The Indian business environment has been important in M&A. Companies have used this as a tool to enhance market positions, new sectors, and synergies. These types of transactions have many advantages. These benefits include cost savings, enhancement of market share, and acquiring new technologies or geographies. India has witnessed several mergers in the last couple of years that changed the complete industrial landscape from telecom to banks.
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Meaning of Merger
A merger is the fusion of two or more companies into one. The reasons could either be to gain better competitiveness, more access to markets, or just any other criteria for efficient operations. At times, companies just agree to unite their assets, resources, and operations with one resultant body formed from the new or existing company that absorbs all the others. The mergers are usually done on a mutually agreed basis, and they may come in different forms, that is, horizontal, vertical, or conglomerate mergers, depending on the nature of the businesses being merged.
Check out the types of mergers.
Benefits of M&A
The benefits of M&A are enormous. First and foremost, through increased market share, firms gain more competitiveness and possibly economies of scale. Second, M&A can help access new technologies, expertise, or resources that spur innovation and efficiency. Moreover, diversification benefits firms since there is a decline in single-market or product reliance risks. From the foregoing, a successful M&A may result in enhanced financial performance and higher value for shareholders, who can assist the merged firm in developing in the future.
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Disadvantages of M&A
The potential advantages of M&A do not override its many disadvantages. The cultural differences between the merging organizations make employees unhappy and result in retention issues. These also include high costs, which may dent the financial resources of the companies due to legal advisory fees. Moreover, operations and management styles have to be changed, which causes great difficulties in integrating the activities of the companies. Regulatory challenges may delay or block the transaction. Therefore, the transaction requires careful due diligence and strategic planning to overcome the challenges effectively.
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Examples of Mergers in India in Detail
In India, one has seen various mergers that have dramatically changed the industry, improved operational efficiency, and enhanced market share for the companies involved. Some of the most significant mergers are shown as follows:
1. State Bank of India (SBI) and Its Associate Banks (2017)
SBI's merger with its five associate banks—State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore—is a momentous development in Indian banking.
Reason for Merger: It was supposed to lead to an enormously larger entity with strong financial muscle and a higher customer reach.
Impact: After the merger, SBI emerged as one of the largest banks in the world measured by assets. Restructuring yielded the scaling of efficiency, cost minimization, and improvement in competitiveness.
2. Vodafone India and Idea Cellular (2018)
The biggest telecom merger in India was between Vodafone India and Idea Cellular, which resulted in Vodafone Idea Ltd.
Reason for Merger: The primary reason behind this merger was due to the high competition in the telecom sector, where the emergence of Reliance Jio resulted in a price war and a low profit margin.
Impact: The company emerged to become the largest player in India in terms of subscriber base, but issues with debt and competition were witnessed in later years.
3. HDFC Bank and Times Bank (2000)
This was one of the first mergers within the Indian banking sector after liberalization.
Reason for Merger: The logic behind this merger was that HDFC Bank would be looking to strengthen its coverage and base of customers. In the case of Times Bank, it would look to strengthen its financial position.
Impact: HDFC Bank got a chance to enhance its base in the banking sector, as it would increase the number of branches joining with it. This helped the bank grow and eventually become one of India's largest private-sector banks.
4. Tata Steel and Corus Group (2007)
Tata Steel acquired the Anglo-Dutch steelmaker Corus Group in one of the largest cross-border acquisitions undertaken by an Indian company.
Reason for Merger: Tata Steel sought to expand its global market base and enhance its production capabilities by acquiring a firm that already had an established business base in Europe.
Impact: The acquisition positioned Tata Steel among the world's top 10 steel producers. Tata Steel subsequently faced the issue of high debt the company accumulated while acquiring.
5. Aditya Birla Group's Grasim and UltraTech Cement (2010)
The merger of Grasim Industries's cement division with UltraTech Cement created one of the largest cement manufacturers in India.
Reason for Merger: The merger was an integral part of Aditya Birla Group's strategy to strengthen its leadership position in the cement market through resources and capability.
Impact: UltraTech Cement emerged as India's leading global cement producer, which enabled the group to ride on the country's ever-growing requirement for infrastructure development.
6. Zee Entertainment and Sony Pictures Networks India (2021)
This was a significant development in India's media and entertainment industry, wherein two companies, Zee Entertainment and Sony Pictures Networks India, combined themselves together to become a giant in the media sector.
Reason for Merger: The merger was considered with an intent to create a robust entity to compete with emerging digital platforms and media giants like Netflix, Amazon Prime, etc.
Impact: The merged company will hold a bigger market share in Indian entertainment and enhance its offerings on both television and digital platforms.
7. Bank of Baroda, Vijaya Bank, and Dena Bank.
In 2019, Indian Bank merged with Vijaya Bank and Dena Bank, creating the country's third-largest bank in the public sector.
Reason for Merger: The three-way amalgamation was a public interest in strengthening the public banking sector while improving the stream of finances that reached the grass-roots levels.
Impact: Operations became streamlined, efficiency improved, and customer service across a larger footprint was enhanced.
8. Tata Motors and Jaguar Land Rover
Tata Motors acquired luxury car brands Jaguar and Land Rover from Ford in 2008 for $2.3 billion.
Reason for Merger: The acquisition provided Tata Motors with direct access to the premium automobile market.
Impact: By leading Jaguar Land Rover, Tata helped transform a sick business into one of the world's most successful luxury car brands .
9. IOC and IBP (2002)
This was another strategic merger. IOC was India's largest state-owned oil company, and IBP was a public sector undertaking involved in petroleum marketing.
Reason for Merger: IOC wanted to consolidate its position in the oil marketing sector and strengthen its distribution network.
Impact: The merger expanded IOC's retail network multifold and became one of the largest oil retailers in India.
10. Sun Pharma and Ranbaxy (2014)
The merger led to the creation of India's largest pharmaceutical company and one of the world's largest generic drug manufacturers.
Reason for Merger: The company, Sun Pharma, wanted to consolidate its market position, particularly in the US, and also acquire the enormous global operations of Ranbaxy.
Impact: The acquisition gave Sun Pharma access to Ranbaxy's portfolio of drugs and markets, although Sun Pharma had to suffer the regulatory issues associated with Ranbaxy.
Also, read about the difference between merger and acquisition.
Conclusion
Mergers in India have only reshaped industries and enhanced competitiveness. Especially in the context of banking and finance. Consolidation of public sector banks by the government has certainly led to stronger institutions. These institutions can cope with higher assets and contribute to the growth of the economy. Mergers have resulted in greater efficiency in operational performance. They also have further served to extend the reach towards customers and enhance financial stability. Mergers remain one of the most vital tools for designing entities that are more excellent at executing the volatile market environment with the passage of economic life.
Merger Examples in India FAQs
1. What have been some of the largest mergers in India?
Some of the largest mergers in India include the SBI merger with its associate banks, the Bank of Baroda merger with Vijaya and Dena Bank, and the Canara Bank-Syndicate Bank merger.
2. Why do Indian companies opt for mergers?
Indian companies opt for merger and acquisition primarily to gain economies of scale, increase market share, reduce competition, improve financial stability, and develop greater operational efficiencies.
3. How have the mergers affected the Indian banking industry?
The mergers in the banking industry have led to the development of more robust and stable institutions with higher asset bases, broader customer reach, and better service capabilities.
4. How does a merger differ from an acquisition?
A merger occurs when two firms combine to form a new organization, while an acquisition is when one firm absorbs another and the latter no longer exists as an independent organization.
5. What was the government's incentive to start public sector bank mergers?
The government's mergers of the public sector banks served to consolidate greater and more efficient banks that would finally make proper management of large scale and economic magnitude demands.
