Merger And Acquisition Of Financial Performance Essay

Chapter 4. Results and Discussions
In this chapter, empirical results for evaluating the operating performances of the firm and shareholder’s wealth by using a conservative method and shareholder’s wealth at different events of the firm’s lifecycles or during the course of merger and acquisition activity by using the market model by Fama will be discussed.
Q1. What is the impact of merger and acquisition on the operating activities of both target and acquiring firms prior to and post the merger and acquisition activity? (Refer to Appendix I)

1.1. ICICI Bank Merger with Bank of Madura (2000)
ICICI Bank & Bank of Madura Merger Date: 10 March 2001
Ratios Prior Merger Post Merger 2000 2000 2001 ICICIBANK BANKMAD ICICIBANK
Operating Profit Margin 9% 12% 6%
Cost to income ratio 27% 33% 51.9%
Earning Per share Rs.7.40 Rs.38.73 Rs.8.72
Price/ Earning Ratio 1.83 4.73 19.5
Dividend yield 0.70% 55% 20%

Bank of Madura operated as a profitable entity in Indian Bank industry for several decades. It had extensive network of 263 branches across India. Since Bank of Madura had a vast base in southern India as compared to Federal Bank, it also had a better technological edge as compared to ICICI Bank. When ICICI Bank merged with Bank of Madura in late 2001, the bank apparently had a vast reach in the country, increasing their operations. Post Merger in 2001, operating profit margin of ICICI Bank dropped 3%, which is from 9% to 6%, which indicates a rise in operations cost i.e.