IMPACT OF MERGER AND ACQUISITION ON INDIAN ECONOMY

What is the Impact of Merger and Acquisition on Indian Economic Growth during last ten years?

Table of Contents

Abstract3

Chapter 1: Introduction4

Objective of the study11

Chapter 2: Literature Review12

The Merger Case Study18

The Participants19

The Battle for NatWest21

Political Economy of Mergers and Acquisitions29

The Rationale of Mergers29

Mergers and Acquisitions: Effects on Market Shares31

Mergers and Acquisitions: Strategic Alliance31

Expanding Market Share and Customer Base32

Mergers and Acquisitions in a Long Term Perspective34

Chapter 3: Methodology37

Return on Capital Employed38

Test of Economies Of Scale Hypothesis39

Test of Operating Synergy39

Test of Financial Synergy40

The six determinants of merger success47

Strategic Vision And Fit48

Deal Structure50

Due diligence51

Pre-merger Planning53

Post merger integration54

External factors56

Evaluating merger success58

Chapter 4: Discussion62

Chapter 5: Conclusion69

Limitation70

References71

Abstract

This paper is an attempt to evaluate the impact of Mergers on the performance of the companies. Theoretically it is assumed that Mergers improves the performance of the company due to increased market power, Synergy impact and various other qualitative and quantitative factors. Although the various studies done in the past showed totally opposite results. These studies were done mostly in the US and other European countries. I evaluate the impact of Mergers on Indian companies through a database of 40 Companies selected from CMIE's PROWESS, using paired t-test for mean difference for four parameters; Total performance improvement, Economies of scale, Operating Synergy and Financial Synergy. My study shows that Indian companies are no different than the companies in other part of the world and mergers were failed to contribute positively in the performance improvement.

Chapter 1: Introduction

One of the primary interests of businesses is to expand their capacity to generate profits. To achieve this goal, firms can choose a strategy of price competition or price cooperation, but there is an alternative--the acquisition of other independent businesses. When one firm buys another it acquires ownership and control, thus expanding its own potential profits. The market for corporate ownership and control is for this reason integrally related to the accumulation of economic and monopoly power (Pritchett, 1997).

One of the earliest episodes of mergers and acquisitions to receive serious attention took place at the turn of the century. Since then, tens of thousands of firms have been bought, effectively extinguished as independent enterprises. Despite the long history of this market it would probably continue largely unnoticed if not for the occasional burst of activity during which mergers and acquisitions reach a feverish pitch. The 1980s was such a period. In the peak year of 1988 there were 4,049 mergers worth a million dollars or more, for a total value of $245 billion (Gaughan, 1999). The actual value would be even higher if corporate acquisitions valued at less than a million dollars were also included. But even this estimate is significant; representing more than half the amount U.S. businesses spent that year on plant and equipment. (Lorange, 1994)

Merger activity, measured by the ratio of asset values acquired to gross national product. The 1980s was only one of several important episodes of heightened merger activity.

There are alternative measures of merger intensity but they all display the same general ...