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«Vyas, Vijay H., 2008, An Effect of Merger on Financial Performance of Corporate Sector in India, thesis PhD, Saurashtra University ...»

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Saurashtra University

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Vyas, Vijay H., 2008, An Effect of Merger on Financial Performance of

Corporate Sector in India, thesis PhD, Saurashtra University


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SAURASHTRA UNIVERSITY, RAJKOT-360005 DECEMBER 2008 STATEMENT – I I here by certify that the thesis entitled “AN EFFECT OF MERGER ON FINANCIAL PERFORMANCE OF CORPORATE SECTOR IN INDIA” Submitted by Mr. VIJAY H. VYAS for the award of the Degree of Doctor of Philosophy in Management in the faculty of Management, is based on the research work carried out by him is original and is carried out under my guidance and supervision. To the best of my knowledge, it has not been submitted for any other degree, diploma or distinction by either Saurashtra University or any other University.

Place: Rajkot



Professor, Head & Dean Department of Business Management Saurashtra University Rajkot-360005 STATEMENT – II I hereby declare that the thesis entitled “AN EFFECT OF MERGER ON FINANCIAL PERFORMANCE OF CORPORATE SECTOR IN INDIA” Submitted by me for the Degree of Doctor of Philosophy in Management under the faculty of Management, is my original work and that it has not been submitted for any other degree, diploma or distinction by either Saurashtra University or any other University.

(Vyas Vijay H.) STATEMENT – III The title of my thesis is: “AN EFFECT OF MERGER ON FINANCIAL PERFORMANCE OF CORPORATE SECTOR IN INDIA” The study is based on secondary data about merger in India.The main source of data is the CMIE i.e. “Center for Monitoring India Economy” (PROWESS) and Capitaline Database. Supplementary data and other information have been collected from Economic Times, Financial Express, other periodicals, journals and from articles by various authors.

–  –  –

A successful completion of a research work, especially of the Ph.D calls for intellectual nourishment, valuable guidance and professional help, selfless cooperation, encouragement, support and blessings from god.

I am greatly indebted to my guide, Dr. Pratapsinh L. Chauhan, Professor, Head & Dean, Department of Business Management, Saurashtra University, Rajkot, who encouraged, supported and guided me throughout my research work. Inspite of heavy pre-occupations provided his valuable time during this study period and guided me with his constructive comments, constant advices and valuable suggestions at each stage of the study and helped me to complete this research work successfully.

I am grateful to Dr.D.C Gohil, Professor and head, Department of Commerce, Saurashtra University, Rajkot for providing me an assistance, support and guidance.

I am thankful to Dr. Sanjay Bhayani, Associate Professor, Department of Business Management, Saurashtra University, Rajkot for guiding me through various stages of my research including data collection and statistical Analysis.

I acknowledge wholehearted support from my elder brothers, Dr.Parimal H. Vyas for giving valuable inputs and suggestions and Dr. Uday H. Vyas for computational work, type setting and computerization of work.

For the blessing and best wishes from H’ble shri Khodidasbhai Patel, Chairman,shri Ranchodbhai Patel,H’ble vice chairman and trustees of R.K.Group of Colleges.

I also express thanks to Prof. (Dr) N.S. Rao, Prof. (Dr) S.K.Bhatt and Prof. (Dr) T.D. Tiwari for encouragement and support.

I express my gratitude to my colleagues for extending their support for my research work.

As specially from Mr. Ashvin Solanki for his continuous support I will be failing in my duty if I do not acknowledge my deep indebitness to my parents Hariombhai and mother Padmaben for their encouragement, support and blessings without which this study would not have been possible.

I acknowledge the patience and assistance of my loving wife Ami and son Tanmay during my study time when this research work occupied my attention and free time.

This list is almost incomplete and I am grateful to all those who have helped me directly and indirectly in my research work.

Place: Rajkot

–  –  –

As per current scenario corporate restructuring is one of the most widely used strategic tools.

In daily news we come a cross frequently with the headlines of merger, acquisitions, takeover, joint venture, demerger and so on. Since last two decades as especially after, the liberalization and consequent globalization and privatization have resulted into tough competition not only in Indian business but globally as well.

The main objective of any company is profitable growth of enterprise to maximize the wealth of its shareholders. Further, to achieve profitable growth of business it is necessary for any company to limit competition, to gain economies of large scale and increase in income with proportionally less investment, to access foreign market, to achieve diversification and utilize underutilized market opportunities. In order to achieve goals, business needs to remain competitive and work towards its long term sustainability.

Corporate restructuring has facilitated thousand of companies to re-establish their competitive advantage and respond more quickly and effectively to new opportunities and unexpected challenges. Under different dynamic situations as laid above, a profitable growth of business can achieved successfully if as a strategic tool merger is adopted. The most remarkable examples of growth and often the largest increases in stock prices are a result of mergers and acquisitions. M&A’s provide tremendous opportunities for companies to grow and add value to stake holder’s wealth. M&A’s increase value and efficiency and thereby increase holders value. M&A’s is a generic term used to represent many different types of corporate restructuring exercises.

In order to avoid difficulties it is necessary to carry out initial investigation in various areas like growth potential, profitability, strength in terms of skills and capabilities, financial projections of the impact and value of merger, etc., need to be systematically thought out and planned.

The main objective of any merger activity is profitable growth of business to maximize wealth of its stakeholders. The trend towards globalization of all national and regional economies has increased the intensity of mergers, in a bid to create more focused, competitive, viable larger players, in each industry. If an industrial want to survive, it has to excel and compete successfully both with multinational competitors in internal as well as international markets. Merger of companies are implicit in free enterprise system because of their obvious advantages infusion of better management and healthy growth of capital market. Thus, the concept of merger has assumed greater significance as offering number of opportunities.

This research study is divided into six chapters. First chapter is on the introduction. The second chapter covers conceptual framework of corporate restructuring. There are considerable changes in accounting aspects relating to merger, accounting standards and legal acts like in Companies Act 1956; FERA1973 has been replaced by FEMA 1999, in MRTP Act etc. This chapter also covers laws relating to merger in UK and USA as well.

Third chapter tells all about the review of literature based on study conducted on this subject and it’s related by numbers of researchers in India and abroad in different countries. Forth chapter is of research methodology. Basically three financial tools like RONW, MVA and EVA are covered along with certain ratios for study. Fifth chapter is about analysis of selected mergers in manufacturing industries at company and industry level. Finally, sixth chapter is all about findings, suggestions and conclusions. The Bibliography shall be followed by these chapters.

Place: Rajkot

–  –  –

5.6 Inter company Analysis with Value Added Metrics 273

5.7 Inter-industry comparison using RONW,MVA, EVA, 274

5.8 Inter Industry Analysis with Value Added Metrics 276

5.9 Intra Industry comparisons using RONW,MVA, EVA, 278

5.10 Industry –wise additional Analysis :Correlation results 282

5.11 Independent & Dependent variables – Regression analysis 289

–  –  –

P/E ratio - Price Earning Ratio D/E ratio -Debt/ Equity Ratio CA/ CL -Current Assets / Current Liabilities MRTP Act -Monopolies and Restrictive Trade Practices Act SICA -Sick Industrial Companies Act FERA -Foreign Exchange Regulation Act IDRA -Industrial Development and Regulation Act FEMA -Foreign Exchange Management Act BIFR -Board for Industrial and Financial Reconstruction ICAI -Institute of Chartered Accountants of India

–  –  –

MNC -Multi National Corporation SEBI -Security Exchange Board of India Sec. -Section WACC -Weighted Average Cost of Capital ROI - Return On Investment NIBCL - Non Interest Bearing Current Liabilities R&D -Research & Development LIFO -Last First Out FIFO - First In First Out

–  –  –

• Introduction

• Significance of the study

• Objectives of the study

• Hypothesis of the study

• The sample and data collection

• Tools and techniques for analysis

• Study plan

• Limitations of the study

• References 2


The main objective of any company is sustainable growth of business to maximize the wealth of its stakeholders. Due to liberalization, privatization and globalization the competition in Indian business market becomes very tough. This leads the necessity for small and medium size companies to reduce competition, expansion of business, modern technologies with less investment. This is possible by way of corporate restructuring in the form of merger, acquisition, takeover, consolidation, reverse merger, demerger etc.

One of the significant objectives of any sovereign is to achieve high rate of economic growth. For achieving this, it keeps reviewing and improving its policies from time to time and introduces various measures, both at micro and macro levels. It also requires various regulatory measures to channelise all economic efforts to achieve its social and economic objectives and to prevent unhealthy practices entering in to its economic system which is detrimental to public welfare.

In pursuance of these objectives, restrictions in India were placed on the corporate sector as per the provisions of various laws and regulations like Monopolistic and Restrictive Trade Practices, Industrial licensing policy etc. The MRTP Act 1969, placed restrictions on the expansion of an enterprise, establishment of new enterprise, division of undertakings, consolidation of undertakings and acquisition and transfer of shares of undertakings in order to check concentration of economic power, control the growth of monopolies and prevent various restrictive trade practices likely to result from operation of economic system. The provision of FERA, 1973 placed restrictions on foreign investments in the country. These restrictions remained in vogue for over two decades and proved incompatible in keeping pace with the global economic developments to achieve the objective of faster economic growth. So, the government had to review its entire policy framework and initiate economic liberalization measures.

Though government began initiating steps towards liberalization in the post 1985 period, the real opining up of the economy started wit the statement on industrial policy made in June 1991. This statement indicated continuity with change, the main thrust being on relaxation in industrial licensing, foreign investments, transfer of foreign technology and

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