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CHAPTER II: REVIEW OF LITERATURE

The following are the few existing studies reviewed which were conducted by

researchers in view of analyzing the financial performance during merger activity in

different time periods.

Madhuri Gupta & Kavita Aggarwal (December, 2011): Corporate Merger

& Acquisition: A Strategic approach in Indian Banking Sector – The

process of merger and acquisition is not new to the Indian Banking. This paper

is an attempt to find the impact of Mergers and Acquisitions in Indian Banking

Industry and their .position before and after merger and acquisition. Major

findings from this research are i) The trend shows that the merger and

acquisition has a good impact on the banking sector. Merger and acquisition in

Indian banking so far has been to provide the safeguard to weak banks against

their failure. ii) The small and medium size banks are working under threat

from the economic environment which is full of problems for them. Their

reorganization through merger could offer re-establishment of those in viable

banks of optimum size with global presence. iii) As discussed in above data

analysis all the merged entities after merger and acquisition are continuously

growing rather than before the merger. There is increase in no. of branches

and ATMs as well as in deposit amount, their net profit and worth.

Mergers and Acquisitions: an overview of pre and post-merger activities

(2011) – Our study tries to look into the burning issue of mergers and

acquisitions. Merger and acquisition literature suggests that managers will

have various motives for mergers; in our study we summarize the motives for

mergers into four broad categories, namely economic motives, synergy

motives, strategic motives and managerial motives. We try to explore the post

merger activities of a firm by looking into the potential cross-effects of asset

divestiture on revenue enhancing capabilities and of resource redeployment on

cost savings. Finally we investigate the possible lingering direct effects

between asset divestiture and resource redeployment on acquisition

performance.

38

Ahmad Tisman Pasha (2010): Effects of Merger on Management: Case

Study of a Bank – This study discusses impact of merger with reference to

human resource aspect, it has actually integrated most of the significant

management subjects under considerations into the judgment. The results of

this study are derived from organization of banking sector namely, RBS of

Pakistan. This makes the conclusions more sectors oriented. The results of this

study provide relatively strong support for the existence of a positive

relationship between employee participation from top to bottom with the

employee satisfaction, motivation and performance. Since the basic aim of the

study was to examine the impact of any major change like merge on the

management. Here in this study the organizational performance is measured

by means of employee performance and employee performance was measured

by their motivation, satisfaction of employees towards the job and the

organization. Empirical evidence appears to support the view that human

capital practices like employee participation after merger can influence the

organizational performance and growth. Organizations interested in the

growth and in high performance must involve their employees in decision

making process to motivate, satisfy and better the performance of the

employees. The research provides proofs for the organizations that whenever

the workforce is not satisfied and motivated with their jobs, performance is

affected. The conclusion also suggests that after a merger happened, the

management might be able to increase the level of commitment in the

organization by increasing satisfaction and motivation of employee with

compensation, policies, and work conditions.

Dimitris Kyriazis (2010): “The Long-Term Post Acquisition Performance

of Greek Acquiring Firms” – This study tests for the first time the long-term

post-bid performance of Greek acquiring firms during the 1993-2006 period

by using the 3-factor model of Fama & French (1993). Our results show a

significant and substantial negative abnormal performance of acquirers of

about 2% per month in the 3 years post-acquisition period. Although, this

finding is generally in agreement with the majority of international empirical

evidence, yet it is of a much larger magnitude. It also seems that, even though

the group differences are insignificant, the acquirers lose more in acquisitions

39

of listed targets and these losses are heavier when a stock offer was used.

Thus, our findings are in conflict with the strong positive performance of

about 5% during the short-term announcement period for the same sample of

the acquirers, reported in the Kyriazis and Diacogiannis (2008) study, which

was higher in the case of listed targets. Consequently, our results indicate a

possible overestimation of expected synergies during the announcement period

and market mispricing which is more intense in the case of cash bids targeting

privately held firms.

Dr. Neena Sinha, Dr. K.P.Kaushik & Ms. Timcy Chaudhary (2010):

Measuring Post Merger and Acquisition Performance: An Investigation of

Select Financial Sector Organizations in India – The present paper examines

the impact of mergers and acquisitions on the financial efficiency of the

selected financial institutions in India. The analysis consists of two stages.

Firstly, by using the ratio analysis approach, we calculate the change in the

position of the companies during the period 2000-2008. Secondly, we examine

changes in the efficiency of the companies during the pre and post-merger

periods by using nonparametric Wilcoxon signed rank test. While we found a

significant change in the earnings of the shareholders, there is no significant

change in liquidity position of the firms. The result of the study indicate that

M&A cases in India show a significant correlation between financial

performance and the M&A deal, in the long run, and the acquiring firms were

able to generate value.

K. Ravichandran, Fauzias Mat-Nor and Rasidah Mohd-Said (2010) :

“Market Based Mergers in Indian Banking Institutions” – This research

analyses the efficiency and performance using CRAMEL–type variables,

before and after the merger for the selected public and private banks which

are initiated by the market forces. The results suggest that the mergers did not

seem to enhance the productive efficiency of the banks as they do not indicate

any significant difference. The financial performance suggests that the banks

are becoming more focused on their retail activities (intermediation) and the

main reasons for their merger is to scale up their operations. However it is

found that the Total Advances to Deposits and the profitability are the two

40

main parameters which are to be considered since they are very much affected

by mergers. Also the profitability of the firm is significantly affected giving a

negative impact on the returns.

Rong Zhang (11 Nov 2010): Cultural Integration in Cross-Border Mergers

& Acquisitions – The research consists of both a literature study and

interviews with different companies. Results of the literature study show that

cultural differences, especially of national nature, play an important role in the

integration process. It appears that cultural differences not always have a

negative impact, but they can also positively influence the integration process.

From the interviews, it became clear that every relevant aspect of the

integration process as found in literature is subjected to the influence of

cultural differences. Also strategies are presented that can be applied to bridge

the cultural differences and to turn the negative influence to their advantage.

This can be accomplished by adopting tools to facilitate the cultural

integration, leadership, cultural learning and information system. Moreover, in

an era of globalization, this study contributes to company management

practice by expanding across national boundaries through transformation into

a new organizational culture.

Okpanachi Joshua (2010): Comparative analysis of the impact of mergers

and acquisitions on financial efficiency of banks in Nigeria – Mergers and

acquisitions in the Nigerian banking sector are reform strategies recently

adopted to reposition the banking sector. These were done to achieve

improved financial efficiency, forestall operational hardships and expansion

bottlenecks. It is against this backdrop that the paper made a comparative

analysis of the impact of mergers and acquisitions on financial efficiency of

banks in Nigeria. This paper used gross earnings, profit after tax and net assets

of the selected banks as indices to determine financial efficiency by comparing

the pre-mergers and acquisitions‟ indices with the post-mergers and

acquisitions‟ indices for the period under review. For this paper, three

Nigerian banks were selected using convenience and judgmental sample

selection methods. Data were collected from the published annual reports and

accounts of the selected banks and were subsequently analyzed applying t-test

41

statistics through statistical package for social sciences. It was found that the

post mergers and acquisitions‟ period was more financially efficient than the

pre-mergers and acquisitions period. However, to increase banks financial

efficiency, the study recommends that banks should be more aggressive in

their profit drive for improved financial position to reap the benefit of post

mergers and acquisitions bid.

Ting-Kun Liu (2010): “An Empirical Study of Firms‟ Merger Motivations

and Synergy from Taiwanese Banking Industry”: They extracted factors

using the factor analysis method and used these factors to evaluate

performance scores. Results showed that banks associated with financial

holding companies constituted 80% of the top ten banks in the sample;

subsidiary banks of financial holding companies made up approximately 60-

70% of the top fifteen banks in the overall sample. These results show that

post-merger banks belonging to financial holding companies produced

merger synergies. In further analysis of the top ten financial holding company

banks and the top ten non-financial holding company banks, the top three

banks in the top ten financial holding company banks started with banking and

are associated with financial holding companies emphasizing banking,

showing that post-merger financial holding companies have better overall

operating performance if they have banking as a primary operating entity. In

comparing financial holding companies by operating entities, they found that

subsidiary banks associated with financial holding companies emphasizing

banking did have better performance than subsidiary banks associated with

financial holding companies emphasizing insurance or securities.

Fabio Braggion, Narly Dwarkasing and Lyndon Moore (November 17,

2010): Mergers and Acquisitions in British Banking: Forty Years of

Evidence from 1885 until 1925 – We study the effects of bank mergers and

acquisitions in the U.K. from 1885 to 1925. The lack of a regulatory authority

and the confidential nature of merger negotiations allows us to precisely

measure the wealth effects of M&As in a laissez-faire environment. We find

positive wealth effects for bidders (0.7%-1%) and targets (6.7%-8%) over the

announcement month. When takeovers took place in a competitive

42

environment wealth creation appears to be related to efficiency gains. As

competition decreased, gains to shareholders appear to be related to increased

oligopoly power. In a less competitive environment, banks tended to reduce

the amount of loans and their capital ratios.

Utz Weitzel &Killian J McCarthy (August 2009): Theory and Evidence on

Mergers and Acquisitions by Small and Medium Enterprises – The theory of

mergers and acquisitions (M&As) has been developed almost exclusively

from the study of large deals by large firms. In this paper we argue that the

behavior and success of M&As by small and medium sized enterprises

(SMEs) may be significantly different. Accordingly, we revisit established

M&A theories, and develop a theoretical framework, and several testable

hypotheses, regarding the distinctive features of SME M&As. Our empirical

results support our expectations and show that, compared to large firms,

acquiring SMEs: rely more intensively on external growth via M&As; are

more likely to be withdrawn, suggesting that SMEs are more flexible, and

more able to avoid deals that turn sour; and, finally, SME M&As are more

likely to be financed with equity rather than debt, indicating that the influential

financial pecking order theory is of less relevance to SMEs.

Tariq Hassaneen Ismail, Abdulati A. Abdou & Radwa Magdy (2009):

Review of Literature Linking Corporate Performance to Mergers and

Acquisitions – The purpose of this paper is to synthesize and analyze prior

literature of mergers and acquisitions (M&A) and its effects on the financial

performance in an attempt to determine factors that might influence post-

mergers and acquisitions performance. The main conclusion is that there are

inconclusive results among studies on the literature, where, corporate

performance is improved in some cases but not in others. Previous studies are

using varieties of measures to examine the impact of M&A on corporate

performance, where measures might be accounting measures-based, market

measures-based, mixed measures, or qualitative measures-based. In addition,

there is a dispute regarding the factors that affect the reported performance,

where eight factors might affect performance as follows: (1) method of

43

payment (Cash or Stock), (2) book to market ratio, (3) type of merger or

acquisition transaction (related or unrelated), (4) cross-boarder versus

domestic M&A, (5) mergers versus tender offers, (6) firm size, (7) macro

economic conditions, and (8) time period of transaction. Managers should be

aware of the impact of such factors on post-merger corporate performance to

accurately evaluate proposed offers of mergers and acquisitions and take

sound decisions.

DAUBER, Daniel (June 2009): MERGERS AND ACQUISITIONS,

INTEGRATION AND CULTURE: WHAT WE HAVE LEARNED AND

FAILED TO LEARN IN THE PAST TEN YEARS – This paper provides a

review of papers within the last decade in highly cited journals. Based on the

index, influential journals were selected. Within 58 papers drawn from 20

journals, this literature review identified themes relating to integration and

culture in M&As. Findings across papers are contradictory and to some extent

biased. It is concluded that future research should consider different facets of

integration and culture, consider both partners in M&A deals and question the

way cultural differences and integration are managed.

Mohibullah (2009): Impact of Culture On Mergers and Acquisitions: A

Theoretical Framework – Mergers and acquisitions M&As are the front line

strategic option for organizations attempting to have competitive advantage

over its competitors. Organizations word-wide spend billions of dollars in

pursuit of this strategy. However, the success rate is less than estimated. This

is mainly due to the clashes of corporate cultures. The objectives of this

theoretical paper are to find out the reasons why most of the mergers and

acquisitions fail. Four main issues related to the culture clashes are highlighted

in this paper, ambiguity and communication problems within the merged

entity, properly management of cultural integration, the acquisitions and

organizational culture, and Improper acculturation process among the merged

organizations. The factors in this paper are based on previous literature. On the

basis of different views of authors, a conceptual framework is put forth that

uses the afore-mentioned issues throughout the acquisition process to produce

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and negotiate some workable approaches. It is suggested that this conceptual

framework can give a new insight into explaining the causes.

Keisha Chambers & Andrew Honeycutt (February 2009):

Telecommunications Mega-Mergers: Impact On Employee Morale And

Turnover Intention – The number of mergers and acquisitions grew at record

rates in the United States over the past 10 years, and mega

telecommunications mergers have been no exception. Three very high-profile

telecommunications mergers included MCI and Verizon, Sprint and Nextel,

and BellSouth and AT&T. These megamergers have changed the competitive

landscape dramatically in the telecom arena. Despite the popularity of mergers

and acquisitions (M&As), evidence has shown that the majority have failed to

improve performance and failed to achieve anticipated strategic and financial

objectives set forth in the premerger planning phase, according to J. Krug and

R. Aguilera‟s 2004 article “Top Management Team Turnover in Mergers and

Acquisitions” in Advances in Mergers and Acquisitions. The primary reason

behind such common performance failures according to S. Cartwright and C.

L. Cooper‟s 2000 HR Know-How in Mergers and Acquisitions was based on

various human resources factors such as culture, management, poor

motivation, and loss of talent. Based on the aforementioned post corporate

merger performance failure considerations, this research study examined the

impact on employee morale and turnover intention related to a recent

megamerger between two telecommunications conglomerates.

Ahmad Ismail, Ian Davidson & Regina Frank (2009) concentrates on

European banks and investigates post-merger operating performance and

found that industry-adjusted mean cash flow return did not significantly

change after merger but stayed positive. It finds that low profitability levels,

conservative credit policies and good cost-efficiency status before merger are

the main determinants of industry-adjusted cash flow returns and provide the

source for improving these returns after merger.

Murugesan Selvam, Manivannan Babu, Gunasekaran Indhumathi,

Bennet Ebenezer (2009): “Impact of mergers on the corporate performance

of acquirer and target companies in India” –The present study is limited to a

45

sample of companies which underwent merger in the same industry during the

period of 2002-2005 listed in one of the Indian stock exchanges namely

Bombay Stock Exchange. It is proposed to compare the liquidity performance

of the thirteen sample acquirer and target companies before and after the

period of mergers by using ratio analysis and t-test during the study period of

three years. The study found that the shareholders of the acquirer companies

increased their liquidity performance after the merger event.

Maureen F. McNichols & Stephen R. Stubben (May 2009): The Role of

Target Firms‟ Accounting Information in Acquisitions – We examine

whether higher-quality accounting information of target firms leads to more

profitable acquisitions for acquirers in a large sample of acquisitions of public

firms over the period 1990-2007. We find that acquiring firms realize lower

stock returns at the acquisition announcement when the value of the target

firm is more uncertain. However, controlling for uncertainty, acquirer returns

are higher when the target firm has better accounting information. The benefits

to acquiring firm shareholders seem to come at the expense of target firm

shareholders, who realize lower returns upon announcement of an acquisition

when the target‟s accounting information quality is high. These findings

support the hypothesis that acquirers are able to bid more efficiently and are

therefore less likely to overpay when the target has higher-quality accounting

information.

Kumar and Bansal (2008) examined that while going for mergers and

acquisitions (M&A) management smell financial synergy or/and operating

synergy in different ways. But actually are they able to generate that potential

synergy or not, is the important issue. The aim of this study is to find out

whether the claims made by the corporate sector while going for M&As to

generate synergy, are being achieved or not in Indian context.

Anthony (2008) investigates the effect of acquisition activity on the

efficiency and total factor productivity of Greek banks. Results show that

total factor productivity for merger banks for the period after merging can be

attributed to an increase in technical inefficiency and the disappearance of

46

economies of scale, while technical change remained unchanged compared to

the pre-merging level.

Dimitris Kyriazis & George Diacogiannis (2008): “The Determinants of

Wealth Gains in Greek Takeover Bids” – This study examines for the first

time the determinants of the short-term excess stock returns of a sample of

Greek merging firms during the period 1993-2006. Excess stock returns are

estimated using the market index model within the standard event study‟s

methodology framework. Our univariate analysis results first establish, that

Greek acquirers‟ obtain significantly positive and higher abnormal returns

than those observed by the majority of empirical studies concerning the US

and UK markets, while targets‟ corresponding gains are also positive but

lower than those observed respectively. Second, the same results suggest that

Greek acquirers‟ gains are higher when they bid for listed targets using cash,

while acquired firms’ shareholders gain more when they receive cash in

exchange for their shares. Our multiple regression results suggest that

bidders’ gains are positively associated with cash offers and acquisition of

listed targets, while targets’ gains are positively associated with the relative

size of bidders to targets and negatively related with the acquisition of

subsidiaries. These findings are overall consistent with the signaling

overvaluation hypothesis of stock offers because of information asymmetries,

the increased bargaining hypothesis of unlisted targets, and the corporate

monitoring hypothesis due to lower agency costs existing in these firms.

Dorata and Steven (2008) examined whether CEO duality further

exacerbates CEOs' motivation of self-interest to engage in mergers and

acquisitions to increase their compensation.

Ishola Rufus Akintoye and R.O.C Somoye (2008): “Corporate Governance

and Merger Activity in the Nigeria Banking Industry: Some Clarifying

Comments” – This study takes an explorative search into merger activity and

its impact in the sustenance of shareholder value via sound corporate

governance structures. An attempt is made to draw lessons from the US

experience in merger activity to the Nigerian banking industry which has

recently recorded nineteen (19) successful mergers arising from the regulatory

47

demand for consolidation. The data used are essentially secondary and the

study suggests some steps to ensure improvements in corporate governance

through the pursuit of shareholder value and also for managers, constitute

instruments for their job security.

Greg Banach (2008): “Expansion of the European Central Bank: A Merger

of Equals?” – The research is focused on the effect of one uniform monetary

policy will have on the less developed countries that entered the European

Union (EU) in 2004. One of the challenges facing the new entrants involves

the required implementation of monetary policy goals, even though these new

entrants do not have a vote on how monetary policy is determined. Monetary

policy in the Euro-area is the responsibility of the European Central Bank

(ECB) who has a stated goal of price stability. The present study explored

whether the ECB had proper focus on price stability for all countries in the

Euro-area community. Using economic indicators for each country and the

funds rate of the ECB, the current study used a version of the Taylor Rule and

GMM modeling to test whether the ECB focused on price stability for both

old and new member countries. Based on the analysis, it appears the ECB did

not have proper focus on inflation for all countries in the Euro-area during the

period of March 2004 through March 2007. This is evidence that the ECB is

not acting in the best interests of the Euro-area community as whole.

Pramod Mantravadi & A Vidyadhar Reddy (2008): “Post-Merger

Performance of Acquiring Firms from Different Industries in India” – This

research study was aimed to study the impact of mergers on the operating

performance of acquiring corporates in different industries, by examining

some pre- merger and post-merger financial ratios, with the sample of firms

chosen as all mergers involving public limited and traded companies in India

between 1991 and 2003. The results suggest that there are minor variations

in terms of impact on operating performance following mergers, in different

industries in India. In particular, mergers seem to have had a slightly positive

impact on profitability of firms in the banking and finance industry, the

pharmaceuticals, textiles and electrical equipment sectors saw a marginal

negative impact on operating performance (in terms of profitability and

48

returns on investment). For the Chemicals and Agri-products sectors, mergers

had caused a significant decline, both in terms of profitability margins and

returns on investment and assets.

Halil Bader Arslan (2007): Cross-Border Bank Acquisitions: Financial and

Managerial Analysis of BNP Paribas – TEB Deal – Using the BNP Paribas –

TEB deal as a case study, this paper focuses on value creation analysis and

managerial issues of cross-border bank acquisitions. The stock market

responded very positively to this acquisition and TEB shares outperformed the

index performance. Operating performance has improved after the acquisition

with new products and services. The paper also tries to analyze the effects of

the acquisition on TEB‟s management policy and put forth possible drawbacks

during the integration period especially in its expansion toward individual

banking. Results showed that former employees faced adaptation problems

throughout the bank‟s repositioning towards the new strategy. They also had

professional conflicts with the newly hired employees as the bank passes

through a process of organizational change.

Selvam M (2007): A book entitled Mergers & acquisitions in the banking

sector - The Indian scenario – He has analyzed the implications of stock price

reactions to mergers and acquisitions activities taken place in banking industry

with special reference to private and public sector banks. The author has found

from the analysis that the share prices are market sensitive. From the financial

analysis it was observed that majority of the banks went for branch expansion

and this has affected profitability to some extent and has also resulted in

unhealthy competition among the players.

Pramod Mantravadi and Vidyadhar Reddy (2007) in their research study

Mergers and operating performance: Indian experience, attempted to study

the impact of mergers on the operating performance of acquiring corporate in

different periods in India, after the announcement of industrial reforms, by

examining some pre- and post-merger financial ratios, with chosen sample

firms, and all mergers involving public limited and traded companies of nation

between 1991 and 2003. The study results suggested that there are minor

variations in terms of impact on operating performance following mergers in

49

different intervals of time in India. It also indicated that for mergers between

the same groups of companies in India, there has been deterioration in

performance and returns on investment.

Elena Carletti, Philipp Hartmann & Giancarlo Spagnolo (2007) modeled

the impact of bank mergers on loan competition, reserve holdings, and

aggregate liquidity. The merger also affects loan market competition, which in

turn modifies the distribution of bank sizes and aggregate liquidity needs.

Mergers among large banks tend to increase aggregate liquidity needs and thus

the public provision of liquidity through monetary operations of the central

bank.

A. Soongswang (2006): “Takeover Effects During the Pre-Bid Period on

Thai Bidding Firms” – This study was undertaken and focuses on takeover

announcement effects during the pre-bid period, (-12,-1) months, on Thai

bidding firms. The findings suggest that before the announcement month, the

effect of a potential takeover leads to significantly positive abnormal returns

at approximately 27% and 29%, according to metrics employed, for the

bidding firm’s shareholders. In addition, the market apparently anticipates the

takeovers as being good news four and three months, at least, prior to the

takeover announcement, resulting in positive abnormal returns of about 8-16%

for the bidding firm‟s shareholders. The study suggests that prior to

announcement month; a takeover increases positive wealth gains of the

bidding firm‟s shareholders.

Selvam. M (2007): A book entitled Mergers & acquisitions in the banking

sector- The Indian scenario, written by Selvam. M (2007) has analyzed the

implications of stock price reactions to mergers and acquisitions activities

taken place in banking industry with special reference to private and public

sector banks. The author has found from the analysis that the share prices are

market sensitive. From the financial analysis it was observed that majority of

the banks went for branch expansion and this has affected profitability to some

extent and it resulted in unhealthy competition among the players.

Dube and Glascock (2006) examined the post-acquisition differences in share

and operating performance, and in risk characteristics, for acquirers who pay

50

cash versus those who employ stock, as well as for acquirers who merge with

targets as opposed to those who directly approach target shareholders to tender

their shares.

Susan Cartwright and Richard Schoenberg (2006): Thirty Years of

Mergers and Acquisitions Research: Recent Advances and Future

Opportunities – The complex phenomenon that mergers and acquisitions

(M&As) represent has attracted substantial interest from a variety of

management disciplines over the past 30 years. Three primary streams of

enquiry can be identified within the strategic and behavioural literature, which

focus on the issues of strategic fit, organizational fit and the acquisition

process itself. The recent achievements within each of these research streams

are briefly reviewed. However, in parallel to these research advances, the

failure rates of mergers and acquisitions have remained consistently high.

Possible reasons for this dichotomy are discussed, which in turn highlight the

significant opportunities that remain for future M&A research.

R Chatterjee and A Kuenzi (2006): MERGERS AND ACQUISITIONS:

THE INFLUENCE OF METHODS OF PAYMENT ON BIDDER‟S

SHARE PRICE – The purpose of this paper has been to examine the

acquiring companies‟ short-term abnormal return around the announcement

date of a transaction and to determine how these abnormal returns are related

to the companies‟ choice of methods of payment. The sample consisted of UK

transactions, covering the years 1991, 1995, and 1999. The main result can be

summarized as follows: comparison across time seems to indicate that a shift

in the assessment of the information content associated with the method of

payment has taken place from 1991/95 to 1999. This appears to be particularly

true for the case of stock transactions: Stock transactions no longer lead to

negative abnormal returns over the announcement period, but achieve highly

significant positive abnormal returns.

Morris Knapp, Alan Gart & Mukesh Chaudhry (2006) research study

examines the tendency for serial correlation in bank holding company

profitability, finding significant evidence of reversion to the industry mean in

profitability. The paper then considers the impact of mean reversion on the

51

evaluation of post-merger performance of bank holding companies. The

research concludes that when an adjustment is made for the mean reversion,

post-merger results significantly exceed those of the industry in the first 5

years after the merger.

Siriopoulos et.al. (2006): In their study of Mergers and Acquisitions in

Greece also find that acquired firms have highly productive operations.

These results support McGuckin & Nguyen (1995) and Harris & Robinson

(2002) studies who have found that acquisition activity in the UK is generally

associated with the transfer of firms with above average productivity. Since

large firm size and high productivity are common characteristics of relatively

mature targets, which have accumulated past experiences as a result of

dynamic learning procedures, age of firm also emerges as a significant

determinant variable of target firms in the study of Siriopoulos et.al. (2006).

Overall, these studies favour rejection of the market for corporate control

hypothesis.

Suchismita Mishra, Arun, Gordon and Manfred Peterson (2005) study

examined the contribution of the acquired banks in only the non conglomerate

types of mergers (i.e., banks with banks), and finds overwhelmingly

statistically significant evidence that non conglomerate types of mergers

definitely reduce the total as well as the unsystematic risk while having no

statistically significant effect on systematic risk.

Marc J Epstein. (2005) studied on merger failures and concludes that mergers

and acquisitions (M&A) are failed strategies. However, analysis of the causes

of failure has often been shallow and the measures for success weak.

Jarrod McDonald, Max Coulthard, and Paul de Lange1 (2005):

PLANNING FOR A SUCCESSFUL MERGER OR ACQUISITION:

LESSONS FROM AN AUSTRALIAN STUDY – Mergers and acquisitions

(M&As) continue to be a dominant growth strategy for companies worldwide.

This is in part due to pressure from key stakeholders vigilant in their pursuit of

increased shareholder value. It is therefore timely to identify key planning

steps that will assist CEOs and company boards to achieve M&A success.

This study used semi-structured interviews to: identify the link between

52

corporate strategic planning and M&A strategy; examine the due diligence

process in screening a merger or acquisition; and evaluate previous experience

in successful M&As. The study found that there was a clear alignment

between corporate and M&A strategic objectives but that each organization

had a different emphasis on individual criterion. Due diligence was also

critical to success; its particular value was removing managerial ego and

justifying the business case. Finally, there was mixed evidence on the value of

experience, with improved results from using a flexible framework of

assessment.

Guest et al. (2004): suggest that having a successful first merger is a predictor

of declining performance in subsequent acquisitions. This is in contrast to

Hayward (2002), who found that acquirers who have an unsuccessful first

merger learn from their mistakes and improve their subsequent performance.

Even though these acquirers do learn from their mistakes, they never quite

catch up with the organizations successful in their first acquisition. Guest et al.

(2004) concluded that if your first merger does not succeed, it is not

worthwhile pursuing future mergers.

Gregor Andrade & Erik Stafford (2004): “Investigating the economic role

of mergers” We investigate the economic role of mergers by performing a

comparative study of mergers and internal corporate investment at the industry

and firm levels. We find strong evidence that merger activity clusters through

time by industry, whereas internal investment does not. Mergers play both an

„„expansionary‟‟ and „„contractionary‟‟ role in industry restructuring. During

the 1970s and 1980s, excess capacity drove industry consolidation through

mergers, while peak capacity utilization triggered industry expansion through

non-merger investments. In the 1990s, this phenomenon is reversed, as

industries with strong growth prospects, high profitability, and near capacity

experience the most intense merger activity.

Guest et al. (2004) suggest that having a successful first merger is a predictor

of declining performance in subsequent acquisitions. This is in contrast to

Hayward (2002), who found that acquirers who have an unsuccessful first

merger learn from their mistakes and improve their subsequent performance.

53

Even though these acquirers do learn from their mistakes, they never quite

catch up with the organizations successful in their first acquisition. Guest et al.

(2004) concluded that if your first merger does not succeed, it is not

worthwhile pursuing future mergers. Overall, the body of literature on the

usefulness of prior experience in undertaking M&As has shown mixed results.

Ya-Hui Peng & Kehluh Wang (2004) study addresses on the cost efficiency,

economies of scale and scope of the Taiwanese banking industry, specifically

focusing on how bank mergers affect cost efficiency. Study reveals that bank

merger activity is positively related to cost efficiency. Mergers can enhance

cost efficiency, even though the number of bank employees does not decline.

The banks involved in mergers are generally small and were established after

the banking sector was deregulated.

Rovit and Lemire (2003) established that frequent buyers, regardless of

economic cycles, were 1.7 times more successful than those firms who were

not as frequent, (i.e. between 1 - 4 deals). They suggest consistent purchasing

will increase the chances of success, as to being prepared to walk away from

deals that are considered too risky.

Paul A. Pautler (2003): The Effects of Mergers and Post-Merger

Integration: A Review of Business Consulting Literature – Beginning in the

mid-1990s, several consulting firms commissioned surveys concerning the

outcome of recent mergers. The surveys and related analyses were used to

examine three general questions: First, did the mergers tend to achieve the

goals and objectives of the executives involved in the deals? Second, on a

more objective basis, did the deals enhance shareholder value relative to

industry benchmarks? That is, were the deals a financial success? Third, and

perhaps most important to the consultants, what were the characteristics of the

more successful deals compared to those of the less successful deals? The

surveys tend to focus on larger, transnational mergers and acquisitions

examining the views of top managers in the acquiring companies regarding the

success or failure of a deal. The questions to be answered often include the

original purpose of the merger, how the merge performed relative to plan and

expectations, how the acquiring firm went about the post-merger integration

54

process, what types of synergies or strategic advantage were expected and

achieved, and what types of problems developed in implementing the merger.

In addition to summarizing and analyzing the results of the interviews, the

consulting studies often bring objective data to bear on deals covered by the

surveys, examining whether the post-merger stock prices rose or fell relative

to the pre-merger trend and/or relative to the industry average share price. The

results of this financial analysis often differ from those obtained in the

executive survey portion, because the firm perhaps succeeded in the deal, but

paid too much for the assets. In that instance, executives might think that the

deal achieved their strategic and cost reduction objectives (e.g., reducing real

costs or positioning the firm for future growth), but it did not achieve an

increase in shareholder wealth. Indeed, unless the deal improves the position

of the firm relative to its rivals in the race for consumer patronage, it may not

increase shareholder wealth at all. Answering the third general question - what

are the characteristics of successful deals? - requires drawing overall

tendencies from the surveys based on up to 700 idiosyncratic transactions.

This is often done by comparing the deals on several criteria drawn from the

survey of executives.

Mansur. A. Mulla (2003): In his case study Forecasting the viability and

operational efficiency by use of ratio analysis: A case study, assessed the

financial performance of a textile unit by using ratio analysis. The study found

that the financial health was never in the healthy zone during the entire study

period and ratio analysis highlighted that managerial incompetence accounted

for most of the problems. It also suggested toning up efficiency and

effectiveness of all facets of management and put the company on a profitable

footing.

Lynch and Lind (2002) examined whether the average M&A adventure is

just an executive ego trip? Is it management folly, or can it be done so that it

reliably produces growth? A model presented here may help executives who

are engaged in making acquisitions and making them work navigate the shoals

of mergers and acquisitions more successfully.

55

Rhodes (2002) merger and acquisition will immediately impact the company

with changes in ownership, in ideology, and eventually in practice. In order to

have a more successful expansion, the company should provide some

marketing strategy for the company. The company should provide a strategy

that could generate revenues and profits from three sources and these are sales

at company-owned stores, royalties from possible franchise stores and

franchisee fee from the new store openings and sales of soft drinks.

Ping-wen Lin (2002) findings proves that there is a negative correlation and

statistical significance exist between cost inefficiency index and bank mergers;

meaning banks engaging in mergers tend to improve cost efficiency. However,

the data envelopment analysis empirical analysis found that bank mergers did

not improve significantly cost efficiency of banks. In another study, he found

that (1) generally, bank mergers tend to upgrade the technical efficiency,

allocative efficiency, and cost efficiency of banks; however a yearly decline

was noted in allocative efficiency and cost efficiency. (2) In terms of technical

efficiency and allocative efficiency improvement, the effect of bank mergers

was significant; however, in terms of cost efficiency improvement, the effect

was insignificant.

Gregor Andrade, Erik Stafford (2002): “Investigating the economic role of

mergers”: investigate the economic role of mergers by performing a

comparative study of mergers and internal corporate investment at the industry

and firm levels. We find strong evidence that merger activity clusters through

time by industry, whereas internal investment does not. Mergers play both an

‘‘expansionary’’ and ‘‘contractionary’’ role in industry restructuring. During

the 1970s and 1980s, excess capacity drove industry consolidation through

mergers, while peak capacity utilization triggered industry expansion through

non-merger investments. In the 1990s, this phenomenon is reversed, as

industries with strong growth prospects, high profitability, and near capacity

experience the most intense merger activity.

Hayward (2002) finds that acquisition experience is not enough to generate

superior acquisition performance; however, firms are more successful when

they acquire companies that are in a moderately similar business. This author

56

also finds that acquirers, who make acquisitions one after another in quick

succession, do not outperform companies that acquire infrequently. According

to Hayward (2002) the best results come from those organizations who take a

modest break in their acquisition process to allow the lessons learnt from

acquisitions to be processed, i.e. a break long enough for management to

consolidate key lessons, but not so long that those lessons are forgotten.

Hayward (2002) states that while people undertaking mergers and

acquisitions have a great opportunity to learn from their experience, they

seldom do. This author found that firms who have small losses in prior

acquisitions are stimulated to learn from their performance and outperform on

subsequent acquisitions. On the other hand, firms that have had great success

or great failure find it difficult to learn from that experience. Hayward (2002)

finds that acquisition experience is not enough to generate superior acquisition

performance; however, firms are more successful when they acquire

companies that are in a moderately similar business. This author also finds that

acquirers, who make acquisitions one after another in quick succession, do not

outperform companies that acquire infrequently. According to Hayward

(2002) the best results come from those organizations who take a modest

break in their acquisition process to allow the lessons learnt from acquisitions

to be processed, i.e. a break long enough for management to consolidate key

lessons, but not so long that those lessons are forgotten.

Ms. Surjit Kaur (2002) in her dissertation entitled, A Study of Corporate

Takeovers in India, examines the M & A activity in India during the post

liberalization period. The study tested the usefulness of select financial ratios

to predict corporate takeovers in India. The study suggests further research

areas that are to be explored.

Vardhana Pawaskar (2001): The study entitled Effect of mergers on

corporate performance in India – studied the impact of mergers on corporate

performance. It compared the pre- and post- merger operating performance of

the corporations involved in merger between 1992 and 1995 to identify their

financial characteristics. The study identified the profile of the profits. The

regression analysis explained that there was no increase in the post- merger

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profits. The study of a sample of firms, restructured through mergers, showed

that the merging firms were at the lower end in terms of growth, tax and

liquidity of the industry. The merged firms performed better than industry in

terms of profitability.

The study entitled, Trumps for M & A - Information Technology

Management in a Merger and Acquisition Strategy (2001), found that

success of mergers and acquisitions depends on proper integration of

employees, organization culture, IT, products, operations and service of both

the companies. Proper IT integration in mergers plays a critical role in

determining how effectively merged organizations are able to integrate

business processes and people, and deliver products and services to both

internal and external customers of the organization. The study suggests that to

address the challenges, Chief Information Officers (CIOs) should be involved

from the earliest phase.

Nikandrou.L.et.al (2000) examined that Acquisitions often have a negative

impact on employee behavior resulting in counter-productive practices,

absenteeism, low morale and job dissatisfaction. It appears that an important

factor affecting the successful outcome of acquisitions is top management‟s

ability to gain employee trust. Explores a number of variables which bear an

impact on managerial trustworthiness. Among them, frequent communication

before and after acquisition, and the already existing quality of employee

relations seems to play the most important role. Therefore, a carefully planned,

employee-centered communication program, together with a good level of

employee relations, seem to form the basis for a successful outcome as far as

employee relations in the face of acquisitions is concerned.

Huzifa Husain (2000): The paper entitled, „M&A Unlocking Value‟ by

Huzifa Husain (2000), explains that takeovers (hostile or non-hostile) may be

beneficial to the shareholders if they help unlock the hidden value of a

company. They also help the existing management to be more receptive to

shareholders. Economically, takeovers make sense if the 'Private Market

Value' of a company is higher than the market capitalization of the company.

Further, if takeovers are used as a ploy to prevent competition, it becomes

58

harmful to the economy. Therefore, proper checks and balances have to be put

in place to ensure that takeover facilitation improves overall efficiency of the

economy.

Beena P.L. (2000): The paper entitled, „An Analysis of Mergers in the

Private Corporate Sector in India‟ by Beena P.L. (2000), attempts to analyse

the significance of mergers and their characteristics. The paper establishes that

acceleration of the merger movement in the early 1990s was accompanied by

the dominance of mergers between firms belonging to the same business

group or houses with similar product lines.

Canagavally. R. (2000): The dissertation entitled, „An Evaluation of Mergers

and Acquisitions‟, measures the performance in terms of size, growth,

profitability and risk of the companies before and after merger. The

dissertation also investigates the share prices of sample companies in response

to the announcement of merger.

Anup Agrawal Jeffrey F. Jaffe (1999): The Post-merger Performance

Puzzle – While the bulk of the research on the financial performance of

mergers and acquisitions has focused on stock returns around the merger

announcement, a surprisingly large set of papers has also examined long-run

stock returns following acquisitions. We review this literature, concluding that

long-run performance is negative following mergers, though performance is

non-negative (and perhaps even positive) following tender offers. However,

the effects of both methodology (see Lyon, Barber and Tsai (1999)) and

chance (see Fama (1998)) may modify this conclusion. Two explanations of

under-performance (speed of price adjustment and EPS myopia) are not

supported by the data, while two other explanations (method of payment and

performance extrapolation) receive greater support.

SUMON KUMAR BHAUMIK (1999): Mergers and Acquisitions What can

we Learn from the “Wave” of the 1980s? – During the 1980s, the US

witnessed a merger wave that was much larger than those observed during the

1920s and the 1960s. This in itself may not be surprising, given that the

market for corporate assets was much larger during the 1980s than ever

before. However, the wave of the 1980s left its mark on US‟s financial-

59

corporate history in two different ways. First, aided by banks and private

investors, financial engineering in the form of LBOs and MBOs formed a key

component of this wave. Second, despite the fact that the gains to acquirers

were not significant, the wave continued unabated for nearly 7 years, from the

beginning of the 1980s to 1987. An economist, therefore, is saddled with two

concerns: the possible rationale for the sustenance of the wave, in the absence

of significant gains to acquirers; and the extent of participation of the banks in

the financial engineering, and the impact of such participation on the banks‟

asset risk. This paper addresses these two questions, drawing upon the

theoretical and empirical literature on corporate governance, and the US

merger wave of the 1980s. It argues that ex ante there were many reasons for

the precipitation of a merger wave, but hindsight suggests that managerial

hubris was a key driver of the merger wave. While M&As may have helped

augment the allocational efficiency of the country‟s productive resources,

empirical evidence cited in this paper suggests that there were few reasons, if

any, for the persistence of the merger wave, especially since many of the

mergers involved a high degree of leverage. Further, after taking into account

the nature and extent of the exposure of US banks to the M&As, the paper

argues that exposure to M&As was responsible for increasing the banks‟

financial fragility. It concludes that the risk notwithstanding, M&As can act as

a vehicle for creative destruction that is an integral part of a competitive

market. Hence, an agenda of economic liberalization is inconsistent with anti-

trust legislation aimed at eliminating M&As; rather, M&As should be

supplemented by strong disclosure and prudential norms.

Jayakumar. S. (1999) in his dissertation entitled, „Mergers and Acquisitions:

An Evaluation Study‟ examines the relative benefits expected by a corporate

enterprise when they adopt mergers and acquisitions as a strategy. The author

studies the extent to which the security prices reacted to the announcement of

merger.

Ruhani Ali and Gupta G S (1999) in their paper entitled, „Motivation and

Outcome of Malaysian Takeovers: An International Perspective‟ examine

the potential motives and effects of corporate takeovers in Malaysia. The

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Muller‟s methodology, which involves the use of accounting measures like

size, growth, profitability, risk and leverage, is employed for the study to

analyze the performance characteristics of takeover firms in the pre – and post

– takeover periods.

Ravi Sanker and Rao K.V. (1998): An empirical study entitled, „Takeovers

as a Strategy of Turnaround‟ by Ravi Sanker and Rao K.V. (1998) analyses

the implications of takeovers from the financial point of view with the help of

certain parameters like liquidity, leverage, profitability etc. They observe that

if a sick company is taken over by a good management and makes serious

attempts, it is possible to turn it around successfully.

Risberg. S (1997) examined that mergers and acquisitions are known to have

failures that often are explained by clashing corporate cultures. Previous

research has tried to predict better acquisition outcomes by prescribing

different kinds of fits between the combining companies. Takes an alternative

perspective to look at mergers and acquisitions. Develops a conceptual

framework that uses communication throughout the acquisition process to

produce and negotiate some meaning out of ambiguities and cultural

differences and suggested that this alternative perspective can give a new

insight into explaining the causes of unfulfilled expectations in international

mergers and acquisitions.

Robert DeYoung (1997) estimated pre- and post-merger X-inefficiency in

348 mergers approved by the OCC in 1987/1988. Efficiency improved in only

a small majority of mergers, and these gains were unrelated to the acquiring

bank's efficiency advantage over its target. Efficiency gains were concentrated

in mergers where acquiring banks made frequent acquisitions, suggesting the

presence of experience effects. SU WU (2008) examines the efficiency

consequences of bank mergers and acquisitions of Australian four majors

banks. The empirical results demonstrate that for the time being mergers

among the four major banks may result in much poorer efficiency

performance in the merging banks and the banking sector.

Loughran and Vijh (1997): According to a study done by them for a period

1970 to 1989, five year buy and hold return for sample was 88.2% compared

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to 94.7% for their matching firms. This has a t-statistic of 0.96, which was not

significant.

Baird L (1997) examined the relationship between industrial structure on the

one hand and competitive behavior and performance on the other. The original

explanations were based on the view that concentration facilitates collusive

behavior, and adherents to the Monopoly Power view naturally attributed the

relationship to the existence of monopoly profits in concentrated industries.

The counterargument proposed by Demsetz (1973) views concentration as the

result of active competition by which firms are motivated to improve

efficiency. In the presence of scale economies, larger firms are more efficient

and, hence, more profitable than their smaller rivals. Since their larger market

shares produce higher concentration, a positive relationship between industry

concentration and profitability is observed. In the Efficient Structure (ES)

view, concentration reflects intra-industry efficiency differences; in the

Monopoly Power (MP) view, concentration reflects collusive behavior.

Importantly, the empirical distinction between these theories and, hence, their

empirical validity as competing alternative hypotheses remains unclear.

Anslinger and Copeland (1996): studied returns to shareholders in unrelated

acquisition covering the 1985 to 1995 and they found that in two third cases

companies were failed to earn their cost of acquisition.

Vin and Schwert (1996): conducted an event study for a period of forty days

prior merger to 40 days post-merger and concluded that Merged firms were

under performing than their industry counterparts.

Berkovitch and Narayanan (1993): conducted a study on the gain and

concluded that total gains from M&A are always positive and thus can say

that synergy appears.

Jensen (1993) proposes that most merger activity since the mid-1970s has

been caused by technological and supply shocks, which resulted in excess

productive capacity in many industries. He argues that mergers are the

principal way of removing this excess capacity, as faulty internal governance

mechanisms prevent firms from „„shrinking‟‟ themselves.

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Weber and Schweiger (1992) examined the impact of top management

culture clash on the commitment of the acquired team to the new organization

and on its cooperation with the acquiring team. It suggests that three factors

are influential, namely the degree of cultural differences, the nature of the

contact between the teams, and the intended level of integration between the

companies. The paper generates numerous propositions for predicting the

impact of the culture clash. It also offers suggestions for further theoretical

and empirical study, and presents some of the model's practical implications.

Agarwal, Jaffe and Mandelkar (1992): studied post-merger performance of

the companies with a different perspective. They adjusted data for size effect

and beta weighted market return and found that shareholders of the acquiring

firms experienced a wealth loss of about 10% over the period of five years

following the merger completion.

Hay & Morris (1991): have done a thorough review of the causes and

consequences of mergers and acquisitions. According to them, motives for

mergers exist even under ideal conditions. They define ideal (or pure)

conditions as those in which - 1) firms are fully efficient, 2) there is no

divergence between motives of managers and shareholders and, 3) when

shares are valued correctly in the stock market. Under ideal (or pure)

conditions too firms indulge in mergers and acquisitions since it provides the

acquiring firm benefits such as increase in market power, reduction in

advertising and other promotional expenditures, efficiency gains like

production economies, better utilization of indivisible or spare resources,

economies in R&D, economies in obtaining finance and elimination of

transaction costs.

Raghunathan. V. et.al (1991): The study entitled, „The New Economic

Package and the Agenda for Restructuring the Financial Sector‟ by

Raghunathan.V. et.al (1991) discusses the emerging issues relating to new

economic policy in the financial sector. This article strongly argues that

agenda for restructuring the financial sector includes the integration of

various financial markets, new instruments required for hedging risk,

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measures for investor protection, appropriate legislation, relevant tax reforms,

development of financial infrastructure and the role of regulatory agencies.

Odagiri and Hase (1989): found a growing number of Japanese firms

engaging in mergers and acquisitions. However they found no evidence that in

general profitability or growth improved significantly.

David C. Cheng, et.al (1989) in their paper, “Financial Determinants of

Bank Takeovers” found that several studies have examined the determinants

of bank merger pricing. Those studies focused on the characteristics of the

target, and to downplay the characteristics of the acquirer. Their study found

that the purchase price is a negative function of the target‟s capital- to- asset

ratio. The only variable used in their model is the ratio of acquirer-to-target

assets. This study is different from earlier studies of bank mergers pricing in

the sense that it provided greater consideration of bidder related variables,

used multiple proxies for certain theoretical determinants of merger pricing,

and used principal components regression to control potential multicollinearity

problems.

Porter (1987): attempted to study this relationship in a slightly different way.

He took rate of divestment of new acquisitions by companies within a few

years as an indicator of success or failure. He found that about 75 percent of

all unrelated acquisition in the sample was divested after few years and 60

percent of acquisitions in entirely new industry.

Hall and Norburn (1987) examined theoretical development and empirical

investigation into the performance of mergers and acquisitions. In parallel,

recent research which links the performance of organizations to the presence

of an appropriate corporate culture is discussed. From these two theoretical

platforms, it is argued that the performance of acquisitions is determined by a

match of culture and those organizational expectations which avoid post-

acquisition managerial indigestion. Finally, a program of research is proposed

to measure the performance of acquisitions against the criteria laid down by

the acquiring management, and to determine the impact of culture clashes on

those acquisitions perceived to have failed.

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Revenscraft and scherer (1986): found that on average Mergers and

acquisitions made by over 450 US companies during 60-70s did not lead to an

increase of market shares and profitability but instead they found declining

performance for most companies. They also found that mergers did slightly

worse than their industry peers at the time of acquisition, but results were

clearly poorer after about 10 years from acquisitions.

Shrivastava. P (1986) examined that while mergers may be a good way to

grow rapidly, can one sustain growth and performance for long periods? The

answer lies in how well one integrates the business after the merger.

Berg, Duncan and Friedman (1982): conducted a comprehensive cross-firm

and cross industry analysis to measure the effect of joint venture activities on

the performance of the companies and found ambiguous but positive short-

term gains and insignificant long-term impact on profitability. They further

noted that even short-term gains were negative for technological or

knowledge-oriented acquisitions and were positive for production and

marketing oriented acquisitions, because of increased market power leading to

Singh (1975): in a subsequent study studied Mergers in UK over 1967-70

period. He found results similar to his earlier study, that of size being the main

deterrent to takeover bids. In another study conducted in UK Kuehn (1975)

found results similar to Singh‟s study. His study looked more specifically at

the valuation ratio and the financial and other performance variables that

underlie it. Although he too found a big difference in valuation ratios between

victim firms and the rest taken as a whole, it was a weak discriminant between

the two groups. Disaggregation to the underlying financial variables – profit

rate before tax, growth rate of assets, retention ratio, and liquidity ratio - gave

still weaker results.

Christina Oberg & Johan Holtstrom: Are mergers and acquisitions

contagious? - Conceptualising parallel M&As among customers and

suppliers – Mapping the number of completed mergers and acquisitions

(M&As) over the past few decades would produce a line roughly following the

fluctuations of the business cycle. The most recent peak was marked by the

numerous M&As occurring in the late 1990s and in early 2000 (Bengtsson and

65

Skarvad 2001; Weston and Weaver 2001), followed by the recession starting

in late 2000 (Sevenius 2003; Lundell 2002; KPMG Corporate Finance 2003;

Forvarv & fusioner 2004). Weston and Weaver (2001) describe this

development as M&A waves, and refer to the most recent peak of mergers and

acquisitions as the fifth M&A wave. Different peaks in the history of M&A

have had different foci. In the 1960s and 1970s, diversification and the

creation of conglomerates were common reasons for merging with or

acquiring other companies (Shleifer & Vishny, in Rumelt, Schendel and Teece

1994; Weston and Weaver 2001). In the age of economic globalisation, the

M&As of the late 1990s and early 2000 were more international in scope,

involving companies from more than one country; they were also more

focused on bringing intra-industry companies together (Bengtsson and

Skarvad 2001; Sevenius 2003). The intra-industry focus on M&As could stand

as a description for the concentration e.g. the automotive industry and the IT-

sector in the late 1990s. But is this all we see? This paper focuses on M&As as

a driving force for other M&As. More specifically, our focus is on how M&As

among customers lead to M&As among suppliers, and reverse, in a network

perspective. We launch the concept of parallel M&As to describe this

phenomenon. The purpose of this paper is to discuss parallel M&As, asking:

In what ways are M&As among customers and suppliers a driving force for

M&As? In contrast to the argument in e.g. Halinen, Salmi and Havila (1999)

and Havila and Salmi (2000), we argue that M&As are not only a trigger to

change, but also a response to change, and further, that these changes need not

be directly dyadic ally connected (cf. Hertz 1998; Havila and Salmi 2000), but

appear parallel to each other. Contrary to the motives presented in most

traditional M&A literature, this further means challenging M&As as only

being the result of strategies within the acquiring company. Instead we point at

M&As as contextually driven. Built on the six case studies, matching,

dependence and keeping a “power balance” between customers and suppliers

are referred to as key explanations for parallel M&As.

Healy, Palepu, and Ruback examined post-acquisition performance for 50

largest U.S. mergers between 1979 and 1984 by measuring cash flow

performance, and concluded that operating performance of merging firms

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improved significantly following acquisitions, when compared to their

respective industries.

J. Fred Weston and Samual C. Weaver: A study done by J. Fred Weston

and Samual C. Weaver shows that around 50% mergers are successful in

terms of creation of values for shareholders.

Jarrod McDonald, Max Coulthard, and Paul de Lange: “Planning for a

Successful Merger and Acquisition: Lessons from an Australian Study” –

This study used semi-structured interviews to: identify the link between

corporate strategic planning and M&A strategy; examine the due diligence

process in screening a merger or acquisition; and evaluate previous experience

in successful M&As. The study found that there was a clear alignment

between corporate and M&A strategic objectives but that each organization

had a different emphasis on individual criterion. Due diligence was also

critical to success; its particular value was removing managerial ego and

justifying the business case. Finally, there was mixed evidence on the value of

experience, with improved results from using a flexible framework of

assessment.

Katsuhiko Ikeda and Noriyuki Doi: studied the financial performances of

43 merging firms in Japanese manufacturing industry and found that the

rate of return on equity increased in more than half the cases, but rate of return

on total assets was improved in about half the cases. However, both profit

rates showed improvement in more than half the cases in the five-year test,

suggesting that firm performances after mergers began to be improved along

with the internal adjustment of the merging firms: there was a necessary

gestation period during which merging firms learnt how to manage their new

organizations.

Kruse, Park and Suzuki examined the long-term operating performance of

Japanese companies using a sample of 56 mergers of manufacturing firms

in the period 1969 to 1997. By examining the cash-flow performance in the

five-year period following mergers, the study found evidence of

improvements in operating performance, and also that the pre- and post-

merger performance was highly correlated. The study concluded that control

67

firm adjusted long-term operating performance following mergers in case of

Japanese firms was positive but insignificant and there was a high correlation

between pre- and post-merger performance.

M Jayadev & Rudra Sensarma: Mergers in Indian Banking: An Analysis –

This paper analyzes some critical issues of consolidation in Indian banking

with particular emphasis on the views of two important stake-holders viz.

shareholders and managers. First we review the trends in consolidation in

global and Indian banking. Then to ascertain the shareholders views, we

conduct an event study analysis of bank stock returns which reveals that in the

case of forced mergers, neither the bidder nor the target banks shareholders

have benefitted. But in the case of voluntary mergers, the bidder banks

shareholders have gained more than those of the target banks. In spite of

absence of any gains to shareholders of bidder banks, a survey of bank

managers strongly favors mergers and identifies the critical issues in a

successful merger as the valuation of loan portfolio, integration of IT

platforms, and issues of human resource management. Finally we support the

view of the need for large banks by arguing that imminent challenges to banks

such as those posed by full convertibility, Basel-II environment, financial

inclusion, and need for large investment banks are the primary factors for

driving further consolidation in the banking sector in India and other Asian

economies .

Mahesh Kumar Tambi: “Impact of Merger and Amalgamation on the

Performance of Indian Companies” – This research 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.

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This study shows that Indian companies are no different than the companies in

other parts of the world and mergers failed to contribute positively in the

performance improvement.

Marina Martynova, Sjoerd Oosting and Luc Renneboog: investigated the

long-term profitability of corporate takeovers in Europe, and found that both

acquiring and target companies significantly outperformed the median peers

in their industry prior to the takeovers, but the profitability of the combined

firm decreased significantly following the takeover. However, the decrease

became insignificant after controlling for the performance of the control

sample of peer companies.

Pawaskar analyzed the pre-merger and post-merger operating performance of

36 acquiring firms during 1992-95, using 5 ratios of profitability, growth,

leverage, and liquidity, and found that the acquiring firms performed better

than industry average in terms of profitability. Regression Analysis however,

showed that there was no increase in the post-merger profits compared to

main competitors of the acquiring firms.

Rabi Narayan Kar & Amit Soni: MERGERS AND ACQUISITIONS IN

INDIA: A STRATEGIC IMPACT ANALYSIS FOR THE CORPORATE

ENTERPRISES IN THE POST LIBERALISATION PERIOD – The total

M&As from 1990-91 to 2000-01 have been analyzed under this caption. There

are thirteen hundred and eighty six M&As identified during the period of the

study using the methodology given earlier. The maximum number of M&As is

reported in the year 1999-2000, and the lowest found out in the year 1991-

92.The momentum of M&As built up from the year 1995-96 in which thirty

three M&As are found during the span of the study. In 1996-97, the number of

M&As increased to 124 which is 275.75 percent growth in M&As activity.

Further, there is a 100 percent increase of M&As in 1997-98 amounting to

248. There has been an increase in M&As in 1998-99 amounting 269 (8.46 %

increase). Subsequently, the year 1999-2000 has reported the maximum that is

387 numbers of M&As which is 43.86 percent above the previous year. This

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period is followed by a reduction in M&As activity in 2000-01 which stands at

290 (negative growth rate of 25.06).

The study entitled, ‘LBOs, Corporate Restructuring and The Incentive-

Intensity Hypothesis’ investigated the argument that corporate restructuring is

an intended outcome of LBO transactions directly. Using a detailed database

on corporate operations, the study investigated four aspects of corporate

restructuring, namely, corporate downsizing, corporate refocusing, portfolio

reorganization and changes in the industry characteristics of portfolio

business. The results of this study strongly suggest that the governance

structure of LBO firms enables the managers to forge growth more effectively

than the governance structure of public firms. This study analyzed the effects

of LBOs on corporate restructuring activity by analyzing differences in

restructuring activity between 33 large LBO firms and 33 closely matched

public corporations. The evidences presented in the study show that certain

types of corporate restructuring are more prevalent and extensive in LBO

firms than similar ones in public firms.

Weston and Mansingka: studied the pre and post-merger performance of

conglomerate firms, and found that their earnings rates significantly

underperformed those in the control sample group, but after 10 years, there

were no significant differences observed in performance between the two

groups. The improvement in earnings performance of the conglomerate firms

was explained as evidence for successful achievement of defensive

diversification.

Ghosh examined the question of whether operating cash flow performance

improves following corporate acquisitions, using a design that accounted for

superior pre-acquisition performance, and found that merging firms did not

show evidence of improvements in the operating performance following

acquisitions.

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SUMMERY

To sum up the review of literature, many contributions have offered different

perspectives of merger in different industries worldwide and explained the valuation

techniques followed by merging companies, and shareholders wealth effect due to

merger. From the review of many excellent research papers analyzing the pre and

post-merger performance of merged companies, it is inferred that majority of the

studies strongly support the concept of enhanced post-merger performance due to

merger and it is beneficial to the acquirer companies. Also very few research papers

are these on Indian manufacturing industry but no one did the research on specific

sector like Metals & Metal Products and Machinery Companies. Therefore

researcher examining the pre & post-merger financial performance of Selected Indian

Metals & Metal Products and Machinery companies during the 2005 to 2010. Also

this review of literature helped the researcher to set objectives & hypotheses for this

study.