Acquisition of ANZ Bank by Standard Chartered Bank<br />Mergers<br />Merger is defined as the combination of two firms to form a single firm. <br />Types of Merger<br />There are three types of mergers<br /><ul><li>Horizontal merger</li></ul>The combination of two firms in the same business is called horizontal merger.<br /><ul><li>Vertical merger</li></ul>It involves companies at different stages of production.<br /><ul><li>Conglomerate</li></ul>It involves the companies in unrelated business.<br />Acquisition<br />An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer.<br />Types of acquisition<br />The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going business, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment. <br />The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to "
the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller's shareholders.<br />Standard Chartered Bank<br />History<br /> SCB, incorporated in the United Kingdom, has an international rating of “A+” by Standard & Poor’s and Fitch. Subsequent to merger of Union Bank Limited and Standard Chartered Bank (Pakistan) Branches, with and into SCBPL, effective December 30, 2006, it has emerged as the sixth largest bank in Pakistan in terms of total assets. The bank has a network of 115 branches across 22 cities. The BOD of SCBPL mainly comprises personnel holding key positions in Standard Chartered Group. The bank’s CEO has an extensive local and international banking experience. He has been with the group since 1991, and has held various senior positions, including the CEO of Pakistan’s operations since July 2003. Prior to the merger, SCB’s Pakistan Operations has developed a strong foothold in consumer and wholesale banking, and offers a wide range of products and services. Union Bank’s niche in Consumer and SMEs segments synchronize well with the overall business model of the new entity. SCBPL has made appreciable progress towards integration of the two entities in a quick time.<br />After the merger, SCBPL has acquired all the assets and liabilities of Union Bank Limited, including its three listed unsecured subordinated TFCs. The first TFC (PKR 750mln) was issued during December 2002 for a tenor of 51/2 years at a floating rate of latest cut-off yield on 5 year PIB plus 225bps with a floor of 11.00% and a cap of 15.50%. Major Principal Redemption will be in three installments, commencing from June 2007. <br />Credit Rating of Standard Chartered<br />The Pakistan Credit Rating Agency (PACRA) has assigned a long-term rating of “AAA” (Triple A) and a short-term rating of “A1+” (A One Plus) to Standard Chartered Bank (Pakistan) Limited (SCBPL). The bank’s three listed, subordinated TFCs are also assigned “AAA” rating. These ratings denote the lowest expectation of credit risk emanating from an exceptionally strong capacity for timely payment of financial commitments. The ratings remain subject to a formal review by PACRA on release of audited financial statements for the year 2006. <br />The ratings reflect the bank’s sound financial profile, a leading market position, robust risk management systems, and a quality management team. At the same time, PACRA recognizes the financial strength and international profile of the parent – Standard Chartered Bank (SCB) – in the banking industry and continuing strong support to SCBPL. The intrinsic value of group support is to be seen in the context of the strong international rating of SCB. <br />Going forward, the management aims to position the bank for sustained growth in the fast changing market dynamics with strong emphasis on proactive risk management. In this regard, it has plans to further expand its outreach, especially focusing on non-metropolitan cities. Although the business strategy of the bank focuses on relatively high-growth segments, this is well in line with the business model of the Standard Chartered Group, which primarily operates in these segments in more than 50 countries in Asia Pacific Region, South Asia, the Middle East, and Africa.<br />SCBPL has strong capitalization levels. Meanwhile, the asset quality is robust, evidenced by low NPLs to gross finances ratio. The risk management framework, service standards, support systems and processes employed by the bank are of high quality, common to other group entities. The group exercises a high degree of supervision and provides support through an established structured mechanism. Given the increasing importance of the operations in Pakistan in the overall business of the Group, the degree of support available to the bank is expected to be substantially high. <br />Acquisition of ANZ by Standard Chartered Bank <br /> Standard Chartered Bank (StanChart) on Thursday April 14 2000 announced that it will buy out Australia and New Zealand Banking Group Ltd's (ANZ) operations in the Middle-East and South Asia and Grindlays associated private banking business for $1.34 billion. The total consideration, to be determined by reference to a completion audit, will include a goodwill amount of $750 million, while ANZ will receive $500million in dividends from Grindlays' retained earnings. <br />The acquisition, after three years, is seen realizing on-going synergies of$110 million each year. The one-off costs of achieving costs and revenue benefits are estimated to be about $160 million in aggregate over the first three years following completion of the acquisition. <br />Standard Chartered PLC announces that an agreement has been signed with Australia and New Zealand Banking Group Limited (ANZ) for Standard Chartered to acquire Grindlays in the Middle East and South Asia and the associated Grindlays Private Banking business. The total consideration, which will be determined by reference to a completion audit, is expected to be US$1.34 billion (¢G848 million), including goodwill of US$750 (¢G475) million, to be paid in cash. <br />The combination of the two businesses will position Standard Chartered as the leading international bank in Pakistan based on total assets. <br />It is expected that the acquisition will be earnings enhancing for Standard Chartered PLC shareholders in the first full financial year after completion and after the amortization of goodwill. <br />Rana Talwar, Group Chief Executive, Standard Chartered PLC, commented: <br />"
The acquisition of Grindlays will: it create the premier international banking business in the Middle East and South Asia combine two strong and complementary consumer banking franchises to build the leading consumer bank in the region strengthen the corporate banking franchise through greater focus on multinational and large local companies increase opportunities for the continuing development of internet banking products in markets that offer enormous potential add to the strength of Standard Chartered's management resources achieve significant synergies through operating efficiencies and revenue enhancements."
<br />Mr Talwar continued "
This acquisition is completely in line with our stated strategy and is a significant step towards our objective of becoming the world's leading emerging markets bank. It also emphasises our commitment to develop our business in the Middle East and South Asia. <br />"
Good economic growth rates are forecast in India and across the region and we believe that this is the right time to invest. This is an excellent opportunity to acquire a well-managed, quality business at the right price. It will position us to take advantage as the region, with its rapidly growing middle class, opens up to e-commerce and new banking products. <br />Standard Chartered believes that after three years, the acquisition will realise ongoing synergies of US$110 (¢G70) million each year. The one-off costs of achieving these cost and revenue benefits are estimated to be approximately US$160 (¢G101) million in aggregate over the first three years following completion of the acquisition. <br />Through a co-operation agreement with Standard Chartered, ANZ will be able to provide trade related banking services to its customers through Grindlays. It will also enter into a further co-operation agreement with Standard Chartered so as to provide project finance and corporate advisory services to clients in the region. <br />The consideration will be paid in cash from existing resources. Completion is expected in the third quarter of 2000, subject to regulatory approvals. <br />Ratio Analysis of Standard Chartered 199920002006 RsRs(000)Assets55,542,08354,885,584249,796,033 ---Equity20,000,00020,000,00038,715,850 ---Debt13,664,02619,088,8011,912,455 ---Current Assets40,835,61940,984,526213882033 ---Current Liabilities1736307313,664,026206398153 ---Fixed Assets14,706,46413,901,05835045073 ---C.A- Inventory19,682,60618,273,566 ---No. of Shares ---Sales(Interest Income)72,104,30069,469,12314,851,405 COGS57,989,10657,506,3354,405,686 ---G.Profit(int. income-int.exp)14,115,19411,962,78812,350,839 ---Net Income4,374,9323,131,5155,563,481 ---Total Liability55,542,08354,885,584208,813,740<br />Years199920002006Liquidity RatioCurrent Ratio2.352.991.04Debt RatioDebt Ratio91.70%34.37%83.59%Profitability RatioNet Profit Margin6.06%4.50%37.46%Gross Profit Margin54.5%19.57%83.16%Return on Asset7.88%5.70%37.461%Return on Equity15.6%15.7%14.37%Activity RatioTotal Assets Turnover1.31.265.94Fixed Asset Turnover4.904.992.36 Solvency RatioNet IncomeDeprecationTotal liabilities20065,563,481254,818208,813,740<br />Source of Financing<br />The major source of financing is Amount received from SCB PLC (UK) for the purpose of financing acquisition 29,397,849. And many other sources are also used.<br />Goodwill <br />Including goodwill of US$750 (¢G475) million, to be paid in cash.<br />References<br /><ul><li>Fundamental of Financial management (10th edition) By Euqene F. Brigham Joel F. Houston
Principal of Corporate finance (8th edition) By Brealey, Myers