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Bank of Madura Merger With ICICI Bank

Volume 15, Number 3 Article by Justin Paul September, 2003

Bank of Madura Merger With ICICI Bank: An Analysis :

Business combinations, which may take the form of mergers, amalgamation and takeovers, are important features of corporate restructuring and governance and have played an important role in the growth of a number of leading companies the world over. Subsequent to the structural adjustment programmes in the Indian economy such restructuring has taken place in most of the industries including banking, IT, FMCG and pharmaceuticals.

Justin Paul analyses the synergies of the merger of Bank of Madura with ICICI Bank in the Indian banking industry and the strategic factors to be considered while taking merger or acquisition decisions. The swap ratio finally derived was 1:2 in favour of Bank of Madura but if the valuation had been done on the basis of the market price of the shares, the balance sheets and the NPAs of both the banks, the swap ratio could have been derived in favour of ICICI Bank. But strategic considerations such as ICICI’s desire to acquire a good bank from South India, where they did not have a strong presence and geographical advantage, swung the merger decision. The paper looks at the valuation of the swap ratio, the announcement of the swap ratio, share price fluctuations of the banks before the merger decision announcement and the impact of the merger decision on the share prices. An attempt has also been made to assess the suitability of the merger between the 57 year old Bank of Madura with its traditional focus on mass banking strategies based on social objectives, and ICICI Bank, a six year old ‘new age’ organisation, which has been emphasising parameters like profitability in the interests of shareholders. The synergies generated by the merger would include increased financial capability, branch network, customer base, rural reach and better technology. However, managing human resources and rural branches may be a challenge given the differing work cultures in the two organisations.

Reprint No 03301