macr term paper

7/30/2019 MACR Term Paper

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MA&CR Term Paper

Write- Up on

M&A of Oriental Bank of Commerce and Global Trust Bank


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Objective:

To do an in-depth analysis of a M&A deal to learn the various underlying concepts in the

merger and acquisition of a company using various tools and techniques to make analysis.

INTRODUCTION:

Oriental Bank of Commerce (OBC), was Indias tenth largest PSU bank, having an asset size of

US$ 23.2bn (as on March 31, 2009). The bank has underperformed the BSE Bankex and Sensex

in the past years due to deterioration in operating parameters and apprehensions over its

ability to maintain credit quality post merger with Global Trust Bank (GTB) in FY05.

Global Trust Bank Ltd., (GTB) was placed under an Order of Moratorium on July 24, 2004. The

option available with the Reserve Bank was to compulsory merger under section 45 of the

Banking Regulation Act, 1949. Oriental Bank of Commerce (OBC) interest was examined by the

Reserve Bank of India keeping in view its financial parameters, its retail network and its

synergies as well as strategic advantages. Taking into account the interests of the millions of

depositors of GTB, as well as the banks strengths and weaknesses, the Reserve Bank prepared

following draft scheme of amalgamation of GTB with OBC.

The Government of India has sanctioned the scheme for amalgamation of the Global Trust Bank

Ltd. with the Oriental Bank of Commerce. The amalgamation came into force on August 14,

2004.

The Oriental Bank of Commerce and the Global Trust Bank combined lost 14.78 per cent in

value on a weighted average basis in a 11-day period. This merger was the first major move tobail out a sick bank.

M&A Type:

Forced / Horizontal Merger due to bankruptcy: GTB had no choice as the merger was forced on

it, by an RBI ruling, following its bankruptcy.

Motive behind M&A:

Post- merger synergy as the weakness of Global Trust Bank had been bad assets and thestrength of OBC lay in recovery.

GTB being a south-based bank would have given OBC the much-needed edge in thatregion

Tax relief because of the merger.


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Benefits of Merger to Acquirer:

OBC gained from the 104 branches and 276 ATMs of GTB. Also gained a workforce of 1400 employees and one million customers. Both banks were having common IT platform so there was no investment required for it. OBC's presence in southern states increased along with the modern infrastructure of

GTB.

Drawbacks of M&A of OBC and GTB:

Resulted in a low CAR for OBC. The bank also had a lower business growth and other financial losses.

Sources of Data Available:

No direct analysis data is available on this deal. However there is consolidated pre- and post-

merger data available which can be used to make analysis. The various data sources available

are mentioned in the references section. The present data gathered is sufficient to make most

of the analysis. There may be some problem faced due to variation in data to some extent due

to data compiled and gathered from different sources.

The analysis part will be mainly based on the financial data gathered from different sources and

using the M&A tools studied in the class to gain insight and experience in M&A analysis.

REFERENCES:

1. Religare Capital Markets Ltd. Report, 18 Sept., 2009

2. Motilal Oswals Inquire (Indian Equity Research): Analyst Meet Report, 15April 2005 (for pre-

merger data)

3. SEBIs Oriental Bank of Commerce, DRAFT RED HERRING PROSPECTUS, Book Building Issue

4. Post- Merger financial Analysis Data, International Journal of Research in Commerce and

Management

5. CRISILs GTB-OBC Report, July 2004

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