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  1. 1. Project report OnMergers & Acquisitions INDEX 1
  2. 2. Contents page no.1. Introduction …………………………42. Problem formulation ……………53. Variables ………………………………64. Methodology ……………………….75. Data collection …………………….86. Data analysis ……………………….107. Findings ……………………………….148. Conclusion …………………………..159. Bibliography………………………… 16 INTRODUCTION 2
  3. 3. In today’s scenario, making profits have become the main objective ofany firm either by launching new products or by the expansion of thepresent business. Merger and acquisitions have become one of theimportant mediums to expand the business. Merger is defined as theprocess of combining two companies into a new one. On the otherhand, in acquisition one company is acquired by another throughpurchasing. There have been many merger and acquisitions till date in the businessworld in order to earn profits and value to the company. For example,But this very purpose of mergers and acquisitions does not get fulfilledall the time. There have been many examples when mergers andacquisitions have failed to earn any profit or value to the company,instead have deteriorated the company’s performance. PROBLEM FORMULATION 3
  4. 4. In the year 2004, Global Trust Bank Ltd. (a private sector bank) wasmerged with Oriental Bank of Commerce (a public sector bank) by thegovernment of India following the disclosure of scams the Global TrustBank was indulged into. This research is about the study of operatingperformance of the two banks prior to the merger & acquisitions. Thepre-merger and post-merger performance of the company will bestudied and analyzed. Through this analysis it will be concludedwhether the merger and acquisitions bring about any impact on thefinancial performance of the acquiring firm or not.Objective:To analyze the impact of mergers and acquisitions on the financialperformance of the acquiring firm.Research hypothesis:H0: Mergers and acquisitions do not improve the financial performanceof the acquiring firm.H1: Mergers and acquisitions improve the financial performance of theacquiring firm.VARIABLES 4
  5. 5. Dependent variable: MergerIndependent 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 5
  6. 6. Interest income is the interest earned cash temporarily held in savingsaccounts, certificates of deposits, or other investments.Operating income is the amount of profit realized from a businesssoperations after taking out operating expenses - such as cost of goodssold (COGS) or wages - and depreciation. Operating income takes thegross income (revenue minus COGS) and subtracts other operatingexpenses and then removes depreciation. These operating expensesare costs which are incurred from operating activities and includethings such as office supplies and heat and power.Operating profit before depreciation and taxes is the income earnedby the firm after deducting other expenses.Profit after tax is the profit obtained after deducting the depreciationand interest.Equity capital is capital raised from owners in the company. This isdifferent from debt capital which is money raised by incurring debtthrough the issuance of debentures and other types of bonds. Ownerscan choose to sell equity in the company, in the form of stock, toinvestors. This is usually done through a direct offering to the public orthrough an underwriter like an investment bankEPS is the portion of a companys profit allocated to each outstandingshare of common stock. Earnings per share serves as an indicator of acompanys profitability.Net profit margin is a ratio of profitability calculated as 6
  7. 7. net income divided by revenues, or net profits divided by sales. Itmeasures how much out of every dollar of sales a company actuallykeeps in earnings.DATA COLLECTION:Type of data – SecondaryThe data has been taken from financial statements (profit & loss a/cand balance sheet) of the acquiring bank.STATISTICAL TOOL: t-testingData for Global trust bank:Variables 2001-02 2002-03 2003-04Interest income 7242.21 5395.97 3541.90OPBDT 907.13 -2280.29 -787.90PAT 402.59 -2666.32 -8123.80Equity capital 1213.59 1213.59 1213.60EPS 3.32 -21.97 --- 7
  8. 8. Oriental bank of commerce: (Pre-merger)Variables 2001- 02 2002- 03 2003-04 2004-05 Year of mergerInterest income 3040.47 3294.69 3300.54 3571.90OPBDT 359.11 497.60 736.76 819.59PAT 233.42 323.44 478.89 532.73Equity capital 192.54 192.54 192.54 192.54EPS 16.65 23.73 35.63 37.71Operating income 3541.83 3861.50 4027.43 3835.60Net 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 8
  9. 9. Variable view of pre-merger data:Variable view of post-merger data:OUTPUT of t-testing: (for pre-merger) 9
  10. 10. OUTPUT of t-testing: (for post-merger) 10
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  12. 12. Data interpretation:After performing the t-testing on the variables, significance level in allthe cases has come out to be less than 0.05 which rejects the nullhypothesis i.e. mergers & acquisition of Oriental bank of commerce andGlobal Trust bank has been beneficial to the acquiring firm which in thiscase is Oriental bank of commerce. 12
  13. 13. FindingsAfter the study of data before and after mergerfollowing 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 13
  14. 14. After analyzing all the aspects of the data available and giving someimportant recommendations a suitable conclusion which should bederived for this study. However, before starting the conclusion part, theobjective of the research must be kept in mind so that we can arrive ata befitting conclusion for the research problem.The primary objective ofthe research is to find out the effect of merger and acquisitions on thefinancial performance of the acquiring firm.After taking into account the various findings it can be concluded thatthe financial performance of the bank has increased after the mergerand acquisition of the Global trust bank with the oriental bank ofcommerce. Bibliography 14
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