acquisition is the other major objective of this
project

• Finally to analyze and determine the clear procedure of the role of investment
banker in merger and acquisition.
 SCOPE OF THE STUDY

The investment banking is new emerging service that has vast growth in the future and no
website and particular book can give the right picture of practical view of investment
banking. So this particular investment banking has to be studied to bring the awareness
on practical view of investment banking and the important one the investment bankers
role in mergers and acquisitions is the key in determining the success. As today this
mergers and acquisitions is the one important synergic factor for corporate the
complexity of the issue is high in this sector. So this complexity is the major need to
study by this combination of Investment banking in relation with merger and
acquisitions.
 METHODOLOGY

Data Collection Method:

To fulfill the objectives of my study, I have taken both into considerations viz primary &
secondary data.

Primary data:

Primary data has been collected through personal interview by direct contact method. The
method which was adopted to collect the information is ‘Personal Interview’ method.

Personal interview and discussion was made with manager and other personnel in
the organization for this purpose. The following are the mangers and the personnel whom
I met and collected the valuable inputs from them which helped for my project.

• Mr. Jagadeesh Reddy (Manger In ING Vysya Bank Ltd)

• Mr. Ratnalu (Regional Head of SBI caps)

• Mr. Vijayanand (Corporate Advisor for Nagarjuna Fertilizers)

• Mr. Abhishek (Associate President of Veda Consultancies

Secondary data:

The data is collected from the Magazines, Annual reports, Internet, Text book, materials.

Books Referred:
• ICFAI‘s Investment Banking

• ICFAI’s Merger and Acquisitions

Annual Reports:
• ING Vysya Bank ltd.

• SBI Capital Markets Ltd.

LIMITATIONS

• The data available is purely primary and secondary data.

• The time period for which the study has been undertaken is limited to only 45
days
• The sample size chosen for the project study is not sufficient enough to give the
complete picture of investment bankers role in merger and acquisitions.
• The time period of the study 1 year is not sufficient to have an overall idea about
topic.
 PERIOD OF THE STUDY

The study has been done for the period of 45 days from 01-April -2010 to 15-June-2010.
Collection of data has been done for 30 days and Data analysis and interpretation has
been done for remaining 15 days and finally the project made to complete in 45 days.
CHAPTER - II

REVIEW

OF

LITERATURE
 BASIC TERMS TO

UNDERSTAND

INVESTMENT BANKING
 2.1 - Introduction topics to understand Investment banking in
relation with Mergers and Acquisitions

Investment
The money you earn is partly spent and the rest saved for meeting future expenses.
Instead of keeping the savings idle you may like to use savings inorder to get return on it
in the future. This is called Investment.

Investment Banking

Investment Banking, branch of finance concerned with the underwriting, distribution, and
maintenance of markets in securities issued by business firms and public agencies.
Investment bankers are primarily merchants of securities; they perform three basic
economic functions:

(1) Provide capital for corporations and local governments by underwriting and
distributing new issues of securities; (2) maintain markets in securities by trading and
executing orders in secondary market transactions; and (3) provide advice on the
issuance, purchase, and sale of securities, and on other financial matters. In contrast to
commercial banks, whose chief functions are to accept deposits and grant short-term
loans to businesses and consumers, investment bankers engage primarily in long-term
financing.

Stock Exchange
The Securities Contract (Regulation) Act, 1956 [SCRA] defines ‘Stock Exchange’ as any
body of individuals, whether incorporated or not ,constituted for the purpose of assisting,
regulating or controlling the business of buying, selling or dealing in securities. Stock
exchange could bea regional stock exchange whose area of operation/jurisdiction is
specified at the time of its recognition or national exchanges, which are permitted to have
nationwide trading since inception. NSE was incorporated as a national stock exchange.
Equity/Share
Total equity capital of a company is divided into equal units of small denominations,
each called a share. For example, in a company the total equity capital of Rs 2,00,00,000
is divided into 20,00,000 units of Rs 10each. Each such unit of Rs 10 is called a Share.
Thus, the company then is said to have 20,00,000 equity shares of Rs 10 each. The
holders of such shares are members of the company and have voting rights.

Debt Instrument
Debt instrument represents a contract whereby one party lends money to another on pre-
determined terms with regards to rate and periodicity of interest, repayment of principal
amount by the borrower to the lender .In the Indian securities markets, the term ‘bond’ is
used for debt instruments issued by the Central and State governments and public sector
organizations and the term ‘debenture’ is used for instruments issued by private corporate
sector.

Derivative
Derivative is a product whose value is derived from the value of one or more basic
variables, called underlying. The underlying asset can be equity, index ,foreign exchange
(forex), commodity or any other asset .Derivative products initially emerged as hedging
devices against fluctuations in commodity prices and commodity-linked derivatives
remained the sole form of such products for almost three hundred years. The financial
derivatives came into spotlight in post-1970 period due to growing instability in the
financial markets. However, since their emergence, these products have become very
popular and by 1990s, they accounted for about two thirds of total transactions in
derivative products.
Regulators in Securities Market

The absence of conditions of perfect competition in the securities market makes the role
of the Regulator extremely important. The regulator ensures that the market participants
behave in a desired manner so that securities market continues to be a major source of
finance for corporate and government and the interest of investors are protected.

The responsibility for regulating the securities market is shared by Department of

Economic Affairs (DEA), Department of Company Affairs(DCA), Reserve Bank of India
(RBI) and Securities and Exchange Board ofIndia (SEBI).

SEBI and its role

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India
established under Section 3 of SEBI Act, 1992. SEBI Act,1992 provides for
establishment of Securities and Exchange Board of India(SEBI) with statutory powers for
(a) protecting the interests of investors insecurities (b) promoting the development of the
securities market and (c)regulating the securities market. Its regulatory jurisdiction
extends over corporates in the issuance of capital and transfer of securities, in addition to
all intermediaries and persons associated with securities market. SEBI has been obligated
to perform the aforesaid functions by such measures as it thinks fit. In particular, it has
powers for:

 R egulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub–brokers etc.
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices
Calling for information from, undertaking inspection, conducting inquiries and audits
of the stock exchanges, intermediaries, self –regulatory organizations, mutual funds and
other persons associated with the securities market.
Participants
The securities market essentially has three categories of participants, namely, the issuers
of securities, investors in securities and the intermediaries, such as merchant bankers,
brokers etc. While the corporate and government raise resources from the securities
market to meet their obligations, it is households that invest their savings in the securities
market.

Necessary to transact through an intermediary

It is advisable to conduct transactions through an intermediary. For example you need to
transact through a trading member of a stock exchange if you intend to buy or sell any
security on stock exchanges. You need to maintain an account with a depository if you
intend to hold securities in demit form. You need to deposit money with a banker to an
issue if you are subscribing to public issues. You get guidance if you are transacting
through an intermediary. Chose a SEBI registered intermediary, as he is accountable for
its activities. The list of registered intermediaries is available with exchanges, industry
associations etc.

Segments of Securities Market

The securities market has two interdependent segments: the primary (new issues) market
and the secondary market. The primary market provides the channel for sale of new
securities while the secondary market deals in securities previously issued.

Primary Market
The primary market provides the channel for sale of new securities. Primary market
provides opportunity to issuers of securities; Government as well as corporate, to raise
resources to meet their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities
may take a variety of forms such as equity, debt etc. They may issue the securities in
domestic market and/or international market.
Face Value of a share/debenture
The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is
the original cost of the stock shown on the certificate; for bonds, it is the amount paid to
the holder at maturity. Also known as par value or simply par. For an equity share, the
face value is usually a very small amount (Rs. 5, Rs. 10) and does not have much bearing
on the price of the share, which may quote higher in the market, at Rs. 100 or Rs. 1000or
any other price. For a debt security, face value is the amount repaid to the investor when
the bond matures (usually, Government securities and corporate bonds have a face value
of Rs. 100). The price at which the security trades depends on the fluctuations in the
interest rates in the economy.

Premium and Discount in a Security Market

Securities are generally issued in denominations of 5, 10 or 100. This is known as the
Face Value or Par Value of the security as discussed earlier. When a security is sold
above its face value, it is said to be issued at a Premium and if it is sold at less than its
face value, then it is said to be issued at a Discount.

Issue of Shares
Most companies are usually started privately by their promoter(s). How ever ,the
promoters’ capital and the borrowings from banks and financial institutions may not be
sufficient for setting up or running the business over a long term. So companies invite the
public to contribute towards the equity and issue shares to individual investors. The way
to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public
issue is an offer to the public to subscribe to the share capital of a company. Once this is
done, the company allots shares to the applicants as per the prescribed rules and
regulations laid down by SEBI.

Different kinds of issues

Primarily, issues can be classified as a Public, Rights or Preferential issues(also known as
private placements). While public and rights issues involve a detailed procedure, private
placements or preferential issues are relatively simpler. The classification of issues is
illustrated below

Initial Public Offering (IPO)

Is when an unlisted company makes either a to the public. fresh issue of securities or an
offer for sale of its existing securities or both for the first time This paves way for listing
and trading of the issuer’s securities.

A follow on public offering (Further Issue)

Is when an already listed company makes either a fresh issue of securities to the public
or an offer for sale to the public, through an offer document.

Rights Issue
Is when a listed company which proposes to issue fresh securities to its existing
shareholders as on a record date. The rights are normally offered in a particular ratio to
the number of securities held prior to the issue. This route is best suited for companies
who would like to raise capital without diluting stake of its existing shareholders.

A Preferential issue
Is an issue of shares or of convertible securities by listed companies to a select group of
persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a
public issue. This is a faster way for a company to raise equity capital. The issuer
company has to comply with the Companies Act and the requirements contained in the
Chapter pertaining to preferential allotment in SEBI guidelines which inter-alia include
pricing, disclosures in notice etc.

Issue price:
The price at which a company's shares are offered initially in the primary market is called
as the Issue price. When they begin to be traded, the market price may be above or below
the issue price.
Market Capitalization:
The market value of a quoted company, which is calculated by multiplying its current
share price (market price) by the number of shares in issue is called as market
capitalization. E.g. Company A has 120 million shares in issue. The current market price
is Rs. 100. The market capitalization of company A is Rs. 12000 million.

Classification of Issues
Rights Preferential
Initial Public Offering
Public
Further Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale

Public issue and Private placement:

When an issue is not made to only a select set of people but is open to the general public
and any other investor at large, it is a public issue. But if the issue is made to a select set
of people, it is called private placement. As per Companies Act, 1956, an issue becomes
public if it results in allotment to 50 persons or more. This means an issue can be
privately placed where an allotment is made to less than 50 persons.

Initial Public Offer (IPO)

An Initial Public Offer (IPO) is the selling of securities to the public in the primary
market. It is when an unlisted company makes either a fresh issue of securities or an offer
for sale of its existing securities or both for the first time to the public. This paves way for
listing and trading of the issuer’s securities. The sale of securities can be either through
book building or through normal public issue.
Decider of the price of an issue
Indian primary market ushered in an era of free pricing in 1992. Following this, the
guidelines have provided that the issuer in consultation with Merchant Banker shall
decide the price. There is no price formula stipulated by SEBI. SEBI does not play any
role in price fixation. The company and merchant banker are however required to give
full disclosures of the parameters which they had considered while deciding the issue
price. There are two types of issues, one where company and Lead Merchant Banker fix a
price (called fixed price) and other, where the company and the Lead Manager (LM)
stipulate a floor price or a price band and leave it to market forces to determine the final
price (price discovery through book building process).

Price discovery through Book Building Process mean

Book Building is basically a process used in IPOs for efficient price discovery.It is a
mechanism where, during the period for which the IPO is open, bids are collected from
investors at various prices, which are above or equal to the floor price. The offer price is
determined after the bid closing date.

Secondary market
Secondary market refers to a market where securities are traded after being initially
offered to the public in the primary market and/or listed on the Stock Exchange. Majority
of the trading is done in the secondary market. Secondary market comprises of equity
markets and the debt markets.

Role of the Secondary Market

For the general investor, the secondary market provides an efficient platform for trading
of his securities. For the management of the company, Secondary equity markets serve as
a monitoring and control conduit—by facilitating value-enhancing control activities,
enabling implementation of incentive-based management contracts, and aggregating
information (via price discovery) that guides management decisions.
PRACTICAL VIEW OF
INVESTMENT BANKING
 2.2 - Practical view of Investment banking:

[Inputs from Mr. Vijay Anand – Present Corporate Advisor of

Nagarjuna Fertilizers and retired manger from SBI Caps)]

The investment banking in practical differs from the data that is available from books and
internet. Any way the corporate advisor of Nagarjuna chemicals and Fertilizers Mr. Vijay
Anand Garu, who is retired person of SBI and SBI Caps spend his valuable time with us
and shared his views on investment banking.

Mr.Vijay Anand, says that investment banking in today scenario is a

complicated term to understand and in simpler terms the Investment banking comprises
of common function as whole in any investment bank even the services offered by them
is different in only the terms/names they give to them they are few here to make you get a
better idea as follows,

The services offered by any investment banks in common are of

1) Management of public issues

2) Private equity

3) Project appraisal

4) Mergers and Acquisitions

5) Loan syndication

1) Management of capital issues: He says that the management of capital issues is

that of undertaking all the public issues like IPO, FPO, Delisting of shares, Buy back of
shares and others. Why the company approaches the investment bank is that ,to make it
safe from deregulations that were done by SEBI in case of any default in rules and
regulations that made by companies in the process of listing their shares.

2) Private equity: He adds on this function that Private equity is kind of finance
assistance to the companies who want to raise their capital by issuing their capital in the
form of shares. So in this case its take time and huge fees should be paid by companies to
list their shares with stock exchanges, in this case that company approaches the
investment banks to get their placement of securities done by private investors, where
these private investors are get into the picture by theses investment banks. Those private
investors are commonly of strategic investors and financial investors.

3) Mergers and Acquisitions: He adds the important aspects in this issue as there
are two parties involved in these mergers and acquisitions are of buyers and sellers.
Buyers are of those people who get in to this investment banks to acquire any other
company which is into same product line or different product line. Coming to the seller in
this aspect is the person who looks for selling his venture to other companies who are
ready to buy by paying the desired amount.

Generally the aspect of M&A is approached by the companies who look to

increase his business to achieve the said objective, to avoid the competition and to
overcome the losses.

4) Project Appraisal: He adds very little on this function saying that project
appraisal is of where the investment banks helps the companies to keep their projects
running successfully without any issues.

5) Loans Syndication: He adds that loan syndication is the process of arranging the
loans to companies by investment banks through collective syndication of loans by a
group of bankers, according to the need of project.

Other aspects he adds on this Investment banking:

• He says the market leader in this investment banking in India is SBI Capital
Markets. And other major players in India are Kotak bank, ICICI securities, IDBI
Capital markets, ING Vysya Bank and Karvy Investment bank. And coming to
international markets the major players in this sector are Morgan Stanley, Citi
Group, JP Morgan, UBS Investment banks and others.
 • His advices to young aspirants to be perfect in the basic concepts that are related
with capital markets and he advices to have keen watch on the movements of
financial markets like issues of shares, SEBI regulations and other things.

• And another important aspect he adds that observe the market leader in India,
SBI capital Markets and approach them to get the clear picture of investment
banking in India.

Practical View Of Investment Banking in many Indian Investment

banks

[Inputs from -BY Mr.Ratnalu Garu (Regional Head of SBI Caps),

Abhishek (Associate President of Veda boutique Investment banking
advisors), Jagadeesh (Manger in Ing Vysya Bank)]

My words:

The approach of Mr.Ratnalu Garu (Regional head) is key in our project which turns the
tables around in understanding the concept of Investment banking in more practical way
that boost our enthusiasm in knowing the concept in depth and to put the practical aspects
out in this project ahead. His valuable speech made us to make our minds very clear
from confusion about the project. And Iam Sure that everyone who go through his speech
will make them self very clear and that can help them to get the clear picture of IB which
was vague before. Important thing is that we not only got the general services that are
offered but the exact procedure of that particular services offered by investment banking

The practical scene of Investment banking at major Investment Banks:

Mr.Ratnalu and other above said people says that Investment bank is just an intermediary
between clients and bankers/investors. The services offered by them are the same
intermediary services that only comprise of helping the projects to be implemented
successfully and not the implementation of projects itself.
He adds on services offered by any Investment bank can be considered under two wider
terms, one is Advisory services and the second one is Fund raising.

He says the major services offered by investment banking in SBI Caps are

• PSF –Project appraisal And Structured Financing

• Mergers and Acquisitions

• Capital Markets

PSF- Project appraisal And Structured Financing:

Mr.Ratnalu and others says here in SBI Caps the PSF (Project Appraisal Structured
Finance) takes huge steps for completion of the project and brief procedure in short
summary can be discussed as follows

Need of investment banking in PSF

This process of PSF is needed to be explained by considering the following example;

Where XYZ Company is a profitable company which is in steel industry. Now it wants
to enter in to Power Industry as to explore its operations in various sectors. And this
cannot done so easily as the process of entering in to new sector by company needs lots
of obligations to be met, huge information regarding the resources, registrations, govt
policies on that sector is needed and it is difficult to know for a new company, who are
the potential customers? And who are efficient suppliers? All these are to be done by a
professional body which is expertise in doing all these pre requisites for a company. That
makes the need for investment banking in doing all these things for project to be
implemented more successfully without any complexity.
Steps Involved in PSF

 First, any company which approach the investment bank to have its project to be
done with it need to clearly explain its objectives of the project very clearly
without any complexity.

 Any investment bank which is transparent and fair in its operations ,have to ask
all the things like a) Real objective behind undertaking the project b) Companies
worth c)Its profitability ratio from past few years d)market value of its shares e)
Availability of tangable funds with the company and all that makes the investment
bank to get confidence on its client. During this process no fair investment bank
is supposed to blame its clients by not revealing the hidden facts for a concern of
monetary benefits.

 Then once all the terms of said above are done then all the resources like what all
the things required to get the approval from the govt authorities, all these things
are guided by the investment banks.

 Then the term, financing or the requirement of funds comes into picture. Any
company may not go with its own funds, the approach of lenders is very much
necessary. This approach of lenders needs some ground work to be done. This
ground work is done by investment banks by considering all the facts and figures
that are provided by companies, all the mathematical calculations like Sensitivity
analysis and Debt equity ratios, and other calculations that determine the future
revenues, are done by them as means of ground work.

 Once the ground work is completed. The investment bank prepares IM

(Information Memorandum) considering all the requisites for a lender to grant the
loan.

 And this IM is submitted to client and asked to go through it for any clarifications
are to be made.
  Once the client is satisfied with IM then IB arranges Client –Lenders meeting
with all the clients and lenders. And then if the client and lenders are satisfied for
each other terms then loan syndication wiil be done by IB. And all the syndication
issues are handled by investment banks.

 And then documentation is needed to be done as to submit to SEBI considering all

the terms specified by it.

 That doesn’t ends the job of IB in PSF it’s the responsibility of it to look after any
issues in future and settle them without any conflicts.

Mergers and Acquisitions at major Investment banks

Mr.Ratnalu and Mr. jagadeesh adds their words on this concept that, Mergers and
acquisitions are one of the major services offered by investment banks. The practical
procedure is a wide concept to understand and involves lots of logic to implement the
concept successfully.

• Buyer/Seller: This M&A procedure generally start with approach of buyer or

seller to the investment banks. The buyer is the person who want acquire another
big/small/equal company to increase area of operations or to overcome the
competition from the players in the same market. And the seller is the person who
likes to sell his business as to overcome looses or due to any other reasons.

• Then process of matching comes in to picture, this process of matching is done

by IB, where the process of a matching is to make a tie between the two parties
buyer and seller. When the buyer or seller approached then it is the IB who shows
the right party to them as per their terms and conditions

• In Case if the right match is not done or IB is unable to show the right party for
matching then IB goes for a process called Target Search. This target search is
the process of searching for a right buyer for a seller and right seller for a buyer.
 • Then once the both parties are satisfied and want to go for M&A through IB then
its now, the work of IB starts on a major part in doing the required ground work.

• The next step in this process includes the concept of Due Diligence where all the
activities of this M&A are divided into groups and each group is specialized in
each activity like documentation, calculations of net assets and net liabilities and
determining the net worth of a company. . Totally evolution of enterprise is done.
The main objective of due diligence team is to make sure t hat at any case in
further process the complexity doesn’t arise in carrying on the process of M&A
are done. And all the clarifications are done with the client regarding all the issues
in this step. And then the next step in this process is valuation analysis.

• Then the term Financing comes into picture for this required negotiations are
done by IB, where the required lenders amount and actual amount are determined.
And the for financing or to arrange the require amount IB put efforts in
syndicating the loans by lenders or bankers.

Capital Markets at major Investment Banks

The capital Markets at Investment banks concentrate on the core things like IPO, FPO
,Buy back of shares, Delisting of shares, Rights issue.

• IPO: Generally IPO is the Initial Public Offer which is done by a Listed
company when it is going into share market for first time. In SBI caps Mr.Ratnalu
says that we follow the strict rules and regulations which are said by SEBI in
carrying these public issues. And he adds that the clear assistance will be given by
SBI Caps on when a company should go for IPO for first time and how a
company should go for IPO with what requirements( i…e) all the figures, facts,
no: of shares, authorized capital, issued capital, etc..,.

• The SBI caps is the lead manager for many companies And he says that SBI caps
is the market leader in IPO with 700 public issues in last year 2009.
 • SBI Caps also play a major role in FPO (Follow On Public Offer), Rights issue,
Buy back of Shares and Delisting of securities.

Other important services offered by major Investment Banks:

• Private equity: He adds his important views on this concept that Private
equity is the service generally required for unlisted companies. Generally any
unlisted company goes for private equity as to be away from the strict guidelines,
rules and regulations that are determined by SEBI, to benefit in the aspect of time,
and for easy exit.

This private equity is generally a readymade availability of private investors for fresh
company (who want to go for share market for first time) by IB. These private investors
are made to meet by client by IB. As IB maintains good relationships with all the sound
private investors and other famous financial intuitions.

• Valuation of shares, Strategic advisory services and restructuring the finance are
other core services offered by Investment banks like ING Vysya bank.

• For example in Strategic advisory services to be considered here, A company xyz

approached IB when it has to go for IB then IB team relies that considering its
stage (i..e) it in starting stage where lots of venture capital is needed and in
maturity stage it is needed to go for private equity and in growth stage it should
go with IPO.

Things required growing in the area of IB:

• The success in this sector depends on the fair relationships with competitors and
investors, quality in rendering the services, fee benefit oriented, transparent and
ethical in doing operations.

• It is all about creativity in selling the ideas, as how best you sells the ideas the
best you are profitable in growing in the area of IB says Mr.Ratnalu.
• And he also adds that hit rate in M&A to some extent depends on logic that we
follow in getting the projects.

INTRODUCTION

TOPICS OF

MERGERS AND
ACQUISTIONS
 2.3 Mergers and Acquisitions

History of Mergers and Acquisitions

Tracing back to history, merger and acquisitions have evolved in five stages and each of
these are discussed here. As seen from past experience mergers and acquisitions are
triggered by economic factors. The macroeconomic environment, which includes the
growth in GDP, interest rates and monetary policies play a key role in designing the
process of mergers or acquisitions between companies or organizations.

First Wave Mergers

The first wave mergers commenced from 1897 to 1904. During this phase merger
occurred between companies, which enjoyed monopoly over their lines of production like
railroads, electricity etc. the first wave mergers that occurred during the aforesaid time
period were mostly horizontal mergers that took place between heavy manufacturing
industries.

End of 1st Wave Merger

Majority of the mergers that were conceived during the 1st phase ended in failure since
they could not achieve the desired efficiency. The failure was fuelled by the slowdown of
the economy in 1903 followed by the stock market crash of 1904. The legal framework
was not supportive either. The Supreme Court passed the mandate that the anticompetitive
mergers could be halted using the Sherman Act.

Second Wave Mergers

The second wave mergers that took place from 1916 to 1929 focused on the mergers
between oligopolies, rather than monopolies as in the previous phase. The economic
boom that followed the post world war I gave rise to these mergers. Technological
developments like the development of railroads and transportation by motor vehicles
provided the necessary infrastructure for such mergers or acquisitions to take place. The
government policy encouraged firms to work in unison. This policy was implemented in
1920s.
The 2nd wave mergers that took place were mainly horizontal or conglomerate in nature.
Te industries that went for merger during this phase were producers of primary metals,
food products, petroleum products, transportation equipments and chemicals. The
investments banks played a pivotal role in facilitating the mergers and acquisitions.

End of 2nd Wave Mergers

The 2nd wave mergers ended with the stock market crash in 1929 and the great
depression. The tax relief that was provided inspired mergers in the 1940s.

Third Wave Mergers

The mergers that took place during this period (1965-69) were mainly conglomerate
mergers. Mergers were inspired by high stock, interest rates and strict enforcement of
antitrust laws. The bidder firms in the 3rd wave merger were smaller than the Target Firm.
Mergers were financed from equities; the investment banks no longer played an important
role.

End of The 3rd Wave Merger

The 3rd wave merger ended with the plan of the Attorney General to split conglomerates
in 1968. It was also due to the poor performance of the conglomerates. Some mergers in
the 1970s have set precedence. The most prominent ones were the INCO-ESB merger;
United Technologies and OTIS Elevator Merger are the merger between Colt Industries
and Garlock Industries.

Fourth Wave Merger

The 4th wave merger that started from 1981 and ended by 1989 was characterized by
acquisition targets that wren much larger in size as compared to the 3rd wave mergers.
Mergers took place between the oil and gas industries, pharmaceutical industries, banking
and airline industries. Foreign takeovers became common with most of them being hostile
takeovers. The 4th Wave mergers ended with anti takeover laws,
Financial Institutions Reform and the Gulf War.
Fifth Wave Merger
The 5th Wave Merger (1992-2000) was inspired by globalization, stock market boom and
deregulation. The 5th Wave Merger took place mainly in the banking and
telecommunications industries. They were mostly equity financed rather than debt
financed. The mergers were driven long term rather than short term profit motives. The
5th Wave Merger ended with the burst in the stock market bubble.

Hence we may conclude that the evolution of mergers and acquisitions has been long
drawn. Many economic factors have contributed its development. There are several other
factors that have impeded their growth. As long as economic units of production exist
mergers and acquisitions would continue for an ever-expanding economy.

Introduction to Mergers and Acquisitions

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. 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 & Acquisition’s may be critical for
the healthy expansion and growth of the firm. Successful entry into new product and
geographical markets may require Mergers & Acquisition’s 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 net worth 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.

What is 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 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.

What is 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;

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.

Purpose of Mergers & Acquisitions or synergies

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.;

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 Services;

4. To obtain improved production technology and know-how from the offered company

(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;

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 company’s 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
personnel’s. 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

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.

Types of Mergers

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 acquire company

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:

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
Company’s total portfolio of diverse products and production processes.
Advantages of Mergers & Acquisitions

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”. Mergers and
acquisitions are caused with the support of shareholders, manager’ sad 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 company’s 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 favor merger.

(2)From the standpsoint of manager

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 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) Promoter’s 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 favor 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 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.
Procedure of Bank Merger

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 thread bare 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

 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.

Note: Experts Mr. Abhishek (vice president of Vega boutique investment banking)
answers for few questions as follows

Some important Questions are too asked and answered:

Q) Are there any separate procedures that are followed in due diligence and
valuation analysis for mergers and acquisitions?

A) According to abhishek there is no separate procedures that are followed for merger
and acquisitions as both of them meant for the same.

Q) What are the challenges that you face during mergers and acquisitions?

A) The major challenge that Veda people face is getting both companies to follow a
common strategy and other organizational differences.

Q) What is the swap ratio?

A) It is the exchange ratio of shares among two respective companies that comes in to the
picture while merger or acquisition based on the deal if that happens with the exchange of
shares. For example ICICI bank and BOR merger is the deal with swap ratio of 25:118
respectively.

Q) What is the main consideration in Merger and Acquisition?

A) The main consideration is with cash or with share exchange ratio as said in the case of
ICICI and BOR merger as it with

Suggestions:

The major suggestion given by abhishek garu is that he asked to go for case studies to
understand the concept very clearly.
Top 10 Merger and Acquisition Deals in India

1. Tata Steel’s mega takeover of European steel major Corus for $12.2 billion. The
biggest ever for an Indian company. This is the first big thing which marked the
arrival of India Inc on the global stage. The next big thing everyone is talking
about is Tata Nano.
2. Vodafone’s purchase of 52% stake in Hutch Essar for about $10 billion. Essar
group still holds 32% in the Joint venture.
3. Hindalco of Aditya Birla group’s acquisition of Novellis for $6 billion.
4. Ranbaxy’s sale to Japan’s Daiichi for $4.5 billion. Sing brothers sold the company
to Daiichi and since then there is no real good news coming out of Ranbaxy.
5. ONGC acquisition of Russia based Imperial Energy for $2.8 billion. This marked
the turn around of India’s hunt for natural reserves to compete with China.
6. NTT DoCoMo-Tata Tele services deal for $2.7 billion. The second biggest
telecom deal after the Vodafone. Reliance MTN deal if went through would have
been a good addition to the list.
7. HDFC Bank acquisition of Centurion Bank of Punjab for $2.4 billion.
8. Tata Motors acquisition of luxury car maker Jaguar Land Rover for $2.3
billion. This could probably the most ambitious deal after the Ranbaxy one. It
certainly landed Tata Motors into lot of trouble.
9. Wind Energy Premier Suzlon Energy’s acquistion of RePower for $1.7 billion.
10. Reliance Industries taking over Reliance Petroleum Limited (RPL) for 8500
crores or $1.6 billion.
INVESTMENT BANKERS
ROLE

IN MERGERS AND
ACQUISTIONS
 2.4 - Investment banker role in the Mergers and Acquisition
process

The merger and acquisition process can be divided into planning stage and implementing
stage by investment banker. The planning stage consists of the development of the
business and the acquisition plans. The implementation stage consists of the search,
screening, contacting the target, negotiation, integration and the evaluation activities in
short the process of M&A process can be summarized as follows.

1. Develop a strategic plan for business (Business Plan)

2. Develop a acquisition plan relating to the strategic plan

3. Search companies for acquisition process

4. Screen and Prioritize potential companies

5. Initiate the contact with the target (first contact)

6. Refine valuation, structure the deal, perform due diligence and develop financing plan

7. Develop the plan for integration the business (integration plan)

8. Obtain all the necessary approvals, resolve post-closing issues and implementing the
closing

9. Implement the post-closing integration

10. Conduct the post-closing evaluation of acquisitions (Evaluation)

Step 1: Developing the business plan

Determining where to compete (which industry) and how to compete and self assessment
of the firm selecting the strategy most likely to achieve the objectives within a reasonable
time period subject to constraints identified in the self-assessment.
Step 2: Building the acquisition plan

This acquisition plan is to determine the key management objectives for the take over and
resource constraints appropriate tactics for implementing the proposed transaction and the
schedule or a time table for completing the acquisition.

Step 3: Search Process

After the firm has developed the business and acquisition plans then the investment
banker search for the right candidate. This search process takes place in two stages

The first stage is to establish the primary screening process where the different
factors like industry, size of the transaction and the geography location.

The second stage is to develop search strategy which includes computerized

database and directory services to identify the prospective candidates.

Step 4: The screening process

The screening process starts with the reduction of the list of potential candidates
identified by using the primary criteria such as the size and the type of the industry. In
addition to primary criteria employed, secondary selection criteria include a specific
market segment within the industry or a specific product line.

Step 5: First Contact

Then the investment banker in this contact phase of the process involves meeting the
acquisition candidate and putting forward the proposal of the acquisition on behalf the
acquirer and then it could run through several distinctively identifiable phases that need a
little more elaboration.

Step 6: Due Diligence

The basic function of due diligence is to assess the benefits and the costs of a proposed
acquisition by inquiring into all relevant aspects of the past, present and future of a
business to be purchased . Due diligence is of vital importance to prevent “unpleasant
surprises” after completing the acquisition. The due diligence should be through and
extensive. Both the parties to the transaction should conduct their own due diligence to
get the accurate assessment of potential risks and rewards. There is no precise definition
of the term “due diligence”. Generally it is a process of enquiry and investigation about
proposed merger deal. It is a judgement process of the deal. The due diligence consists of
five strands, viz.,

• The verification of assets and liabilities.

• The identification and quantification of risks.

• The protection needed against such risks which will in turn feed into the
negotiations.

• The identification of synergy benefits.

• Post acquisition planning.

The different types of due diligence is determined by investment banker on behalf of the
acquirer can be discussed in the below table as follows:
 Types Focus on Enquiries Expected Results

Financial Due Diligence Historical records, review Confirms underlying

of management and systems profits, Provides basis of
valuation.

Legal Due Diligence Various contractual acts in Warranties and indemnities,

the country validation of all existing
contracts, sales and
purchases agreement.

Commercial Due Market conditions, Sustainability of future

Diligence competitive position and profits, planning decision
targets commercial on the strategy to be
prospects adopted for the combined
business.

Tax Due Diligence Existing tax levels , Avoid any foreseen tax
liabilities and arrangements liabilities, opportunities to
optimize the position of
combined business.

Management Due Management quality, Identification of key

Diligence organizational structure integration issues, outline of
new structure for the
combined business.

Note: This type of due diligence process is done on behalf an acquirer generally termed
as a buyers due diligence and seller has to perform certain aspects of due diligence on the
buyer. In such a process the seller may determine whether the buyer has the financial
resources to finance the agreed purchase price.

Step 7: Valuation Analysis:

Valuation of the target company is the most critical part of a deal. A conservative
valuation can result in collapse of the deal while in aggressive valuation may create
perpetual problems for the acquiring company. The commonly used valuation methods
are:

1) Discounted Cash Flow Method: In this method valuation represents the present
value of the expected stream of future cash flow discounted for time and risk.
This is the most valid methodology from the theoretical stand point. However, it
is very subjective due to need to make several assumptions during the
computations.

2) Comparable Companies Method: This method is based on the premise that

companies in the same industry provide benchmark for valuation. In this method,
the target company is valued vis-à-vis its competitors on several parameters.

3) Book Value Method: This method attempts to discover the worth of the target
company based on its Net Asset Value.

4) Market Value Method: This method for valuation. Normally, the target
companies are valued by various methods. Different weights are assigned to the
values computed by various methods. The weighted average valuation helps in
eliminating the errors that may creep in, if a single method is relied upon. Neither
the buyer not seller will be in a position to establish the exact value for the
business unless a detailed evaluation is done. The best solution is to determine a
range.

The various multiples employed in this method are as follows:

P/E (Price Earnings Ratio) : The simplicity of the P/E ratio makes it the most
widely used valuation multiples. It is defined as the ratio of the market price of the
share to the earnings per share.

P/E= Market price per share/ Earnings per share

 (Where EPS = Net profit available to the share holders/No: of ordinary shares
outstanding)

This multiple is more appropriate for most profitable companies with a stable
capital structure of the selected companies.

PEG Ratio: The PEG ratio is defined to be the price earnings ratio divided by the
expected growth rate in earnings per share.

PEG= Price earnings ratio/Expected growth rate in earnings

If the expected growth rate in earnings per share in the above equation is based
upon earnings in the most recent year (current earnings), the PE ratio that should
be used is the current PE ratio that should be used is the current PE ratio. The
forward PE ratio should never be used in this computation, since it may result in a
double counting of growth.

Book value Multiples:

Price to book ratios: The price to book ratios is computed by dividing the market
price per share by the current value of equity per share.

Revenue Multiples:

Price to sales ratio = Market price per share/Revenue per share

Value to sales ratio= Total value of the firm/ Total revenues

Note: P/E ratio is the most used multiple by many investment banks

Example determining the valuation using different Multiples:

Compute the value of Lakshmi Ltd with the help of comparable firms approach using the
following information:

Sales Rs.100 cr

Profit after tax Rs.15 cr

Book value Rs.60 cr

The value feels that 50% weightage should be given to earnings in the valuation process.
Sales and book value may be given equal weightages. The valuer has identified three
firms which are comparable to the operations of sigma Ltd.

(Rs in crores)

Particulars Siva Ltd Rama Ltd Raju Ltd

Sales 80 120 150

Profit after tax 12 18 25

Book value 40 90 100

Market value 120 150 240

Solution:The valuation multiplies of the comparable firms are as follows

Particulars Siva ltd Rama ltd Raju ltd Avg

Price/sales ratio 1.50 1.25 1.60 1.45

Price/Earnings ratio 10.00 8.33 9.60 9.31

Price/Book value ratio 3.00 1.66 2.40 2.35

Applying the above multiples the value of Lakshmi.Ltd is as follows:

Particulars Multiples Parameters Value

 Price/sales ratio 1.45 100 145.00

Price/Earnings ratio 9.31 15 139.65

Price/Book value ratio 2.35 60 141.00

The weightages to P/S ratio, P/E ratio and the P/BV ratio are 1.2,1 respectively. Thus the
weighted average value will be:

= [(145*1) + (139.65*2) + (141 * 1)]/4 = Rs.141.32 cr.

The value of Lakshmi.Ltd. Using the comparable firms approach is Rs.141.32 cr.

Step 8: Defining the purchase Price

The purchase consideration can be defined in three ways by the investment banker as
follows

1) The total consideration

2) The total purchase price or enterprise value

1) Total consideration

The total consideration consists of Cash or Stock or new debt issues or combination of
any of them. Total consideration is the term commonly used in legal documents to
describe the different types of different types of payment to be made to the share holders
of the target company. The payment may also include non-financial assets (such as the
real estate) which are also referred as payment in kind. Each component of the total
consideration should be viewed in present value terms.

The stock components of the total consideration is the current value of the future
dividends or net cash flows, or the acquiring company’s stock price per share times the
number of shares exchanged for each outstanding share of the sellers stock

This can be represented as follows

PV tc = C + PVs + PV nd

Where

PV tc = present value of total consideration

C = Cash consideration

PVs = present value of stock issued

PV nd = present value of new debt issued

And the exchange ratio can be calculated as follows

ER = P*S / [(PE) (Ea + Eb)-P*S]

Where

P= price per share

S= no: of outstanding shares

PE = price earnings multiple

Ea = earnings of one company say ‘a’

Eb = earnings of another company say ‘b’

Example to determine the exchange ratio (ER)

The particulars of Alpha Ltd and Beta Ltd as follows

Particulars Alpha Ltd Beta Ltd

Profit 100 75

No: of shares 20 25

EPS 5 3

P/E multiple 30 10

Market price(Rs.) 150 30

• Alpha proposes to acquire beta and gives its shares in exchange of shares of the
beta.

Solution:

ER = S1/S2 + (E1 + E2) PE12/ P1*S2

Thus by employing given resources in the above data we get the Maximum ER at
different levels of PE are as follows

P/E 20 25 30 35 40 50

ER 0.13 0.36 0.6 0.83 1.06 1.53

2.The Total Enterprise Value or Purchase Price

The total purchase or enterprise value of the target firm consists of the total consideration
plus the market value of the target firms debt assumed by the acquiring company. The
value often quoted in the financial press and other media as the purchase price is the
enterprise value because it is most visible to those not familiar with the details of the
transaction. It is approximate figure of the total investment made by the acquitting firm to
purchase the target firm. It does not measure the liabilities the acquirer assumes or does it
measures the potential to recover of the total consideration paid to the target company’s
shareholders by selling the undervalued or redundant assets. This can be represented as

PV tpp = present value of total purchase consideration

PV ad = present value of assumed debt and

PV tc = present value of total consideration

Step 9: Developing the Financing Plan

One of the very important activities in the negotiation phase is to develop a financing
plan. This activity is key point in determining the purchase price, as it helps in identifying
a practical limit of the amount of the purchase price the buyer can offer the seller.
According to the capital budgeting theory, an investment should be funded as long as its
net present value is greater than or equal to zero. Applying the concept of capital
budgeting to acquisition financing we can determine the purchase price as the present
value of the target company, plus the synergy created by combining the acquiring and
target companies discounted at the acquirers cost of capital.

Based on the purchase price determined a financing plan is attached to the acquirers
business and acquisition plan and is used to obtain the financing for the transaction. A
financing plan is usually used as marketing or sale document to negotiate best terms for
financing the proposed transaction.

Step 10: Post Merger Activities

There are various post merger activities to be considered by investment banker as

follows

• Integrating leadership roles and responsibilities

• Integration of planning and Implementation process

• Structure and staffing

• Re-structuring
 • Cultural Integration

• Human capital related integration

• Measurement of feed back

• Project management

Participants in the Mergers and Acquisitions Process

• Investment Bankers

• Lawyers

• Accountants

• Valuation Experts

• Institutional Investors

• Arbitrageurs
 CHAPTER – III

INDUSTRY PROFILE

OF

INVESTMENT BANKING

INVESTMENT BANKING INDUSTRY

Investment Banking, branch of finance concerned with the underwriting, distribution, and
maintenance of markets in securities issued by business firms and public agencies.
Investment bankers are primarily merchants of securities; they perform three basic
economic functions:

(1) Provide capital for corporations and local governments by underwriting and
distributing new issues of securities; (2) maintain markets in securities by trading and
executing orders in secondary market transactions; and (3) provide advice on the
issuance, purchase, and sale of securities, and on other financial matters. In contrast to
commercial banks, whose chief functions are to accept deposits and grant short-term
loans to businesses and consumers, investment bankers engage primarily in long-term
financing.

Investment banking is a field of banking that aids companies in acquiring funds. In

addition to the acquisition of new funds, investment banking also offers advice for a wide
range of transactions a company might engage in. Traditionally, banks either engaged in
commercial banking or investment banking. In commercial banking, the institution
collects deposits from clients and gives direct loans to businesses and individuals

An investment bank is a financial institution that raises capital, trades in securities and
manages corporate mergers and acquisitions. Investment banks profit from companies
and governments by raising money through issuing and selling securities in the capital
markets (both equity, bond) and insuring bonds (selling credit default swaps), as well as
providing advice on transactions such as mergers and acquisitions. A majority of
investment banks offer strategic advisory services for mergers, acquisitions, divestiture or
other financial services for clients, such as the trading of derivatives, fixed income,
foreign exchange, commodity, and securities. Trading securities for cash or securities
(i.e., facilitating transactions, market-making), or the promotion of securities (i.e.,
underwriting, research, etc.) was referred to as the "side”. Dealing with the pension
funds, mutual funds, hedge funds, and the investing public who consumed the products
and services of the sell-side in order to maximize their return on investment constitutes
the "buy side". Many firms have buy and sell side components. An investment banking
firm also does a large amount of consulting. Investment bankers give companies advice
on mergers and acquisitions, for example. They also track the market in order to give
advice on when to make public offerings and how best to manage the business' public
assets. Some of the consultative activities investment banking firms engage in overlap
with those of a private brokerage, as they will often give buy-and-sell advice to the
companies they represent. The line between investment banking and other forms of
banking has blurred in recent years, as deregulation allows banking institutions to take on
more and more sectors. With the advent of mega-banks which operate at a number of
levels, many of the services often associated with investment banking are being made
available to clients who would otherwise be too small to make their business profitable.

The India Scenario

In India, though the existence of this branch of financial services can be traced to over 3
decades, investment banking was largely confined to merchant banking services. The
forerunners of banking in India were the foreign banks. In the year 1967 Grind lays bank
(now merged with standard chartered bank in India) began investment banking operations
with license from RBI followed by Citibank in 1970. It was in 1972 that the Banking
Commission report asserted the need for merchant banking services in India by the public
sector banks of India. SBI set up its merchant banking division in 1972 followed by Bank
of India, central bank of India, Bank of Baroda, Syndicate bank, Punjab National Bank,
Canara Bank. ICICI was the first financial institution to set up merchant banking division
in 1973 next were IFCI and IDBI in year 1992.By the mid eighties and early nineties,
most of the merchant banking divisions of public sector spun off as a separate
subsidiaries.

Characteristics and structure of Indian investment banking industry

On the regulatory front, the Indian regulatory regime does not allow an investment
banking functions to be performed under one entity for two reasons.

(a) To prevent excessive exposure to business risk under one entity.

(b) ) To prescribe and monitor capital adequacy and risk mitigation mechanisms.
Therefore, Indian investment banks follow a conglomerate structure by keeping their
business segments in different entities to meet regulatory norms. Due to the norms,
Indian investment banking industry has a heterogeneous structure. The bigger investment
banks have several group entities in which the core and non-core business segments are
distributed.

Investment Banking History in the 20th Century

In the mid-20th century, large investment banks were dominated by the dealmakers.
Advising clients on mergers and acquisitions and public offerings was the main focus of
major Wall Street partnerships. These “bulge bracket” firms included Goldman Sachs,
Morgan Stanley, Lehman Brothers, First Boston and others.

That trend began to change in the 1980s as a new focus on trading propelled firms such
as Salomon Brothers, Merrill Lynch and Drexel Burnham Lambert into the limelight.
Investment banks earned an increasing amount of their profits from proprietary trading.
Advances in computing technology also enabled banks to use more sophisticated model
driven software to execute trades and generate a profit on small changes in market
conditions.

In the 1980s, financier Michael Milken popularized the use of high yield debt (also
known as junk bonds) in corporate finance and mergers and acquisitions. This fueled a
boom in leverage buyouts and hostile takeovers (see History of Private Equity).
Filmmaker Oliver Stone immortalized the spirit of the times with his movie, Wall Street,
in which Michael Douglas played the role of corporate raider Gordon Gekko and
epitomized corporate greed.

Investment banks profited handsomely during the boom years of the 1990s and into the
tech boom and bubble. When the tech bubble burst, it precipitated a string of new
legislation to prevent conflicts of interest within investment banks. Investment banking
research analysts had been actively promoting stocks to investors while privately
acknowledging they were not attractive investments. In other instances, analysts gave
favorable stock ratings to corporate clients in the hopes of attracting them as investment
banking clients and handling potentially lucrative initial public offerings.

These scandals paled by comparison to the financial crisis that has enveloped the banking
industry since 2007. The speculative bubble in housing prices along with an overreliance
on sub-prime mortgage lending trigged a cascade of crises. Two major investment banks,
Bear Stearns and Lehman Brothers, collapsed under the weight of failed mortgage-
backed securities. In March, 2008, the Federal government began using a variety of
taxpayer-funded bailout measures to prop up other firms. The Federal Reserve offered a
$30 billion line of credit to J.P. Morgan Chase to that it could acquire Bear Sterns. Bank
of America acquired Merrill Lynch. The last two bulge bracket investment banks,
Goldman Sachs and Morgan Stanley, elected to convert to bank holding companies and
be fully regulated by the Federal Reserve.

Moving forward, the recent financial crisis has weakened both the reputation and the
dominance of U.S. investment banking organizations throughout the world. The growth
of foreign capital markets along with an increase in pools of sovereign capital is changing
the landscape of the industry.

The growing international flow of capital has also opened up opportunities for investment
banking in new financial centers around the world, including those in developing
countries such as India, China and the Middle East.

Functions of Investment Banking

Investment banks have multilateral functions to perform. Some of the most important
functions of investment banking can be jot down as follows:

 Investment banking help public and private corporations in issuing securities in the
primary market, guarantee by standby underwriting or best efforts selling and foreign
exchange management. Other services include acting as intermediaries in trading for
clients.
 Investment banking provides financial advice to investors and serves them by assisting
in purchasing securities, managing financial assets and trading securities.

 Investment banking differ from commercial banking in the sense that they don't accept
deposits and grant retail loans. However the dividing line between the two fraternal twins
has become flimsy with loans and securities becoming almost substitutable ways of
raising funds.

 Small firms providing services of investment banking are called boutiques. These
mainly specialize in bond trading, advising for mergers and acquisitions, providing
technical analysis or program trading.

Evolution & growth of Investment Banking

Evidence indicates that ancient civilizations such as Greece and Rome engaged in
investment-banking operations with practices such as extending long-term credits to
governments and to certain industries. During the Middle Ages investment banking was
concerned largely with financing governments. In the 1100s and 1200s, for example, the
Lombard banks in Italy combined trading operations with long-term loans made to
various rulers.

In Great Britain the earliest investment institutions of any importance were the
acceptance houses, or merchant banks. As far back as the 1600s, these concerns financed
foreign trade. Later the acceptance houses also floated foreign issues in London and
accumulated funds for long-term investment abroad.

Also important in the evolution of investment banking were private banks, many of
which were family enterprises, and finance companies. One of the former, the House of
Rothschild, attained a dominant position in the financial centers of Europe during the
1800s and was still influential in the 1900s.

Currently, in Britain, channeling of capital into domestic industry is done mainly through
specialized finance or investment companies. In many European countries, however, it is
customary for the same institution to carry on both commercial and investment banking.
In Germany, in particular, large banks play a leading role in financing industrial
development. Investment banks also play a global role. Companies and governments
frequently finance their needs in the market in which they can get the very best price and
terms—whether that market is in the United States, Europe, or Japan.

The fall from grace of investment bankers leading to a radical change in the financial
sector's landscape in advanced countries is a significant development having many
lessons for India too. Investment banking, or merchant banking as it is called here, has
been slow to develop inIndia. Unlike in the U.S. where Depression era legislation
segregated the two activities, banks here did not have any legal constraints. However,
there were certain 'non-banking' activities such as hire purchase and leasing that could be
done only by subsidiaries, which in course of time resembled the bigger NBFCs which
are important niche players. Foreign players in a fix significantly even when universal
banking became the flavor of the season & Nash; commercial banks trying to open
financial supermarkets & dash; big banks undertook activities such as insurance only
through subsidiaries and relied on the brand names of the parent banks. It is not clear
whether the universal banking model as it has evolved here has been a help or a
hindrance to the promoting bank. In a regulatory sense there has been an overlap. Other
than the Reserve Bank of India, the Securities and Exchange Board of India and the
Insurance Regulatory and Development Authority are also involved. Of the many
similarities between investment banks abroad and in India, the easily noticed one is the
higher level of salary compensation paid to investment bankers compared to their more
sedate commercial banking counterparts. As in the West, the main investment banking
activities in India are mergers, acquisitions, corporate finance and restructuring. Even
though some public sector banks are active in the field, the lion's share of the business
appears to have been grabbed by the big brokers acting as investment bankers, foreign
banks and the branches of the foreign investment banks. Interestingly many big
investment banks have had tie ups with broker-firms. Sensing the potential in India many
of them had started venturing out on their own. The serious crisis in the U.S. has put paid
to their plans in India. In many cases their continuance in India seems to be in doubt.
With all their well publicized failings, will the erstwhile foreign investment banks
continue to appeal to their major Indian clients? In the last 'big bang' disinvestment,
involving ONGC and others, none of the public sector merchant banking subsidiaries had
any role. The field was dominated entirely by foreign investment banks. Arcelor Mittal
was put together with the help of the (then) big players, all international investment
banks. The Tata-Corus deal and the Aditya Birla Group's forays abroad were aided by
foreign investment banks. It is too much to expect that India's public sector merchant
banking subsidiaries will fill the void. But they can learn important lessons from the
failure of investment banking abroad. One clear message for them is not to do a
'regulatory arbitrage' exploiting the lacuna in regulation. Foreign banks could get away.
Citibank and others, though named by the JPC as the biggest perpetuators of the 1991-92
securities scam, escaped unscathed. Public sector banks, including the SBI group, have
fared far worse. The second message of course is not to emulate the recently failed
American investment banks in undertaking activities without fully comprehending the
risks. Banks in India have so far disclosed relatively small exposures to 'toxic' securities
that have brought down the big names.

The same degree of caution will serve them well in any other type of investment banking
activity, however glamorous or profitable it may be done.

Size of industry

Global investment banking revenue increased for the fifth year running in 2007, to $84.3
billion. These were up 21% on the previous year and more than double the level in 2003.
Despite a record year for fee income, many investment banks have experienced large
losses related to their exposure to U.S. sub-prime securities investments.

The United States was the primary source of investment banking income in 2007, with
53% of the total, a proportion which has fallen somewhat during the past decade. Europe
(with Middle East and Africa) generated 32% of the total, slightly up on its 30% share a
decade ago. Asian countries generated the remaining 15%. Over the past decade, fee
income from the US increased by 80%.This compares with a 217% increase in Europe
and 250% increase in Asia during this period. The industry is heavily concentrated in a
small number of major financial centers, including New York City, London and Tokyo.
Investment banking is one of the most global industries and is hence continuously
challenged to respond to new developments and innovation in the global financial
markets. Throughout the history of investment banking, it is only known that many have
theorized that all investment banking products and services would be commoditized. New
products with higher margins are constantly invented and manufactured by bankers in
hopes of winning over clients and developing trading know-how in new markets.
However, since these can usually not be patented or copyrighted, they are very often
copied quickly by competing banks, pushing down trading margins.

For example, trading bonds and equities for customers is now a commodity business but
structuring and trading derivatives retains higher margins in good times - and the risk of
large losses in difficult market conditions, such as the credit crunch that began in 2007.
Each over-the-counter contract has to be uniquely structured and could involve complex
pay-off and risk profiles. Listed option contracts are traded through major exchanges,
such as the CBOE, and are almost as commoditized as general equity securities.

In addition, while many products have been commoditized, an increasing amount of

profit within investment banks has come from proprietary trading, where size creates a
positive network benefit (since the more trades an investment bank does, the more it
knows about the market flow, allowing it to theoretically make better trades and pass on
better guidance to clients).

The fastest growing segment of the investment banking industry is private investments
into public companies (PIPEs, otherwise known as Regulation D or Regulation S). Such
transactions are privately negotiated between companies and accredited investors. These
PIPE transactions are non-rule 144A transactions. Large bulge bracket brokerage firms
and smaller boutique firms compete in this sector. Special purpose acquisition companies
(SPACs) or blank check corporations have been created from this industry.

Overall Recent Developments

New reforms in investment banking and the marketing of securities were enacted as the
21st century began. The reforms followed a wave of scandals in 2001 and 2002 involving
the lack of safeguards preventing conflicts of interest within an investment bank.
Investment bank research analysts who recommended stocks to investors were being
compensated for attracting investment-banking clients. Such clients included companies
that sought an investment bank’s help in funding an initial stock offering known as an
initial public offering (IPO). These investment-banking clients, in turn, expected
favorable stock ratings. In some cases analysts were publicly recommending a stock
while privately ridiculing the company that issued the stock. In a settlement with the New
York State attorney SGeneral and the Securities and Exchange Commission (SEC), ten
investment-banking houses in 2003 agreed to pay $1.4 billion in fines and to adopt a
variety of reforms aimed at ending these conflicts of interest. For example, research
analysts could no longer be rewarded for attracting investment-banking business, and
strict limitations were placed on communications between the research department and
the investment bankers involved in IPOs. Federal legislation, known as the Sarbanes-
Oxley Act, was also enacted in 2002 to help protect small investors jeopardized by biased
research from investment banking houses.

None of these reform measures, however, anticipated the debacle that would virtually
swallow up the independent investment banking industry as the 21st century progressed.
Beginning in 2008 two major investment banks, Bear Stearns and Lehman Brothers,
failed as a result of their overexposure to financial instruments known as mortgage
securities. When a speculative bubble in housing prices burst and housing foreclosures
reached record levels, these and other investment banks were left holding securities and
other financial instruments known as derivatives that declined drastically in value.

In March 2008 the Federal Reserve used $30 billion in taxpayers’ money to offer a line of
credit to J.P. Morgan Chase & Co. so that it could acquire Bear Stearns. Then in
September the Fed and the Department of Treasury decided not to intervene to rescue
Lehman Brothers, one of the oldest investment banks in the country. As a result, Lehman
Brothers went into bankruptcy, leaving only three other major investment banks in
existence. Bank of America Corporation soon acquired the firm Merrill Lynch. The last
two remaining major investment banks, Goldman Sachs and Morgan Stanley, then
announced that with the approval of the Federal Reserve, they were becoming bank
holding companies so that they could compete with firms like J.P. Morgan, Bank of
America, and Citigroup Inc.

Services of Indian Investment banking

The core services provided by Indian investment banks are in the areas of equity market,
debt market and advisory services.

(1) Merchant Banking, Underwriting AND Book Running

The SEBI functions as a regulatory for the capital markets much in the lines of other
countries such as SEC in U.S.A .When the primary markets are buoyant, issue
management, book building and syndicated underwriting form a very dominant segment
of activity for most Indian investment banks. A segment of primary market is also the
private placement market, especially for government securities and, commercial paper
and bonds floated by public sector banks and corporations. Investment banks have been
managing public offers and holding them in private placements as well.

(2) Mergers And Acquisitions, Corporate Advisory

The two factors that given rise to this industry are: -

(a) The force of liberalization and globalization that forced Indian industry to
consolidate.

(b) The institutionalization of corporate acquisitions by SEBI through its guidelines,

popularly known as takes over code.

(c) Indian investment banks also have a large practice in corporate advisory service
relating to project financing, corporate structuring, capital restructuring through
equity repurchases, and raising pvt. Equity, structuring joint-ventures and
strategic
partnerships and other value added specialized areas.

Capabilities of an Ideal Investment Banker

These capabilities can be identified in the services mostly offered by the investment
banks. They include the following:

Investment Management/Fund Management

The ideal investment bank should possess strong skills in investment management. This
generates income for it as well as help in the distribution of new issues

In depth Knowledge of Corporate Finance Issues

It must have a team of professionals who are well versed in the issues of corporate
finance to enable it make valuable inputs into the financial decisions of their clients. It
also gives it a competitive advantage when the investment banker is bidding for IPO
projects.

Pricing of Services

The ideal investment banker should be able to deliver its services at a lower cost in order
to woo capable businesses interested in going public.

Pre-Financing of IPOs

IPOs have been identified as very costly for the issuing firms. In order for an investment
banker to woo clients, it should be capable of pre-financing the IPO in order to gain a
competitive advantage in its market over the years in order to gain dominance in the IPO
market.

Performing Ancillary Services

Other augmenting capabilities include the ability to support the trading of the securities
floated. This primarily involves supporting transactions in the security on the secondary
market. Registrar and Custodial services are key to the competitive strategies of an
investment banker. An advantage of these supplementary services is the future cash
streams in fees charged to the issuing firms. This is bundled together with other services
when investment banks are pricing their fees. Thus it is cheaper for the issuing firm to
outsource the registrar services to the investment banker rather than employ another
investment banker to undertake this function. These activities, although may not seem
necessary to the performance of the investment banking function, could create
competitive advantage for the investment banker possessing them.

Difference between Investment banking & Merchant banking

Merchant banks and investment banks, in their purest forms, are different kinds of
financial institutions that perform different services. In practice, the fine lines that
separate the functions of merchant banks and investment banks tend to blur. Traditional
merchant banks often expand into the field of securities underwriting, while many
investment banks participate in trade financing activities.

In theory, investment banks and merchant banks perform different functions. Pure
investment banks raise funds for businesses and some governments by registering
and issuing debt or equity and selling it on a market. Traditionally, investment banks only
participated in underwriting and selling securities in large blocks. Investment banks
facilitate mergers and acquisitions through share sales and provide research and financial
consulting to companies. Traditionally, investment banks did not deal with the general
public.

Traditional merchant banks primarily perform international financing activities such as

foreign corporate investing, foreign real estate investment, trade finance and international
transaction facilitation. Some of the activities that a pure merchant bank is involved in
may include issuing letters of credit, transferring funds internationally, trade consulting
and co-investment in projects involving trade of one form or another.

The current offering of investment banks and merchant banks varies by the institution
offering the services, but there are a few characteristics that most companies that offer
both investment and merchant banking share.

As a general rule, investment banks focus on initial public offerings (IPOs) and large
public and private share offerings. Merchant banks tend to operate on small-scale
companies and offer creative equity financing, bridge financing, mezzanine financing and
a number of corporate credit products. While investment banks tend to focus on larger
companies, merchant banks offer their services to companies that are too big for venture
capital firms to serve properly, but are still too small to make a compelling public share
offering on a large exchange. In order to bridge the gap between venture capital and a
public offering, larger merchant banks tend to privately place equity with other financial
institutions, often taking on large portions of ownership in companies that are believed to
have strong growth potential. Merchant banks still offer trade financing products to their
clients.

Investment banks rarely offer trade financing because most investment banking clients
have already outgrown the need for trade financing and the various credit products linked
to it. An Investment Banker is total solutions provider as far as any corporate, desirous of
mobilizing capital, is concerned. The services range from investment research to investor
service on the one side and from preparation of offer documents to legal compliances and
post issue monitoring on the other. There exists a long lasting relationship between the
Issuer Company and the Investment Banker. A "Merchant Banker" could be defined as
"An organization that acts as an intermediary between the issuers and the ultimate
purchasers of securities in the primary security market”.

Merchant Banker has been defined under the Securities & Exchange Board of India
(Merchant Bankers) Rules, 1992 as "any person who is engaged in the business of issue
management either by making arrangements regarding selling, buying or subscribing to
securities as manager, consultant, advisor or rendering corporate advisory service in
relation to such issue management". Merchant Banking, as a commercial activity, took
shape in India through the management of Public Issues of capital and Loan Syndication.
It was originated in 1969 with the setting up of the Merchant Banking Division by ANZ
Grindlays Bank. The main service offered at that time to the corporate enterprises by the
merchant banks included the management of public issues and some aspects of financial
consultancy. The early and mid-seventies witnessed a boom in the growth of merchant
banking organizations in the country with various commercial banks, financial
institutions, and broker’s firms entering into the field of merchant banking.
 .

Reform measures were initiated in the capital market from 1992, starting with the
conferring of statutory powers on the Securities and Exchange Board of India (SEBI) and
the repeal of Capital Issues Control Act and the abolition of the office of the Controller of
Capital Issues. These have brought about significant improvement in the functional and
regulatory efficiency of the market, enabling the Merchant Bankers shoulder greater legal
and moral responsibility towards the investing public.

Role of Investment Bankers

Investment bankers provide service and advice to companies, organizations and

governments. Investment bankers also assist and advise companies on mergers and
acquisitions, which basically means that they act as the buyer or seller (whatever position
the company is taking) and negotiate the transaction. In other instances they just provide
a strategy for action against an unwelcome bid. Investment bankers provide a wide array
of services, including underwriting the issuance of equity or debt to aid a company
having financial difficulties. It is the duty of the investment banker to provide advice on
issues such as how to raise capital through equity or debt instruments.

In addition to the above mention activities, investment bankers also governments deal
with the privatization of public entities. For example, when the American government
decides to privatize a correctional facility, an investment banker will negotiate with a
buyer and advise or act on behalf of the government throughout the entire transaction.
Privatization has become a very lucrative focus for investment bankers. Although most
popular in the United States and the United Kingdom, it is a growing phenomenon in
many governments.
An investment banker's main goal is to help clients achieve their goals. Investment
bankers will assist their clients with the implementation of their chosen plan, including
but not limited to buyouts. Investment bankers also must take charge of their own client
load. Investment bankers must identify and secure their own clientele, so they literally
have total control of how much or how little work they have.

Investment bankers need the function using the most up-to-date news sources, so they
must receive real-time market updates. In order to provide clients with the most accurate
and effective strategy, investment bankers need access to in-depth information and
comprehensive research and financial modeling tools to analyze the market and formulate
likely outcomes.

An effective investment banker will form close relationships with each client, including
devoting numerous hours to client contact, meetings and even travel. Because investment
bankers need to secure new clients, it is essential that they look for new opportunities for
existing clients.

Major players in the sector (International wide)

• Goldman Sachs
• Morgan Stanley
• Barclays
• Citigroup
• Credit Suisse, Deutsche Bank
• HSBC
• JP Morgan
• UBS
Major players in the sector (National)

The top 10 Investment Banks in India offers large number of financial advisory services
by tracking the economic trends, besides providing financial assistance to corporate and
retail customers. Some of them are:

1) Avendus Capital
An investment bank providing mergers and acquisitions, fixed returns, controlled
finance, calculated advisory facilities and Private Equity Syndication to its
customers ranging from investors to corporate. The bank has a powerful research
competence which it utilizes to close business deals in hostile circumstances. It
presently concentrates on sectors where Indian firms have strategic expansion
advantage namely Healthcare, Pharmaceuticals, IT Services, Consumer goods,
manufacturing, etc.

2) Bajaj Capital
The Bajaj Capital Group is one of the renowned Investment consultant and
Financial Planning firms in India. It is certified under the Category I of Merchant
Bankers by SEBI. Bajaj Capital provides custom-made Fiscal Planning facilities
and investment consultation to the investors, organizational investors, corporate,
high income patrons and Non-Resident Indians (NRIs).

Being one of the biggest distributors of economic goods, Bajaj provides an

extensive range of investment schemes such as general insurance, life insurance,
mutual funds, etc to both public and private institutions.

3) ICICI Securities Ltd

India's biggest equity house, ICICI Securities Ltd provide back-to-back banking
solutions through its extensive distribution network to cater to the varied needs of
its retail and corporate clients. The firm is listed under the Monetary Authority of
Singapore (MAS) and Financial Services Authority, UK and has an authoritative
 place in the core divisions of its functional areas such as consultant services, fiscal
good distribution, Equity Capital Markets Advisory Services, etc.

4) IDFC
Initiated in 1997 in Chennai, IDFC undertook the responsibility of providing
financial support to 332 projects accruing a profit of upto Rs 2, 20, 400 million.
The sectors under IDFC's financial assistance are infrastructure, agri related
business, transportation, healthcare, tourism and others.

5) Kotak Mahindra Capital Company

Initiator and leader in equity capital markets, Kotak Investment Banking has
undertaken the developmental work of most ground breaking advances in the
Indian capital markets comprising the launch of book building and Qualified
Institutional Placements (QIPs) in India. The investment bank has an impressive
track record of controlling various sectors and has played a major role in the
government's milestone disinvestments.

6) SBI Capital Markets

SBICAPS is India's foremost investment bank and project consultant, aiding local
firms in capital enlistment endeavors for last many years. The firm started it
operations in 1986 and is an entirely owned subordinate of the State Bank of
India. Asian Development Bank (ADB) possesses 13.84% stakes in equity
segment of SBICAPS.

7) Tata Investment Corporation Limited (TICL)

A non-banking financial company (NBFC), TICL is listed with the Reserve Bank
of India under the group of 'Investment Company'. The firm's commercial
activities constitute mainly of endowing in long-standing investments in equity of
the firms in various sectors. The chief source of return for the firm entails income
on investment trading and income accrued on dividend.

8) Yes Bank
This Investment Banking association is engaged in the classification, arrangement
 and implementation of deals for their clients in varied sectors and nations. Some
of the archetypal transactions incorporate divestitures, private equity syndication,
mergers & acquisitions and IPO consultation.

9) UTI Securities Ltd

Endorsed as a self-regulating professional body in 1994, UTI Securities Ltd., is
one of the renowned investment bank of India. After the termination of Unit Trust
of India (UTI) Act, the total share fund of UTISEL is now controlled by
superintendent of particular enterprise of UTI. The firm has been offering all sorts
of investment associated activities which incorporates investment banking and
corporate consultation facilities.

10) Ing Vysya Bank Ltd:As a part of whole sale banking operations The bank
is into core investment banking operations like mergers and acquisitions, capital and
debt structuring and restructuring, private capital raising, Structured financing. The
firm has been of ng all these operations onshore and offshore and is profitable feri
INDATA Ranking of Investment Bankers in India, 2003

Rank 2003 Advisor Number of Value of Value of

Deals Deals(Rs.) Deals($)

1 DSP Merrillynch 16 29,188 648

2 ICICI securities 14 24,585 546

3 JM Morgan Stanley 10 16,470 366

4 Rabo Indian 5 12,147 269

Finance

5 HSBC secuirities 8 11,584 257

and Capital markets

6 Price water house 12 10,384 230

coopers Ltd

7 Kotak Mahindra 6 9,591 213

Capital Company

Ltd

8 Ernst & Young 10 8,569 190

9 Ambit Corporate 12 7,808 173

Finance Pvt Ltd

10 KPMG corporate 4 7,517 167

Finance

11 JP Moragan 2 7,052 156

12 Citi Group 10 6,386 141

13 Mc Kinsey & Co 1 6,241 138

14 ING Vysya 5 6,016 133

 Investment

banking

15 Lazard India 4 5,275 117

COMPANY PROFILE

Of
 ING Vysya Bank

ING Vysya BANK Ltd

ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya
Bank Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse,
ING of Dutch origin, during Oct 2002.

The origin of the erstwhile Vysya Bank was pretty humble. It was in the year 1930 that a
team of visionaries came together to form a bank that would extend a helping hand to
those who weren't privileged enough to enjoy banking services.

ING and ING Vysya Life Insurance are headquartered at Bangalore, while the corporate
office of ING Investment Management is situated at Mumbai. The synergies arising out
of the three distinct but complimentary businesses are bound to be an asset to the group in
the changing market dynamics of the future. The first such signs are already visible on
the horizon with combined products being successfully launched by the different entities
of the group in conjunction with each other

It's been a long journey since then and the Bank has grown in size and stature to
encompass every area of present-day banking activity and has carved a distinct identity of
being India's Premier Private Sector Bank.

In 1980, the Bank completed fifty years of service to the nation and post 1985; the Bank
made rapid strides to reach the coveted position of being the number one private sector
bank. In 1990, the bank completed its Diamond Jubilee year. At the Diamond Jubilee
Celebrations, the then Finance Minister Prof. Madhu Dandavate, had termed the
performance of the bank stupendous. The 75th anniversary, the Platinum Jubilee of the
bank was celebrated during 2005.

Milestones of the Bank

1930 Set up in Bangalore

1948 Scheduled Bank

1985 Largest Private Sector Bank

1987 The Vysya Bank Leasing Ltd. Commenced

1988 Pioneered the concept of Co branding of Credit Cards

1990 Promoted Vysya Bank Housing Finance Ltd.

1992 Deposits cross Rs.1000 crores

1993 Number of Branches crossed 300

Signs Strategic Alliance with BBL., Belgium. Two National Awards by Gem & Jewellery Export
1996
Promotion Council for excellent performance in Export Promotion

Cash Management Services, & commissioning of VSAT. Golden Peacock Award - for the best HR
1998 Practices by Institute of Directors. Rated as Best Domestic Bank in India by Global Finance
(International Financial Journal - June 1998)

State -of - the -art Date Centre at ITPL, Bangalore.

2000
RBI clears setting up of ING Vysya Life Insurance Company

2001 ING-Vysya commenced life insurance business.

The Bank launched a range of products & services like the Vyapar Plus, the range of loan schemes
for traders, ATM services, Smartcard, personal assistant service, Save & Secure, an account that
2002
provides accident hospitalization and insurance cover, Sambandh, the International Debit Card and
the mi-bank net banking service.

2002 ING takes over the Management of the Bank from October 7th , 2002

2002 ING Vysya has explored their operations in to Investment banking services like M & A others

Introduced customer friendly products like Orange Savings, Orange Current and Protected Home
2003
Loans

2004 Introduced Protected Home Loans - a housing loan product

2005 Introduced Solo - My Own Account for youth and Customer Service Line Phone Banking Service

2006 Bank has networked to facilitate AAA transactions i.e. Anywhere, Anytime & Anyhow Banking
Company Profile
ING Vysya Bank Ltd came into being in October 2002, when erstwhile Vysya Bank Ltd
was merged with ING, a global financial powerhouse boasting of Dutch origin. Vysya
Bank Ltd, one of initial banks to be set up in the private sector of India, was established
in the year 1930, with the aim of providing a helping hand to all those who couldn't
afford the privilege of enjoying the services of a bank. Eighteen years later, in 1948, the
bank was listed as one of the Scheduled Banks of the country. With the passing time,
Vysya Bank aimed at the number one position in all the private sector banks.

In 1985, the dream of Vysya Bank's promoters came true and it became the largest
private sector bank of India. Two years later, it laid the foundation of Vysya Bank
Leasing Ltd. The following year, the bank was credited with laying down the innovative
concept of 'Co branding of Credit Cards'. In 1990, Vysya Bank promoted a new entity -
Vysya Bank Housing Finance Ltd. By 1992, the bank had reached another milestone, by
having its deposits cross Rs. 1000 crores and the very next year, the number of its
branches had gone past 300.

In the year 1996, Vysya Bank struck a strategic alliance with BBL Belgium and was also
honored with two National Awards by Gem & Jewellery Export Promotion Council, for
excellent performance in Export Promotion. Hardly two years later, the bank had
introduced Cash Management Services and the commissioning of VSAT and was also
rated as the Best Domestic Bank in India, by Global Finance (International Financial
Journal - June 1998). Soon (2000), it established a state-of-the-art Date Centre, at ITPL,
Bangalore.

It was in 2000 only that ING and Vysya Bank set up ING Vysya Life Insurance
Company, after receiving RBI nod, commencing its business in the following year. Two
years later, a wide range of services were launched, including Vysya Vyapar Plus - the
range of loan schemes for traders, ATM services, Smartserv - personal assistant service,
Save & Secure - an account that provides accident hospitalization and insurance cover,
Sambandh - the International Debit Card and the mi-bank net banking service.
In 2002, ING took over the management of Vysya Bank and RBI gave its permission for
the new name of the bank to be 'ING Vysya Bank Ltd'. In the following year, the bank
introduced customer friendly products, mainly Orange Savings, Orange Current and
Protected Home Loans. Its innovative products in the coming years included Solo - My
Own Account for youth and Customer Service Line - Phone Banking Service (2005) and
‘AAA’ transactions - Anywhere, Anytime & Anyhow Banking - through networking of
all its braches (2006).

Branches, ATMs & Financial Highlights

As of March 31st 2008, ING Vysya Bank had a total of 677 branches, of which there
were 407 Branches, 39 Extension Counters, 28 Satellite Offices and 203 ATMs. At the
same time, its Net Worth was Rs 14260.00 million, Deposits worth Rs. 204980.00
millions, Advanced amounting to Rs. 146500.00 million and Profits were to the tune of
Rs. 1569.00 millions. The bank also has Internet Banking, mi-bank and Customer Service
Line for Phone Banking Service, within its gamut of services.

Products & Services

Personal Banking

• Savings Account
• Current Account
• Term Deposits
• Demat Account
• Personal, Home, Home Equity & NRI Loans
• Private Banking
• Wealth Management
• Life Insurance
• Mutual Funds
• Government of India and Tax Savings Bonds
 • NRI Services
• Credit & Debit Card
• Internet Banking
• Phone Banking
• Mobile Banking
• Self Banking
• ATM Kiosks
• Payment Services

Business Banking

• SME - Loans, MPower Business Account

• Agri - Term & Short-term Loan
• Wholesale Banking - Cash Management Services, Corporate & Investment
Banking, Credit Products & Structured Finance, Offshore Borrowings, Trade &
Commodity Finance
• Financial Market - Market Making & Trading, Asset Liability Management,
Financial Market Sales, Research & Analysis

Head Office
ING Vysya House
27, M.G. Road
Bangalore - 560001
Hyderabad, India
Phone: 080 3030 9900
Website: www.ingvysyabank.com
A. Wholesale Banking Business Segments

Corporate & Investment Banking

The Corporate and Investment Banking group is responsible for managing relationships
with large corporate (typically with sales turnover greater than Rs 4,000 million) in both
the private and public sector. The primary focus of this group is to market our products
and services to the client base and cross selling of our retail banking products and
services as also third party products to our corporate clients and their employees. In
addition to the above, they cross-sell the products offered by other ING Group N.V.
managed entities in India like ING Vysya Life Insurance Company Private Limited and
ING Vysya Mutual Fund.

1) Banking & Financial Institutions

The Banks and Financial Institutions group is a dedicated group created to leverage the
business opportunities with private and public sector banks and financial institutions
across India. The group has primary responsibility for origination of transactions and
product and service delivery to the banks / Financial Institutions client base including
funding products, correspondent bank relationships, treasury products, asset purchases
and sales and deposit products.

2) Emerging Corporate

The Emerging Corporate group, focuses on managing relationships with all units engaged
in manufacturing, processing and services sector having annual sales turnover ranging
from around Rs 750 million to Rs 4,000 million. Additionally, the group focuses on
providing commercial banking services for companies in specific industries such as
diamond and textiles, irrespective of their size. This group focuses on selling a wide
range of products to meet all needs of the business community, with special focus on
export credit, regular working capital finance, term loans, non fund based facilities like
letters of credits and guarantees and certain structured finance products.

3) Financial Markets

We have a well-equipped integrated dealing room at Mumbai. The latest technology,

information systems and risk management systems have been deployed, manned by
experienced market professionals. The Money Desk also exploits arbitrage opportunities
in the money market and locks in spreads in the inter-bank market in call and term
money. Short-term asset/liability mismatches are managed by investments / sale, under
guidance from ALCO. The arbitrage opportunities between money and forex markets are
also well exploited. The Bank was one of the early entrants into the RTGS. Money Desk
monitors flows through RTGS and this has helped the Bank to render better service to
customers and also have more efficient settlements with other banks. Treasury manages
the SLR requirements and invests in Approved Securities and Treasury Bills keeping in
view market developments, expectations of policy changes and interest rate movements.
Treasury also invests in Non SLR instruments such as commercial paper, corporate
debentures, bonds, mutual funds, etc. This portfolio is managed with a view to capitalize
on the market movements in interest rates and credit risk and also to strengthen the
relationships with corporate customers. We are also active in Forex business. Market
making in Spot and Forwards markets has enabled the Bank to capitalize well on the
market movements. Treasury has been able to serve the customers’ needs in Spot and
Forwards markets across various currencies.
Strengths

Management believes that the Bank’s strengths that distinguish it in a competitive Indian
financial sector include:
Banking experience of 77 years
We are one of the oldest private sector banks offering wide variety of banking products
and services to retail and corporate customers. We have 77 years of experience in the
banking industry and this period of time has enabled us to understand the specific
requirements of our customers and evolve our offerings to suit their requirements. This
has enabled us to establish a strong relationship with around 1.4 million customers.

With the growth of the corporate over the years, aided by the underlying growth in the
Indian economy, our customers have grown to becoming players of significant size and
stature in the market place. In partnering with our customers, the Bank has grown
simultaneously in
size and in range of products offered to its customers to meet their growing product
needs.

Professional management
The Bank has a professionally managed board which overseas and guides the Bank’s
strategy and operations. The members of our management team and employees come
from a diverse set of backgrounds with relevant experience, including credit evaluation,
risk management, treasury,
Technology and marketing. The diversity of experience helps us adapt a creative and
cross-functional approach. Our managers and professional

Centralized and modern technology platform

We are at the forefront of technology usage in the financial services sector. The IT
infrastructure of the Bank is built on a robust architecture which links the Bank’s network
of branches, marketing offices and ATM’s. The Bank is focused on leveraging
technology to create customer
Centric solutions like Core Banking, Internet Banking and SMS banking. The IT strategy
of our Bank has supported business initiatives by a process of continuous update in
technology and process platforms.

Multiple delivery channels and distribution infrastructure

We deliver our products though a wide variety of channels ranging from bank branches,
ATMs, telephone-banking and internet banking. We have branch presence across India
with a dominant presence in southern India. As of September 30, 2007 we had a branch
network comprising of 406 branches, 188 ATM, 40 extension counters in 309 locations
across India Further, the RBI by a letter dated October 4, 2007 has granted us permission
to open 56 additional branches and 100 off-site ATMs by October 3, 2008.

Investment banking operations by ING VYSYA Bank in detail

The following are the investment banking operations provided by ING Vysya Bank in
detail as follows:
• Capital and debt structuring and restructuring
• Merger and Acquisitions services
• Private Equity
• Structure Financing

1) Capital and debt structuring and restructuring:

Companies use debt restructuring to avoid default on existing debt or to take advantage of
a lower interest rate. A company will often issue callable bonds to allow them to readily
restructure debt in the future. The existing debt is called and then replaced with new debt
at a lower interest rate. Companies can also restructure their debt by altering the terms
and provisions of the existing debt issue.

Debt restructuring is a process that allows a private or public company - or a sovereign

entity - facing cash flow problems and financial distress, to reduce and renegotiate its
delinquent debts in order to improve or restore liquidity and rehabilitate so that it can
continue its operations.

Out-of court restructurings, also known as workouts, are increasingly becoming a global
reality. A debt restructuring is usually less expensive and a preferable alternative to
bankruptcy. The main costs associated with a business debt restructuring are the time and
effort to negotiate with bankers, creditors, vendors and tax authorities. Debt
restructurings typically involve a reduction of debt and an extension of payment terms.

The Restructuring

On his appointment, Booker's approach was to focus on fine-tuning and executing

existing strategies, rather than experimenting with new plans. He intended to take it slow
and steady without radical changes.

He said that "the people issue" was very important to him. Therefore, the key components
of the restructuring programmers included introducing new work principles, downsizing,
organizational reshuffling and focus on new growth areas.

2) Mergers and Acquisitions (or "M&A")

The majority of financial advice relates to M&A. The client company seeks to expand by
acquiring another business. There are many possible commercial reasons for this, such as:

• increasing the range of products

• increasing the business' geographical footprint
• complementing existing products
• integrating vertically (i.e. acquire suppliers, further up the chain, or customers,
further down the chain)
 • Protecting a position (for example by preventing a competitor from acquiring the
business in question).

The Investment Bankers(ING Vysya) roles in these transactions

• using their knowledge of the industry sector, to help with the identification of
potential targets which meet commercial criteria such as those referred to above
• using their knowledge of the investment market, to advise on valuation, form of
consideration (should the sellers be paid in cash - which is likely to involve the
buyer borrowing the money - or in the buyer's shares - so that the seller ends up
with a stake in the buyer, or a blend of the two?), timing, tactics and structure
• coordinating the work of the other advisers involved in the transaction - lawyers,
who prepare the documentation for the acquisition and help with the "due
diligence" to be performed on the business being acquired; accountants, who
advise on the financial reporting aspects of the transaction, and tax consequences;
brokers, who advise on shareholder aspects (how are the buyer's shareholders
likely to view the acquisition?) and how the market as a whole is likely to receive
the transaction; and public relations consultants, who ensure that the transaction
has a favorable press.

3) Private equity

Private equity is kind of finance assistance to the companies who want to raise their
capital by issuing their capital in the form of shares. So in this case its take time and huge
fees should be paid by companies to list their shares with stock exchanges, in this case
that company approaches the investment banks to get their placement of securities done
by private investors, where these private investors are get into the picture by ING Vysya
investment bank. Those private investors are commonly of strategic investors and
financial investors.
4) Structure Financing Products

Project finance
Cash flow based financing for project development in focus areas like
telecommunication, -power, transportation & logistics and other infrastructure sectors,
working closely with ING Bank's sector specialists and Structured Finance teams.

Acquisition financing
Structured financing support to corporate sponsors making acquisitions, working closely
with ING Bank's specialists in M&A and Acquisition Financing. These facilities are
tailored to meet phased funding request for acquisitions and are based on strong target
evaluation capability and sound understanding of capital markets.

Structured Finance

Long-term loans structured as Buyers' Credit backed by credit support from Export
Credit Agencies: Here again, ING works closely with ING's Structured Export Finance
teams worldwide to assist buyers in arranging medium and long-term financing for
capital equipment purchases. These financing are typically supported by credit
insurance/guarantees from the Export Credit Agencies in the country of origin of
equipment. ING together with ING's Structured Finance teams worldwide arranges
structured financing of specific assets types like aircrafts, LNG carriers and ships
Board of Directors

• Mr. Shailendra Bhandari Managing Director and CEO,

• Mr. K.R. Ramamoorthy Part time Chairman,

• Mr. Philippe Damas independent Director

• Mr. Willem Frederik Nagel independent Director

• Mr. Richard Wainwright independent Director

• Mr. Aditya Krishna Director

• Mr. K.R.V. Subrahmanian Non executive and independent

• Mr. Ryan Andrew Padgett independent Director

• Mr. Arun Thiagarajan Non executive and independent director

• Mr. Lars Kramer independent Director

Senior Management
Our operations are overseen by a professional management team. The top management
team has the requisite experience and the qualification for their respective
responsibilities. In addition to our Board of Directors as set forth above, the following are
our Senior Management personnel.
Mr. Uday Sareen
Country Head, Retail Banking aged 39 years, holds a bachelors and a master’s degree
in electronics engineering from the Birla Institute of Technology and Science, Piliani. He
also holds a Post Graduation Diploma in Business Management in faculty of management
studies from University of Delhi. He joined us on July 2, 2007. Prior to joining us, he was
working in Citibank, N.A. He has over 13 years of experience of banking business.

Mr. Biswajit Mazumder

Chief, Corporate Audit Group, aged 46 years, holds a bachelor’s degree in science
from Gorakhpur University, a bachelor’s degree in law from University of Calcutta, a
Post Graduation Diploma in Business Management from Indian Institute of Management,
Calcutta, and is a member of the Indian Chartered Accountants Institute. He joined us on
February 15, 2007. Prior to joining us, he was working with Central Bank of Oman,
Muscat Oman. He has over 13 years of experience in banking business.

Mr. Donald Joseph Koch

Chief Operating Officer aged 46 years, holds a diploma and a master’s degree in
banking and finance from University of Technology, Sydney. He also holds a graduate
certificate in financial studies from University of Technology. He joined us on September
6, 2006. Prior to joining us, he was working in ING Bank, Slaski, Poland. He has over 27
years of experience in banking business.

Mr. Samir Bimal

Country Head, Private Banking, aged 38 years, holds a bachelor’s degree in commerce
from University of Delhi, and a Master of Finance and Control from University of Delhi.
He joined us on August 21, 2006. Prior to joining us, he was working with BNP Paribas
Private Bank, Baharain.
Mr. Jayant Mehrotra
Chief Finance Officer, aged 45 years, holds a bachelor’s degree in commerce (honors)
from St. Xavier’s College,Calcutta University. He is a chartered accountant and is a
member of the Institute of Chartered Accountants of India and Institute of Cost and
Works Accountants of India. He joined us on May 9, 2006. Prior to joining us, he worked
with Industrial Development Bank of India.

Mr. Janak Desai

Country Head, Wholesale Banking, aged 43 years, holds a bachelor’s degree in
commerce from University of Mumbai and holds a Masters in Management Studies from
University of Mumbai. He joined us on November 2, 2005. Prior to joining us, he was
working with IDBI Bank Limited, Mumbai. He has over 16 years of experience in
banking business.

J.M. Mr. Prasad

Chief, Human Resources aged 46 years, holds a bachelor’s degree in commerce from
R.A. Podar College, Mumbai. He also holds a diploma in public relations from St. Xavier
Institute of Communication, Mumbai and a post graduation diploma in business
administration from XLRI Jamshedpur. He joined us on March 8, 2004. Prior to joining
us, he worked in I2 Technology Software Private Limited, Bangalore. He has over 3
years of experience in banking business.

Mr. Ned Swarup

Chief Risk Officer, aged 56 years, holds a bachelor’s degree in engineering and a post
graduation diploma in business administration from XLRI Jamshedpur. He joined us on
February 2, 2003. Prior to joining us, he was working with ING Bank N.V.

Mr. Ashok Rao B

Chief of Staff, aged 50 years, holds a bachelor’s degree in science from Bangalore
University and is a member of the Institute of Chartered Accountants of India. He joined
us on April 30, 2002. Prior to joining us, he was working in Ali Redha Trading Company,
Muscat. He has over 20 years of experience in banking business.

Mr. Apparao M.V.S

Corporate Secretary and Vice President, Compliance, aged 52 years, holds a
bachelor’s degree in commerce from S.V. University, Tirupathi and is a Fellow member
of Institute of Company Secretaries of India. He joined us on April 6, 1994. Prior to
joining us, he was working at Cement Corporation of India Limited, New Delhi, a
Government of India Undertaking. He has over 13 years of experience in banking
business.

Recent articles
Bhandari may replace the position left vacant by Vaughn Richter, the former CEO
of ING Vysya, who retired in April.

Tata Capital's former private equity head Shailendra Bhandari is expected to join ING
Vysya as its Chief Executive Officer, two news reports said. Tata Capital announced last
week that Bhandari had quit the firm to explore other opportunities. Prior to Tata Capital,
Bhandari was the CEO of Centurion Bank of Punjab. Following its acquisition by HDFC
Bank, he had quit the bank.

According to Mint newspaper, Bhandari may replace the position left vacant by Vaughn
Richter, the former chief executive officer of ING Vysya Bank, who retired in April.

“Bhandari has been one of the many banking chiefs ING has been talking for sometime
now. He is expected to move to the bank as managing director and chief executive
officer,” Mint reported, quoting two people from the banking industry.

The report further quoted an ING Vysya Bank spokesperson said,“ The appointment of
the new chief executive officer at ING Vysya Bank is one of our top priority and the
process is well underway and advancing satisfactorily. There has been enough
speculation in the media about who the new chief executive officer of the bank might be,
but out of respect for their privacy we will not divulge their identity nor confirm on any
rumored names.”
Financial Statements

Balance sheet
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Sources of funds
Owner's fund
Equity share capital 119.97 102.60 102.47 90.90 90.72
Share application money 2.99 4.47 - - -
Preference share capital - - - - -
Reserves & surplus 2,099.94 1,487.05 1,323.67 901.60 817.41
Loan funds
Secured loans - - - - -
Unsecured loans 25,865.30 24,889.92 20,498.06 15,418.59 13,335.26
Total 28,088.20 26,484.05 21,924.20 16,411.09 14,243.39
Uses of funds
Fixed assets
Gross block 773.73 754.09 706.82 681.06 676.23
Less : revaluation reserve 108.02 108.77 109.52 110.78 111.54
Less : accumulated depreciation 485.40 468.77 429.31 394.33 383.02
Net block 180.31 176.55 167.99 175.95 181.67
Capital work-in-progress 207.60 151.88 121.70 109.24 112.20
Investments 10,472.92 10,495.54 6,293.32 4,527.81 4,372.34
Net current assets
Current assets, loans & advances 1,377.15 1,891.07 1,013.06 794.65 634.06
Less : current liabilities & provisions 2,012.64 3,111.75 2,256.39 1,920.87 1,304.29
Total net current assets -635.48 -1,220.68 -1,243.32 -1,126.22 -670.23
Miscellaneous expenses not written - - - - -
Total 10,225.35 9,603.29 5,339.69 3,686.78 3,995.97
 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities 77,421.87 43,037.68 36,056.05 20,495.58 13,836.55
Number of equity sharesoutstanding (Lacs) 1199.66 1026.04 1024.74 909.05 907.21
Profit and Loos a/c
Balance sheet

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Sources of funds
Owner's fund
Equity share capital 119.97 102.60 102.47 90.90 90.72
Share application money 2.99 4.47 - - -
Preference share capital - - - - -
Reserves & surplus 2,099.94 1,487.05 1,323.67 901.60 817.41
Loan funds
Secured loans - - - - -
Unsecured loans 25,865.30 24,889.92 20,498.06 15,418.59 13,335.26
Total 28,088.20 26,484.05 21,924.20 16,411.09 14,243.39
Uses of funds
Fixed assets
Gross block 773.73 754.09 706.82 681.06 676.23
Less : revaluation reserve 108.02 108.77 109.52 110.78 111.54
Less : accumulated depreciation 485.40 468.77 429.31 394.33 383.02
Net block 180.31 176.55 167.99 175.95 181.67
Capital work-in-progress 207.60 151.88 121.70 109.24 112.20
Investments 10,472.92 10,495.54 6,293.32 4,527.81 4,372.34
 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Net current assets
Current assets, loans & advances 1,377.15 1,891.07 1,013.06 794.65 634.06
Less : current liabilities & provisions 2,012.64 3,111.75 2,256.39 1,920.87 1,304.29
Total net current assets -635.48 -1,220.68 -1,243.32 -1,126.22 -670.23
Miscellaneous expenses not written - - - - -
Total 10,225.35 9,603.29 5,339.69 3,686.78 3,995.97
Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities 77,421.87 43,037.68 36,056.05 20,495.58 13,836.55
Number of equity sharesoutstanding (Lacs) 1199.66 1026.04 1024.74 909.05 907.21
 CHAPTER-IV

DATA TABULATION

AND

INTERPRETATION
 CASE STUDY

ON

ICICI AND BOR MERGER

 BOR TO MERGE WITH ICICI

Event
ICICI bank has approved an in principle merger with Bank of Rajasthan (BoR). The bank
has entered into agreement with certain shareholders of BoR consenting to the share swap
ratio of 25:118 (25 shares of ICICI Bank for 118 shares of BoR), subject to necessary
regulatory approvals. The Tayal group is a dominant shareholder in BoR the bank with a
declared stake of 28% as of Mar-10.

Brief Introduction of the Merger

Date On Mumbai, May 18

Bank of Rajasthan is to be merged with ICICI Bank. The boards of both banks, which
met separately on Tuesday evening, granted in-principle approval for the merger.
In a statement, ICICI Bank said it has entered into an agreement with ‘certain
shareholders' of the BOR for amalgamation of the bank with itself with a share swap ratio
of 25:118 (25 shares of ICICI for 118 shares of BOR).

Swap Ratio

The bank said the swap ratio is based on an internal analysis of the strategic value of the
amalgamation, average market capitalization per branch of old private sector banks and
relevant precedent transactions. The board of BOR is scheduled to meet on May 23.

According to analysts, the swap ratio works out to a premium of 89.4 per cent over
BOR's current market price. The merger is not likely to have any material impact on
ICICI Bank's capital and the only advantage is a readymade branch network. With a Tier-
I capital of above 13 per cent, the impact on ICICI Bank's capital would be less than 3 per
cent.

Post-merger, ICICI Bank's branch network would go up to 2,463.This is the third merger
for the bank, after it took over Bank of Madura and Sangli Bank.

Tayal Group's Stake

ICICI has negotiated the deal with the dominant shareholder group — the Tayal family
— which holds a declared stake of 28.6 per cent. However, according to the SEBI ex-
parte interim order on March 8, 2010, the Tayal group and related entities hold 55.01 per
cent stake.

The Tayal group's stake in the bank came under the scrutiny by the Reserve Bank of
India and SEBI.

In February, the RBI had levied a penalty of Rs 25 lakh on the BOR for violation of
directions on acquisition of immovable property; deletion of records in the bank's IT
systems; non-adherence to KYC (know-your-customer) and anti-monetary laundering
guidelines, and irregularities in the conduct of accounts of a corporate group.
In March, SEBI had restrained the Tayal group entities from accessing the capital market
or from dealing in securities. According to the SEBI order, an incorrect disclosure was
made by BOR regarding the shareholding pattern of the promoter group.

The RBI had appointed Mr G. Padmanabhan, a former Chief General Manager of State
Bank of India, as BOR's Managing Director and Chief Executive Officer, following the
irregularities in the operations of BOR. The RBI had also appointed Deloitte Haskins and
Sells as a special auditor to inspect the accounts.

Mr Vaibhav Agarwal, Vice-President, Banking Research, Angel Broking, said the only
advantage for ICICI Bank is the 460-strong branch network of BOR. “It is a small private
bank which has presence in the northern and western regions of the country. That is a
niche area as other private sector banks are mainly present in the South,'' Mr Agarwal
said.

The negatives for ICICI Bank are the potential risks arising from BOR's non-performing
loans and that BoR is trading at expensive valuations. As on FY-10 the net worth of BOR
was approximately Rs 760 crore and that of ICICI Bank Rs 5,17,000 crore, he added. For
the December 2009 quarter, BoR reported a loss of Rs 44 crore on an income of Rs 373
crore.

Share movement

Shares of BOR jumped close to 20 per cent on Tuesday to a 52-week high on the back of
reports of the merger. The shares were locked in at the upper circuit at Rs 99.5 at around
2 p.m. Close to three crore shares of BOR were traded on BSE and NSE, making for a
total turnover of Rs 27,431 lakh. ICICI Bank was down more than one per cent on both
the exchanges. On the BSE, the scrip was down 1.45 per cent at Rs 889.35. The ICICI
Bank ADR was trading at $38.61 down $0.86 or 2.18 per cent on the NYSE.
 Case Studied by me as an Investment Banker

Synergy (Benefits to ICICI Bank)

ICICI Bank is expected to benefit in terms of an addition of 463 braches of BoR to its
existing branch network of 2000 branches, which will in turn enhance its earning
potentials, return on assets (RoA) and return on equity (ROE)

Employee and IT integration process to remain easier; BUY.

Employee and IT integration are the key aspects to the merger. Incase of ICICI Bank-
BoR, the common technology platform provides a smoother way for integration. Further,
employee integration is expected to remain swift due to already existing provisioning.
With customer-centric approach and branch centric approach, the bank has now
articulated for branch-based banking model. The integration in our view is expected to
enable ICICI Bank to a) increase reach, particular in north and west India, b) Cross
selling of new products on asset side– mortgage and auto loans, c) Cross selling of
investment products – Insurance, MF and d) provide a path towards financial inclusion.
Single digit RoE, remains a key negative. Maintain BUY.

Step 1: Due Diligence on BOR

Introduction

The due diligence report submitted by the independent valuer covered key aspects of
advances, investments, deposits, properties and branches and employee-related liabilities
of BOR. The initial assessment of these books has revealed miniscule concerns. Of the
80% of the loan book assessed, 40% of the book is lent to PSUs. The loan portfolio
remains well diversified, with loan towards agriculture and allied activities (15% of loan
book), SME, service and trade and retail (15% of loan portfolio), largely mortgage. A
large part of investment book is in G-sec bonds, including SIDBI bonds and other highly
rated corporate bonds. With customer base of 3mn, BOR has been able to garner low-cost
deposits. CASA ratio for the bank improved to 30%, largely driven by savings deposits.
While BOR balance sheet size remains limited at Rs173bn (4.8% of ICICI Bank balance
sheet), deposit book at Rs152bn and advance book at Rs78bn would constitutes 7.5% and
4.3% of ICICI Bank respectively. Further, with integration of 463branches of BOR (23%
of existing network) ICICI Bank has effectively reduces its expansion time frame by one-
two years

Financial Due Diligence (BOR)

(Rs. in Crores)

particulars (RS) BOR ICICI % OF ICICI

Deposits 152 2020 75
Advances 78 1812 4.3
Investments 68 209 5.6
Branch networks 463 2000 23.2
Share Holders 10.5 516 2.0
Funds
Total Assets 173 3634 4.8
Total Income 15.1 155.9 9.7
PAT 1.2 40.3 2.9
Book Value 81.3 428.5 8.5
Swap Ratio 118 25 4.72

Other Aspects In Financial Due Diligence

• Bank of Rajasthan is an old private sector bank headquartered in Jaipur. Founded in
1943, the bank has a customer base of over 2m.

• The Tayal group is the dominant shareholder of the bank with a declared stake of 28%
(as of Mar-10. However as per SEBI, Tayals hold 55% stake in the bank as of December
2009. Mr Tayal is the representative of the dominant shareholder group on BOR’s board
of directors. The board also includes 13 non-executive independent directors out of which
4 directors have been appointed by Reserve Bank of India.

• BOR has a network of 463 branches, 29 offsite ATMs and 82 onsite ATMs covering 22
states and 2 Union territories across the country. Most of BOR branches are located in
northern and western India and the bank has a strong hold in the state of Rajasthan with a
network of 294 branches (63 % of total branches).

BOR – recent regulatory issues (legal Due Diligence)

 I n Dec-09, declared stake of the Tayals stood at 28%, while as per SEBI Tayals’ stake
stood at 55%. Consequently, BOR had recently run into regulatory trouble as SEBI had
banned the promoters and other entities of the controlling Tayal family from dealing in
the securities market on account of incorrect disclosure of promoter’s holding in the
bank.

• RBI had also levied a fine of Rs2.5mn on the bank for alleged violation of various
norms pertaining to transactions and misrepresentations of various documents. The
regulator had then appointed Deloitte Haskins & Sells to conduct a special audit of the
bank which has submitted its interim report.

Commercial Due Diligence on BOR

Stock info
Market price = 179.0

Volume 96,454
Prev Close 179.45
Day's H/L (Rs) 180.85 - 178.60
52wk H/L (Rs) 179.70 - 48.50
Mkt Cap (Rs Cr) 2,889.06

Step 2: Valuation Analysis of BOR

(Rs. In Crores)

Particulars 09-10 08-09

Deposits 15062.35 15187.75
Advances 8329.47 7780.75
Gross NPA 293.81 160.92
Net NPA 133.50 57.03
Investments 6722.51 6809.15
Total Income 1489.48 1507.23
Total Exp 1591.61 1389.52
Operating Profit 27.90 193.77
Net Profit after tax 102.13 117.71
Profit/loss brought forward 234.34 185.69

Calculation of EPS

(Rs. In Crores)

EPS = Net profit available to the share holders/ No: of common

outstanding shares
Particulars 2009-10 2008-09
Number of shares 161350093 161350093
outstanding at the beginning
of the year
Number of shares 161350093 161350093
outstanding at the closing of
the year
Denominator used for 161350093 161350093
computation of EPS
EPS 6.33 7.30
Nominal value per share 10.00 10.00

Calculation of P/E for year 2009- 2010

Price/Earnings ratio: Market price per share/ Earnings per share

Market price per share = 179.0

EPS as per above calculation = 6.33(taken from above table)

P/E = 179/ 7.74 = 28.27

Calculation of P/ BV for year 2010 (FY10A)

P/BV: share price/book value of share

Share price = 98

Book value of share = 81.3 (given in above financial due diligence table)

P/BV = 98/81.3 = 1.2

Valuation Analysis in Comparison with Other Banks
Valuations paid by ICICI Bank looks very expensive, as public sector banks and private
sector banks are currently traded at an average P/BV ratio of 1.2x and 2.2x respectively.

Private Sector Banks BV CMP P/BV

Kotak Mahindra Bank Ltd 128.8 744.2 5.8
HDFC Bank Ltd 469.4 1868.8 4.0
IndusInd Bank Ltd 52.7 180.6 3.4
Axis Bank Ltd 395.6 1205.1 3.0
Yes Bank Ltd 90.8 265.4 2.9
Dhanalakshmi Bank Ltd 66.0 146.5 2.2
Karur Vysya Bank Ltd 248.1 507.2 2.0
City Union Bank Ltd 17.7 33.6 1.9
ICICI Bank Ltd 462.9 825.0 1.8
ING Vysya Bank Ltd 185.2 307.5 1.7
Development Credit Bank Ltd 27.1 44.1 1.6
United Western Bank Ltd (Merged) 18.0 25.9 1.4
Jammu and Kashmir Bank Ltd 621.0 771.9 1.2
South Indian Bank Ltd 129.8 152.3 1.2
Federal Bank Ltd 273.9 312.9 1.1
Karnataka Bank Ltd 136.8 148.7 1.1
Lakshmi Vilas Bank Ltd 73.4 79.6 1.1
Average 2.2

Public Sector Banks BV CMP P/BV

State Bank of India 1038.8 2214.9 2.1
Punjab National Bank 514.8 1005.4 2.0
Bank of Baroda 375.7 674.7 1.8
Union Bank of India 174.4 294.9 1.7
Andhra Bank 90.9 128.4 1.4
Canara Bank 305.8 423.1 1.4
Central Bank of India 108.2 148.5 1.4
Indian Bank 154.7 209.3 1.4
Bank of India 243.7 323.3 1.3
Corporation Bank 402.6 505.5 1.3
Allahabad Bank 131.7 153.8 1.2
Oriental Bank of Commerce 292.2 324.9 1.1
State Bank of Mysore 575.1 622.1 1.1
Dena Bank 83.4 89.9 1.1
 UCO Bank 65.7 70.4 1.1
State Bank of Travancore 568.1 591.2 1.0
Vijaya Bank 53.5 55.5 1.0
IDBI Bank Ltd 113.1 111.6 1.0
Bank of Maharashtra 55.8 54.4 1.0
State Bank of Bikaner and Jaipur 483.5 442.5 0.9
Syndicate Bank 99.9 87.8 0.9
United Bank of India 91.7 78.7 0.9
Indian Overseas Bank 116.5 92.8 0.8
Average 1.2
Step 3: Swap ratio –exchange ratio as Consideration

ICICI Bank will offer 25 shares for every 118 shares of Bank of
Rajasthan.

Items ICICI Bank BoR

Swap Ratio 25 118
Share Outstanding (Cr) 111 16
Pre Announcement Price (Rs) 890 99
Pre Announcement MCap ( Rs Cr) 99,221 1,597
Deal Value (Rs Cr) 3,042

Effects of Merger

Leading to fall in value of ICICI BanK.

Right after the announcement of the deal, share of ICICI Bank shown a heavy selling
pressure and finally settled at Rs 825, down by 7.3%. It is interesting to note that ICICI
Bank has lost a market cap of around 7,250 cr, which is 2.4 times the deal value. On the
other hand, share of Bank of Rajasthan capped at 20% upper circuit, translating into a
gain in market cap of Rs 323 cr.

Items ICICI Bank BoR

Post Announcement Price (Rs) 825 119
Post Announcement Market cap (Rs Cr) 91,975 1,920
Market Cap Lost/Gain on Announcement (7,246) 323
(Rs Cr)
Market Cap Lost/Gain to Deal Value (2.4) 0.1
Revision in earnings before and after merger Of ICICI

(Rs .in crores)

Particulars Pre- Merger Post-merger Revision Comments

2009 2010 2010 2011 2010 2011

Net Interest 89,245 1,09,242 98,040 1,15,156 9.9% -5.4% Increase in

Income NII

Operating 99,441 1,24,901 75,819 91,447 -23.8% -26.8% Sharp

profit increase in
operating
exp

PAT 47,976 67,385 44,283 63,141 -7.7% -6.3% likely to

decline

EPS 43 60 40 56 -7.9% -6.5% EPS

declined

BV 446 484 419 454 -6.1% -6.2% Book value

to decline
Conclusion on the deal

Expensive Deal
At a swap ratio of 25:118, the deal value comes at Rs 3,042 cr, translating into a P/BV
ratio of 5.4x and 2.9x to the adjusted book value of Rs 559 cr and un-adjusted book value
of Rs 1,080 cr respectively as on 31st Dec. 2009.

Equity Dilution
Our calculation reveals that at the 25:118 swap ratio, to fund the deal, ICICI Bank will
issue about 3.42 cr new shares, which amounts to a 3.1% equity dilution.

The motive of merger clearly is related to the branch network. At 463 branches, ICICI
Bank adds 22% more branches, which otherwise could have taken up to two years to
ramp up organically. Owing to higher valuation paid for the deal, ICICI Bank is looking
unattractive at current valuations, however once the benefits from additional branches
come into play, will led to improvement in profitability.
CHAPTER - V

FINDINGS
 FINDINGS

• The Investment banker plays a major role in success of Mergers and Acquistions
• The due diligence and valuation analysis play a key role in deciding the
acceptance or rejection of merger
• Every week around 4-5 mergers domestically and internationally occurs that
shows the growth of the industry
• BOR to merge with ICICI is the deal that has to be finalized where many legal
matters regarding the Tayal family stake and other share holders issues describes
the complexity of Merger
CHAPTER – VI
SUGGESTIONS
 SUGGESTIONS

• Any company if it wants to go with merger or acquisition it should be clear in

determining its objective, then strategic planning of merger or acquisition and
approach of right Investment banker will determine the success.
• One should understand the complexity of issues before entering in to merger or
acquisition deal as that happened in BOR and ICICI issue.
CHAPTER – VII

CONCLUSION
 CONCLUSION

Investment banker is a professional body in dealing with the cases of mergers and
acquisitions so approaching him make the determined objective goes well. Investment
banking is just a intermediary service provided by a professional bodies that just works
for the benefits of the clients. Finally clear objective of company and approach of right
investment banker will always work in success of merger and acquisitions.
BIBILOGRAPHY
 BIBILOGRAPHY

• ICFAI‘s Investment Banking

• ICFAI’s Merger and Acquisitions

• ING Vysya Bank ltd.

• SBI Capital Markets Ltd.

Websites:

• www.investopedia.com

• www.businessweek.com

• www.ingvysyabank.com

• www.wikipedia.org

• www.economywatch.com