Mergers and acquizations


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Mergers and acquizations

  1. 1. A Study on MERGERS AND ACQUISITIONS Mini Project Report in FINANCIAL MANAGEMENT Submitted to JNTU, Kakinada in Partial Fulfillment for the Award of the Degree of MASTER OF BUSINESS ADMINISTRATION Submitted By Koppula. Chandrasekhar (Reg. No. 13491E0037). DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATION QIS COLLEGE OF ENGINEERING & TECHNOLOGY An ISO 9001: 2008 Certified Institution and Accredited by NBA (Affiliated to JNTU, Kakinada and Approved by AICTE) Vengamukkapalem, Pondur Road ONGOLE –523 272 .julay-2014
  2. 2. INDEX S. No Contents Page No’s 01 Abstract 01 02 Key wards 01 03 Introduction 02 04 Definition 03 05 Need for the study 03 06 Scope of the study 03 07 Methodology 04 08 Objectives 04 09 Review of literature 04 10 Difference between Merger and acquisition 09 11 Advantages of Merger and acquisition 11 12 Regulations of Merger and acquisition 13 13 TheCompetitionAct,2002 15 14 Procedure of Merger and acquisition 16 15 Why Merger is fail? 18 16 Conclusion 20 References 20
  3. 3. MERGERS AND ACQUISITIONS Abstract: Purpose – The purpose of this paper is to advance cross-cultural management during mergers and acquisitions (M&A), an issue that remains poorly understood despite a large body of literature accumulated over many years of study and experience. Design/methodology/approach – Based on literature review and case studies of both successful and unsuccessful companies, this paper clarifies the concept, the assessment and the use of corporate culture and its dimensions during all mergers and acquisitions stages, and as such shows its role as an important and influential milestone in the international business environment exploration. Findings – The paper arrives at the conclusion that the enduring paradox of the high rate of M&A failure vs the growing activity of M&A may be due to lack of synchronized activities of all merger stages. Practical implications – The paper presents frameworks and managerial tools that can help researchers and practitioners conduct better corporate culture assessment during all stages of the M&A, including screening, planning, and negotiation, and enhance the effectiveness of interventions carried out during post-merger integration process. Originality/value – The paper offers insights into corporate culture and its impact during pre- merger stage, negotiation, and the post-merger integration process. Resource: Yaakov Weber, (School of Business Administration, College of Management, Rishon Lezion, Israel), Shlomo Yedidia Tarba, (The Center of Law and Business, Ramat-Gan, Israel) Yaakov Weber, Shlomo Yedidia Tarba, (2012) "Mergers and acquisitions process: the use of corporate culture analysis", Cross Cultural Management: An International Journal, Vol. 19 Iss: 3, pp.288 - 303 10.1108/13527601211247053 (Permanent URL) Key words: Acquisitions, Acquisitions and mergers, Culture, Mergers, Organizational culture
  4. 4. Introduction: 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 business and the feelings of insecurity surging over our businessmen, it is not surprising when we hear about the immense numbers of corporate restructuring 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. 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 positives idea Mergers & Acquisitions 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 and Acquisitions. 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 shareholder’s value, tax implications including stamp duty and last but not the least also on the employees of the Transferor or Transferee Company.
  5. 5. Definition: WHATISMERGER? Merger is defined as combination of two or more companies into a single company where one survive and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, he surviving company is the buyer, which retains its identify, 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 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. WHATISACQUISITION? 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. Need for the Study: 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. Scope of the Study: Considerable amount of brainstorming would be required by the managements to reach a conclusion. 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 shareholder’s value, tax implications including stamp duty and last but not the least also on the employees of the Transferor or Transferee Company.
  6. 6. Objectives:  To know Acquisitions.  To Study Mergers.  To evaluate different types of mergers and acquisitions.  To know that Advantages. Methodology: o This data collected from electronic sources collected from the electronic sources i.e., from the Google and the related websites and also empirical study research papers. o Review of literature 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 inter changeably. 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
  7. 7. unilateral and the offer or 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-MERGERORCORPORATESPLITSORDIVISION: De-merger or split or divisions of a company are the synonymous terms signifying a movement in the company. PURPOSE OF THE MERGER AND ACQUISITION The purpose for an offer or 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:  To safeguard the source of supplies of raw materials or intermediary product;  To obtain economies of purchase in the form of discount, savings in transportation costs, overhead costs in buying department, etc.;  To share the benefits of suppliers economies by standardizing the materials. (2)Revamping production facilities:  To achieve economies of scale by amalgamating production facilities through more intensive utilization of plant and resources;  To standardize product specifications, improvement of quality of product, expanding Market and aiming at consumers satisfaction through strengthening after sale Services;  To obtain improved production technology and know-how from the offered company
  8. 8.  To reduce cost, improve quality and produce competitive products to retain and Improve market share. (3) Market expansion and strategy:  To eliminate competition and protect existing market;  To obtain a new market outlets in possession of the offeree;  To obtain new product for diversification or substitution of existing products and to enhance the product range;  Strengthening retain outlets and sale the goods to rationalize distribution;  To reduce advertising cost and improve public image of the offeree company;  Strategic control of patents and copyrights. (4) Financial strength:  To improve liquidity and have direct access to cash resource;  To dispose of surplus and outdated assets for cash out of combined enterprise;  To enhance gearing capacity, Bank of Rajasthan row on better strength and the greater assets backing;  To avail tax benefits;  To improve EPS (Earning per Share). (5) General gains:  To improve its own image and attract superior managerial talents to manage its affairs;  To offer better satisfaction to consumers or users of the product. (6) Own developmental plans: The purpose of acquisition is backed by the offer or 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
  9. 9. 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 Acquire 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 of horizontal combination. (8) Corporate friendliness: Although it is rare but it is true that business houses exhibit degrees of co-operative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of colla Bank of Rajasthan nations sharing goodwill combinations. He combining corporate aim at circular combinations by pursuing the objective. (9) Desired level of integration: Mergers and acquisitions 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 offer or 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 offer or company it wants to achieve. Based on the offer or’s objective profile, combination could be vertical, horizontal, circular and conglomeratic as precisely described below with reference to the purpose in view of the offer or company.
  10. 10. (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 acquirer company i.e. 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:
  11. 11. 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. DIFFERENCE BETWEEN MERGERS AND AQUISITION Merger Acquisition The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately. The case when one company takes over another and establishes itself as the new owner of the business. The stock of both the companies are surrendered while new stock are issued afresh. The buyer company “swallows” the business of the target company, which ceases to exist. For example, Glaxo Wellcome and SmithKline Beecham ceased to exist and merged to become a new company, known as Glaxo SmithKline. Dr. Reddy Labs acquired Betapharm through an agreement amounting $597 million.
  12. 12. POSSIBLE IMPACT OF MERGERS AND ACQUISITIONS  Impacts on Employees Mergers and acquisitions may have great economic impact on the employees of the organization. In fact, mergers and acquisitions could be pretty difficult for the employees as there could always be the possibility of layoffs after any merger or acquisition. If the merged company is pretty sufficient in terms of business capabilities, it doesn't need the same amount of employees that it previously had to do the same amount of business. Due to the changes in the operating environment and business procedures, employees may also suffer from emotional and physical problems.  Impact on Management The percentage of job loss may be higher in the management level than the general employees. The reason behind this is the corporate culture clash. Due to change in corporate culture of the organization, many managerial level professionals, on behalf of their superiors, need to implement the corporate policies that they might not agree with. It involves high level of stress.  Impact on Shareholders Impact of mergers and acquisitions also include some economic impact on the shareholders. If it is a purchase, the shareholders of the acquired company get highly benefited from the acquisition as the acquiring company pays a hefty amount for the acquisition. On the other hand, the shareholders of the acquiring company suffer some losses after the acquisition due to the acquisition premium and augmented debt load.  Impact on Competition Mergers and acquisitions have different impact as far as market competitions are concerned. Different industry has different level of competitions after the mergers and acquisitions. For example, the competition in the financial services industry is relatively constant. On the other hand, change of powers can also be observed among the market players.
  13. 13. ADVANTAGES OF MERGERS Mergers and takeovers are permanent form of combinations which vest in management complete control and provide centralized administration which are not available in combination 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’s ad 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 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.
  14. 14. (2)From the standpoint of managers 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’sgains 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) 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 favour of consumers will depend upon the fact whether or not the mergers increase or decrease competitive economic and productive activity which directly affects thedegree 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:
  15. 15. 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 concentrate 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 till 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. 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. REGULATIONS OF MERGER AND ACQUISTIONS Mergers and acquisitions are regulated under various laws in India. The objective of the laws is to make these deals transparent and protect the interest of all shareholders. They are regulated through the provisions of:- TheCompaniesAct,1956 The Act lays down the legal procedures for mergers or acquisitions:-
  16. 16.  Permission for merger: - Two or more companies can amalgamate only when the amalgamation is permitted under their memorandum of association. Also, the acquiring company should have the permission in its object clause to carry on the business of the acquired company. In the absence of these provisions in the memorandum of association, it is necessary to seek the permission of the shareholders, board of directors and the Company Law Board before affecting the merger.  Information to the stock exchange: - The acquiring and the acquired companies should inform the stock exchanges (where they are listed) about the merger.  Approval of board of directors: - The board of directors of the individual companies should approve the draft proposal for amalgamation and authorize the managements of the companies to further pursue the proposal.  Application in the High Court: - An application for approving the draft amalgamation proposal duly approved by the board of directors of the individual companies should be made to the High Court.  Shareholders' and creators' meetings: - The individual companies should hold separate meetings of their shareholders and creditors for approving the amalgamation scheme. At least, 75 percent of shareholders and creditors in separate meeting, voting in person or by proxy, must accord their approval to the scheme.  Sanction by the High Court: - After the approval of the shareholders and creditors, on the petitions of the companies, the High Court will pass an order, sanctioning the amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The date of the court's hearing will be published in two newspapers, and also, the regional director of the Company Law Board will be intimated.  Filing of the Court order: After the Court order, its certified true copies will be filed with the Registrar of Companies.  Transfer of assets and liabilities : -The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date.  Payment by cash or securities:- As per the proposal, the acquiring company will exchange shares and debentures and/or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.
  17. 17. TheCompetitionAct,2002 The Act regulates the various forms of business combinations through Competition. Under the Act, no person or enterprise shall enter into a combination, in the form of an acquisition, merger or amalgamation, which causes or is likely to cause an appreciable adverse effect on competition in the relevant market and such a combination shall be void. Enterprises intending to enter into a combination may give notice to the Commission, but this notification is voluntary. But, all combinations do not call for scrutiny unless the resulting combination exceeds the thresh old limits in terms of assets or turnover as specified by the Competition Commission of India. The Commission while regulating a 'combination' shall consider the following factors:- • Actual and potential competition through imports; • Extent of entry barriers into the market; • Level of combination in the market; • Degree of countervailing power in the market; • Possibility of the combination to significantly and substantially increase prices or profits; • Extent of effective competition likely to sustain in a market; • Availability of substitutes before and after the combination; • Market share of the parties to the combination individually and as a combination; • Possibility of the combination to remove the vigorous and effective competitor or competition in the market; • Nature and extent of vertical integration in the market; • Nature and extent of innovation; • Whether the benefits of the combinations outweigh the adverse impact of the combination.
  18. 18. Thus, the Competition Act does not seek to eliminate combinations and only aims to eliminate their harmful effects. PROCEDURE OF MERGERS & ACQUISITIONS Public announcement: To make a public announcement an acquirer shall follow the following procedure: 1. Appointment of merchant banker : The acquirer shall appoint a merchant banker registered as category – I with SEBI to advise him on the acquisition and to make a public announcement of offer on his behalf. 2. Use of media for announcement : Public announcement shall be made at least in one national English daily one Hindi daily a done regional language daily newspaper of that place where the shares of that company are listed and traded. 3. Timings of announcement: Public announcement should be made within four days of finalization of negotiations or entering into any agreement or memorandum of understanding to acquire the shares or the voting rights. 4. Contentsofannouncement: Public announcement of offer is mandatory as required under the SEBI Regulations. (1)Paid up share capital of the target company, the number of fully paid up and partially paid up shares. ( 2 ) Total number and percentage of shares proposed to be acquired from public subject to minimum as specified in the sub-regulation (1) of Regulation 21 that is: a) The public offer of minimum 20% of voting capital of the company to the shareholders; b) The public offer by a raider shall not be less than 10% but more than 51% of shares of voting rights. Additional shares can be had @ 2% of voting rights in any year.
  19. 19. (3)The minimum offer price for each fully paid up or partly paid up share; ( 4 ) Mode of payment of consideration; (5) The identity of the acquirer and in case the acquirer is a company, the identity of the promoters and, or the persons having control over such company and the group, if any, to which the company belong; ( 6 ) The existing holding, if any, of the acquirer in the shares of the target company, including holding of persons acting in concert with him; (7) Salient features of the agreement, if any, such as the date, the name of the seller, the price at which the shares are being acquired, the manner of payment of the consideration and the number and percentage of shares in respect of which the acquirer had entered into the agreement to acquirer the shares or the consideration, monetary or otherwise, for the acquisition of control over the target company, as the case may be; (8)The highest and the average paid by the acquirer or persons acting in concert with him for acquisition, if any, of shares of the target company made by him during the twelve month period prior to the date of the public announcement; ( 9 ) Objects and purpose of the acquisition of the shares and the future plans of the acquirer for the target company, including disclosers whether the acquirer proposes to dispose of or otherwise encumber any assets of the target company: Provided that where the future plans are set out, the public announcement shall also set out how the acquirers propose to implement such future plans; (10)The ‘specified date’ as mentioned in regulation 19; (11)The date by which individual letters of offer would be posted to each of the shareholders; (12)The date of opening and closure of the offer and the manner in which and the date by which the acceptance or rejection of the offer would be communicated to the shareholders; (13)The date by which the payment of consideration would be made for the shares in respect of which the offer has been accepted;
  20. 20. (14) Disclosure to the effect that firm arrangement for financial resources required to implement the offer is already in place; including the details regarding the sources of the funds whether domestic i.e. from banks, financial institutions, or otherwise or foreign i.e. from Non-resident Indians or otherwise; (15)Provision for acceptance of the offer by person who own the shares but are not the registered holders of such shares; (16)Statutory approvals required to obtained for the purpose of acquiring the shares under the Companies Act, 1956, the Monopolies and Restrictive Trade Practices Act, 1973,and/or any other applicable laws; (17)Approvals of banks or financial institutions required, if any; ( 1 8 ) Whether the offer is subject to a minimum level of acceptances from the shareholders; (19)Such other information as is essential fort the shareholders to make an informed design in regard to the offer. WHY MERGERS FAIL? It's no secret that plenty of mergers don't work. Those who advocate mergers will argue that the merger will cut costs or boost revenues by more than enough to justify the price premium. It can sound so simple: just combine computer systems, merge a few departments, use sheer size to force down the price of supplies and the merged giant should be more profitable than its parts. In theory, 1+1 = 3 sounds great, but in practice, things can go awry. Historical trends show that roughly two thirds of big mergers will disappoint on their own terms, which means they will lose value on the stock market. The motivations that drive mergers can be flawed and efficiencies from economies of scale may prove elusive. In many cases, the problems associated with trying to make merged companies work are all too concrete. FINANCIAL IMPLICATIONS OF BANKING M&A These indicators include measures of financial performance:  asset and liability composition
  21. 21.  capital structure  liquidity  risk exposure  profitability  financial innovation and efficiency As dependent variable, we measure change of performance as the difference between the merged banks two-year average return on equity (ROE) after the acquisition and the weighted average of the ROE of the merging banks two years before the acquisition. COST OF MERGERS AND ACQUISITIONS Costs of mergers and acquisitions are an important and integral part of mergers and acquisitions process. Before going for any merger or acquisition, both the companies calculate the costs of mergers and acquisitions to find out the viability and profitability of the deal. Based on the calculation, they decide whether they should go with the deal or not. In mergers and acquisitions, both the companies may have different theories about the worth of the target company. The seller tries to project the value of the company high, whereas buyer will try to seal the deal at a lower price. There are a number of legitimate methods for valuation of companies. REASONS FOR MERGERS AND ACQUISITIONS  Capacity  Economies of Scale  Accessing technology or skills  Tax reasons  Growth with External Efforts  Deregulation  Technology  New Products/Services  Over Capacity  Customer Base  Merger of Weak Banks
  22. 22. CONCLUSION  One of the most common reasons for mergers and acquisitions is the belief that "synergies" exist, allowing the two companies to work more efficiently together than either would separately. Suchsynergies may result from the firms' combined ability to exploit economies of scale, eliminate duplicated functions, share managerial expertise, and raise larger amounts of capital. Another reason for banks to move towards merger is that they are motivated by a desire for greater market power.  The 'human factor' is a major cause of difficulty in making the integration between two companies work successfully. If the transition is carried out without sensitivity towards the employees who may suffer asa result of it, and without awareness of the vast differences that may exist between corporate cultures, the result is a stressed, unhappy and uncooperative workforce - and consequently a drop in productivity Decision to carry out a merger or acquisition should consider not only the legal and financial implications, but also the human consequences - the effect of the deal upon the two companies' managers and employee  Almost 60 -70% mergers and acquisitions and the reason for the failure is cultural differences, flawed intentions, and sometimes decisions are taken without properly analysis the future of the merger. BIBLOGRAPHY 1. 2. 3. 4. 5. 6.