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The following is a brief description of the two companies:

˜
 
˜

It all began in the year 1938 when two electrical engineering graduates from
Stanford University called William Hewlett and David Packard started their
business in a garage in Palo Alto. In a year¶s time, the partnership called Hewlett-
Packard was made and by the year 1947, HP was incorporated. The company has
been prospering ever since as its profits grew from five and half million dollars in
1951 to about 3 billion dollars in 1981. The pace of growth knew no bounds as
HP¶s net revenue went up to 42 billion dollars in 1997. Starting with
manufacturing audio oscillators, the company made its first computer in the year
1966 and it was by 1972 that it introduced the concept of personal computing by a
calculator first which was further advanced into a personal computer in the year
1980. The company is also known for the laser-printer which it introduced in the
year 1985.



The company is better known as Compaq Computer Corporation. This was

company that started itself as a personal computer company in the year 1982. It
had the charm of being called the largest manufacturers of personal computing
devices worldwide. The company was formed by two senior managers at Texas
Instruments. The name of the company had come from-´Compatibility and
Quality´. The company introduced its first computer in the year 1983 after at a
price of 2995 dollars. In spite of being portable, the problem with the computer
was that it seemed to be a suitcase. Nevertheless, there were huge commercial
benefits from the computer as it sold more than 53,000 units in the first year with a
revenue generation of 111 million dollars.

    
A very simple question that arises here is that, if HP was progressing at such a
tremendous pace, what was the reason that the company had to merge with
Compaq? Carly Fiorina, who became the CEO of HP in the year 1999, had a key
role to play in the merger that took place in 2001. She was the first woman to have
taken over as CEO of such a big company and the first outsider too. She worked
very efficiently as she travelled more than 250,000 miles in the first year as a CEO.
Her basic aim was to modernize the culture of operation of HP. She laid great
emphasis on the profitable sides of the business. This shows that she was very
extravagant in her approach as a CEO. In spite of the growth in the market value of
HP¶s share from 54.43 to 74.48 dollars, the company was still inefficient. This was
because it could not meet the targets due to a failure of both company and industry.
HP was forced to cut down on jobs and also be eluded from the privilege of having
Price Water House Cooper¶s to take care of its audit. So, even the job of Fiorina
was under threat. This meant that improvement in the internal strategies of the
company was not going to be sufficient for the company¶s success. Ultimately, the
company had to certainly plan out something different. So, it was decided that the
company would be acquiring Compaq in a stock transaction whose net worth was
25 billion dollars. Initially, this merger was not planned. It started with a
telephonic conversation between CEO HP, Fiorina and Chairman and CEO
Compaq, Capellas. The idea behind the conversation was to discuss on a licensing
agreement but it continued as a discussion on competitive strategy and finally a
merger. It took two months for further studies and by September, 2001, the boards
of the two companies approved of the merger. In spite of the decision coming from
the CEO of HP, the merger was strongly opposed in the company. The two CEOs
believed that the only way to fight the growing competition in terms of prices was
to have a merger. But the investors and the other stakeholders thought that the
company would never be able to have the loyalty of the Compaq customers, if
products are sold with an HP logo on it. Other than this, there were questions on
the synchronization of the organization¶s members with each other. This was
because of the change in the organization culture as well. Even though these were
supposed to serious problems with respect to the merger, the CEO of HP, Fiorina
justified the same with the fact that the merger would remove one serious
competitor in the over-supplied PC market of those days. She said that the market
share of the company is bound to increase with the merger and also the working
unit would double.

÷
   

Even though it seemed to be advantageous to very few people in the beginning, it

was the strong determination of Fiorina that she was able to stand by her decision.
Wall Street and all her investors had gone against the company lampooning her
ideas with the saying that she has made 1+1=1.5 by her extravagant ways of
expansion. Fiorina had put it this way that after the company¶s merger, not only
would it have a larger share in the market but also the units of production would
double. This would mean that the company would grow tremendously in volume.
Her dream of competing with the giants in the field, IBM would also come true.
She was of the view that much of the redundancy in the two companies would
decrease as the internal costs on promotion, marketing and shipping would come
down with the merger. This would produce the slightest harm to the collection of
revenue. She used the ideas of competitive positioning to justify her plans of the
merger. She said that the merger is based on the ideologies of consolidation and
not on diversification. She could also defend allegations against the change in the
HP was. She was of the view that the HP has always encouraged changes as it is
about innovating and taking bold steps. She said that the company requires being
consistent with creativity, improvement and modification. This merger had the
capability of providing exactly the same.

 ÷ 

A CEO will always consider such a merger to be an occasion to take a competitive

advantage over its rivals like IBM as in this case and also be of some interest to the
shareholders as well. The following are the strategies that are related to this merger
between HP and Compaq:

jc Having an eye over shareholders¶ value: If one sees this merger from the
eyes of Fiorina, it would be certain that the shareholders have a lot to gain
from it. The reason for the same is the increment in the control of the
market. So, even of the conditions were not suitable from the financial
perspective, this truth would certainly make a lot of profits for the company
in the future.
jc Development of Markets: Two organizations get involved in mergers as they
want to expand their market both on the domestic and the international level.
Integration with a domestic company doesn¶t need much effort but when a
company merges internationally as in this case, a challenging task is on
head. A thorough situation scanning is significant before putting your feet in
International arena. Here, the competitor for HP was Compaq to a large
degree, so this merger certainly required a lot of thinking. Organizations
merge with the international companies in order to set up their brands first
 and let people know about what they are capable of and also what they eye
in the future. This is the reason that after this merger the products of
Compaq would also have the logo of HP. Once the market is well-known,
then HP would not have to suffer the branding created by Compaq. They
would be able to draw all the customers of Compaq as well.

u  ÷ 

There are a number of mergers and acquisitions that fail before they actually start
to function. In the critical phase of implementation itself, the companies come to
know that it would not be beneficial if they continue as a merger. This can occur in
this merger between HP and Compaq due to the following reasons.

jc Conversations are not implemented: Because of unlike cultures, ambitions

and risk profiles; many of the deals are cancelled. As per as the reactions of
the owners of HP, this seems to be extremely likely. So, motivation amongst
the employees is an extremely important consideration in this case. This
requires an extra effort by the CEO, Fiorina. This could also help her
maintain her position in the company.
jc oegal Contemplations: Anti-competitive deals are often limited by the rules
presiding over the competition rules in a country. This leads to out of order
functioning of one company and they try to separate from each other. A lot
of unnecessary marketing failures get attached to these conditions. If this
happens in this case, then all that money which went in publicizing the
venture would go to be a waste. Moreover, even more would be required to
re-promote as a single entity. Even the packaging where the entire inventory
from Compaq had the logo of HP would have to be re-done, thus hampering
the finance even further.

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´cMerger is India¶s largest ever
´cRPo shareholders to receive RÔone) share of RIo for every R Ôsixteen) shares of
RPo
´cRIo¶s holding in RPo to be cancelled. No fresh treasury stock created
´cRIo to be a top 10 private sector refining company globally
´cRIo to become the world¶s largest producer of Ultra Clean Fuels at single
location
´cMerger to unlock greater efficiency from scale and synergies
´cMerger to be EPS accretive
´cRIo to have i
million shareholders


 ÷#$ $%%&:

The Boards of Directors of Reliance Industries oimited ÔRIo)

and Reliance Petroleum oimited ÔRPo) today unanimously approved RPo¶s
merger with RIo,
subject to necessary approvals. The exchange ratio recommended by both boards is
RÔone)
share of RIo for every R Ôsixteen) shares of RPo. RIo will issue &$crore new
shares,
thereby increasing its equity capital to Rs R#
icrore.
Commenting on the merger, ' ÷(# 

  #
  
'  
said: )This merger follows Reliance Industries¶
philosophy of
creating enduring value for all our stakeholders. It is a significant step in our
goal to be
among the largest global corporations.[


    
  *
The merger will unlock significant operational and financial synergies that exist between RIo
and RPo. It creates a platform for value-enhancing growth and reinforces RIo¶s position as
an integrated global energy company.
The merger will enhance value for shareholders of both companies. The merger is EPS
accretive for RIo. Through this merger, RIo consolidates a world-class, complex refinery
with minimal residual project risk, while complementing RIo¶s product range. There will be
further gains from reduced operating costs arising from synergies of a combined operation.
The merger is expected to reduce the earnings volatility for RPo shareholders and allows
them to participate in the full energy value chain of RIo.

   
 '*


´cOperating two of the world¶s largest, most complex refineries
´cOwning 1.24 million barrels per day ÔMBPD) of crude processing capacity, the largest
refining capacity at any single location in the world
´cEmerging as the world¶s 5th largest producer of Polypropylene

   *

Under the terms of the proposed merger, RPo shareholders will receive RÔone)
share of RIo
for every R Ôsixteen) RPo shares held by them.
The appointed date of merger of RPo with RIo is R÷ $%%+.
RIo will cancel its holding in RPo.
Based on the recommended merger ratio, RIo will issue &$crore new equity
shares to the
existing shareholders of RPo. This will result in a

% increase in equity base
from
Rs R#,

crore to Rs R#
icrore. Consequently, the promoter holding in RIo will
reduce
from
& %% to

%%
Advisors to the merger are as follows:
Valuation Advisors : Ernst & Young Pvt. otd. and
Morgan Stanley India Co. Pvt. otd.
Transaction Advisors : JM Financial Consultants Pvt. otd. and
Kotak Mahindra Capital Co otd.
Fairness Opinion : DSP Merrill oynch otd. Ôfor RIo) and
Citigroup Global Markets India Pvt. otd Ôfor RPo)
oegal Advisor : Amarchand & Mangaldas & Suresh A. Shroff & Co.
Tax Advisor : PriceWaterhouse and Coopers Pvt. otd.
The proposed merger is subject to all necessary approvals. All other procedural
aspects of
the proposed merger, and the timetable for implementation, will be communicated
separately.
  *
 
' 

The take over of Bank of Madura (BoM) by ICICI Bank has been the second
success story in the banking industry after the take over of Times bank by HDFC
Bank last year. The Board of Directors of ICICI Bank and Bank of Madura (BoM)
approved the merger of the two banks at their respective meetings held on
11thDecember and agreed to a share swap ratio of two shares of ICICI Bank for
one share of BoM.

The amalgamation scheme was placed for approval at the meeting of

shareholders of the two banks on January 19 .The proposed date of merger was
February 1, 2001. ICICI Bank Limited has fixed Wednesday, April 11, 2001 as the
'Record Date' to determine the shareholders of Bank of Madura Limited who
would be entitled to receive the equity shares of ICICI Bank. ICICI Bank was third
time lucky after two earlier attempts of merger. The first was a proposed merger
with Centurion Bank, which fizzled out after the bank͛s promoters asked for
higher valuations, the second a recent reverse merger with parent ICICI. The
integration exercise was scheduled to be completed by September 2001. Before
we move onto why the two banks decided to merge. Let us look at why ICICI
decided to merge with Bank of Madura?

ICICI Bank had been scouting for a private banker for merger. Though it had 21
percent of stake, the choice of Federal bank, was not lucrative due to the
employee size (6600), per employee business is as low at Rs.161 lakh and a snail
pace of technical up gradation. While, BOM had an attractive business per
employee figure of Rs.202 lakh, a better technological edge and had a vast base in
southern India when compared to Federal bank.

Some key financials of both the banks:

Financial Standings of ICICI Bank and Bank of Madura

(Rs. in crore)

Parameters ICICI Bank Bank of Madura

1999- 1999-
1998-99 1998-99
2000 2000

Net worth 1129.90 308.33 247.83 211.32

Total Deposits 9866.02 6072.94 3631.00 3013.00

Advances 5030.96 3377.60 1665.42 1393.92

Net profit 105.43 63.75 45.58 30.13

Share capital 196.81 165.07 11.08 11.08

Capital Adequacy Ratio 19.64% 11.06% 14.25% 15.83%

Gross NPAs/ Gross

2.54% 4.72% 11.09% 8.13%
Advances

Net NPAs /Net

1.53% 2.88% 6.23% 4.66%
Advances
 Source: Compiled from Annual reports (March 2000) of ICICI
Bank and BOM

Illustration 13

Crucial Parameters: How they stand

Book value of Market price Profit per

Dividend
Name of Bank on the on the day of Earnings employee
paid (in P/E ratio
the Bank day of merger announcement per share (in lakh)
%)
announcement of merger 1999-2000

Bank of
183.0 131.60 38.7 55% 3% 1.73
Madura

ICICI -
58.0 169.90 5.4 15% 7.83
Bank
Illustration 14

—



 




á
 
 
jc BoM was bankrupt (with assets which are Rs.350 crore behind liabilities) and
had a leverage of 41 times. If it were to be brought up to a point where its
assets were 10% ahead of liabilities, which is broadly consistent with the Basle
 Accord, this would require an infusion of Rs.800 crore of equity capital, which
would be impossible for them to raise.
jc BoM had a network, which ICICI Bank wanted. They had many regional
branches, which would help ICICI increase their reach in the regional markets.
jc Financial consolidation was becoming necessary for the growth of BoM. The
merger with a new private sector bank, particularly a financially and
technological strong bank like ICICI would add to shareholder value and
enhance career opportunities for the employees besides providing first rate,
technology based, modern banking services to customers

 

jc For BoM, the most significant benefit would be the brand equity it would
acquire by becoming a part of the ICICI group, with the most overt advantage
being technology infusion.
jc BoM would not have been able to raise the Rs800 crore that it needs to get
the assets 10% ahead of its liabilities, but after the merger with ICICI this
amount will be infused into the bank.
jc The shareholders of both the banks will benefit. Although the swap ratio
favours BoM the ICICI bank shareholders still earn a higher Earning per Share
(EPS).
Êc On post merger, ICICI Bank's equity shall be Rs.220.36 crores while its
annual total income would be about Rs.1,700 crores with expected net
profit of Rs.192
 crores giving an annualised EPS of Rs.8.70 as compared to an EPS of
Rs.7.90 as on 30 September. 2000 Hence it has been seen that even
after issue of shares in exchange ratio of 2:1 the financial performance
of the bank shall improve, thus improving the bottom line of the bank.


 
 
jc The employees and staff of the two banks had no clue whatsoever and were
`surprised and shocked' in their own words when the merger was announced.
Hence they might make the merger process more tiresome for the
management. The surprise element is said to have hit even the top
management of Bank of Madura who are reported to have been "caught
unawares" by the developments set in motion by the owners/directors of the
two banks.
jc It is a merger of a 57-year old BOM, south based old generation bank with a
fast growing tech savvy new generation bank this in itself has enough
problems.
jc Managing rural branches : ICICI͛s major branches are in major metros and
cities, whereas BOM spread its wings mostly in semi urban and city segments
of south India. There is a task ahead lying for the merged entity to increase
dramatically the business mix of rural branches of BOM. On the other hand,
due to geographic location of its branches and level of competition, ICICI Bank
will have a tough time to cope with.