3. In today’s scenario, making profits have become the main objective of
any firm either by launching new products or by the expansion of the
present business. Merger and acquisitions have become one of the
important mediums to expand the business. Merger is defined as the
process of combining two companies into a new one. On the other
hand, in acquisition one company is acquired by another through
purchasing.
There have been many merger and acquisitions till date in the business
world in order to earn profits and value to the company. For example,
But this very purpose of mergers and acquisitions does not get fulfilled
all the time. There have been many examples when mergers and
acquisitions have failed to earn any profit or value to the company,
instead have deteriorated the company’s performance.
PROBLEM FORMULATION
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4. In the year 2004, Global Trust Bank Ltd. (a private sector bank) was
merged with Oriental Bank of Commerce (a public sector bank) by the
government of India following the disclosure of scams the Global Trust
Bank was indulged into. This research is about the study of operating
performance of the two banks prior to the merger & acquisitions. The
pre-merger and post-merger performance of the company will be
studied and analyzed. Through this analysis it will be concluded
whether the merger and acquisitions bring about any impact on the
financial performance of the acquiring firm or not.
Objective:
To analyze the impact of mergers and acquisitions on the financial
performance of the acquiring firm.
Research hypothesis:
H0: Mergers and acquisitions do not improve the financial performance
of the acquiring firm.
H1: Mergers and acquisitions improve the financial performance of the
acquiring firm.
VARIABLES
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5. Dependent variable:
Merger
Independent variables:
Interest income
OPBDT (Operating profit before depreciation & taxes)
PAT (Profit after taxes)
Equity Capital
EPS (Earning per share)
Operating income
Net profit margin
METHODOLOGY
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6. Interest income is the interest earned cash temporarily held in savings
accounts, certificates of deposits, or other investments.
Operating income is the amount of profit realized from a business's
operations after taking out operating expenses - such as cost of goods
sold (COGS) or wages - and depreciation. Operating income takes the
gross income (revenue minus COGS) and subtracts other operating
expenses and then removes depreciation. These operating expenses
are costs which are incurred from operating activities and include
things such as office supplies and heat and power.
Operating profit before depreciation and taxes is the income earned
by the firm after deducting other expenses.
Profit after tax is the profit obtained after deducting the depreciation
and interest.
Equity capital is capital raised from owners in the company. This is
different from debt capital which is money raised by incurring debt
through the issuance of debentures and other types of bonds. Owners
can choose to sell equity in the company, in the form of stock, to
investors. This is usually done through a direct offering to the public or
through an underwriter like an investment bank
EPS is the portion of a company's profit allocated to each outstanding
share of common stock. Earnings per share serves as an indicator of a
company's profitability.
Net profit margin is a ratio of profitability calculated as
6
7. net income divided by revenues, or net profits divided by sales. It
measures how much out of every dollar of sales a company actually
keeps in earnings.
DATA COLLECTION:
Type of data – Secondary
The data has been taken from financial statements (profit & loss a/c
and balance sheet) of the acquiring bank.
STATISTICAL TOOL: t-testing
Data for Global trust bank:
Variables 2001-02 2002-03 2003-04
Interest income 7242.21 5395.97 3541.90
OPBDT 907.13 -2280.29 -787.90
PAT 402.59 -2666.32 -8123.80
Equity capital 1213.59 1213.59 1213.60
EPS 3.32 -21.97 ---
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8. Oriental bank of commerce: (Pre-merger)
Variables 2001- 02 2002- 03 2003-04 2004-05
Year of merger
Interest income 3040.47 3294.69 3300.54 3571.90
OPBDT 359.11 497.60 736.76 819.59
PAT 233.42 323.44 478.89 532.73
Equity capital 192.54 192.54 192.54 192.54
EPS 16.65 23.73 35.63 37.71
Operating income 3541.83 3861.50 4027.43 3835.60
Net profit margin 9.12 11.89 17.03 19.44
Oriental bank of commerce: (Post-merger)
Variables 2005-06 2006-07 2007-08
Interest income 4118.92 5164.90 6838.18
OPBDT 631.68 652.63 428.27
PAT 410.59 424.20 278.37
Equity capital 250.54 250.54 250.54
EPS 22.24 23.18 14.10
Operating income 4408.98 5530.47 6978.11
Net profit margin 12.54 15.35 11.38
DATA ANALYSIS
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9. Variable view of pre-merger data:
Variable view of post-merger data:
OUTPUT of t-testing: (for pre-merger)
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12. Data interpretation:
After performing the t-testing on the variables, significance level in all
the cases has come out to be less than 0.05 which rejects the null
hypothesis i.e. mergers & acquisition of Oriental bank of commerce and
Global Trust bank has been beneficial to the acquiring firm which in this
case is Oriental bank of commerce.
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13. Findings
After the study of data before and after merger
following findings can be deduced:
Interest income has increased
Net profit margin has increased
Earnings per share has increased immediately
after the merger but in 2008 it has reduced
Profit after taxes has increased
OPBDT has increased
Conclusion
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14. After analyzing all the aspects of the data available and giving some
important recommendations a suitable conclusion which should be
derived for this study. However, before starting the conclusion part, the
objective of the research must be kept in mind so that we can arrive at
a befitting conclusion for the research problem.The primary objective of
the research is to find out the effect of merger and acquisitions on the
financial performance of the acquiring firm.
After taking into account the various findings it can be concluded that
the financial performance of the bank has increased after the merger
and acquisition of the Global trust bank with the oriental bank of
commerce.
Bibliography
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