Corporate Restructuring: A Performance Appraisal of

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281 Copyright © 2017. Vandana Publications. All Rights Reserved.

Volume-7, Issue-3, May-June 2017

International Journal of Engineering and Management Research

Page Number: 281-293

Corporate Restructuring: A Performance Appraisal of Manufacturing

Sector

Bharat Bhatt

Assistant Professor, Zakir Husain Delhi College, University of Delhi, INDIA

ABSTRACT The present study will discuss the impact of M&A

on company’s performance during 2001-2013 using two

approaches, stock analysis and accounting analysis. The

study purposes to test the impact of mergers and

acquisitions on company’s performance in manufacturing

sector. The study is conducted using two methods,

including event study method to measure stock

performance and financial ratios analysis to measure

accounting performance. Event study method analyzes the

cumulative abnormal return around announcement date

and completion date. Financial ratio analysis compares

performance of the bidder companies before and after the

merger and acquisition and explores the source of

performance changes.

The result of event study analysis shows

significant both positive and negative performance changes

of companies following mergers and acquisitions.

Meanwhile, the financial ratio analysis shows significant

negative changes of performance of companies following

mergers and acquisitions.

Keywords— Financial, company, management,

manufacturing sector

I. INTRODUCTION

(M&A) and corporate restructuring are a big

part of the corporate finance world. The phenomenon of

rising M&A activity is observed world over across

various continents, although, it has commenced much

earlier in developed countries (as early as 1895 in US

and 1920s in Europe), and is relatively recent in

developing countries.

Every day, investment bankers arrange M&A

transactions, which bring separate companies together to

form larger ones. Not surprisingly, these actions often

make the news. Deals can be worth hundreds of millions,

or even billions, of dollars. They can dictate the fortunes

of the companies involved for years to come. For a CEO,

leading an M&A can represent the highlight of a whole

career.

Mergers and acquisitions are among the most

effective ways to expedite the implementation of a plan

to grow rapidly. Companies in all industries have grown

at lightning speed, in part because of an aggressive

merger and acquisition strategy. M&As all shapes and

sizes have the same strategic objective—to build long-

term shareholder value and take advantage of the

synergies that the combined firms will create—but each

industry has its own specific objectives. Various studies

had been conducted on Post M&A Financial

Performance under different times by various

stakeholders. Grigorieva & Petrunina (2012) in their

research paper “THE PERFORMANCE OF MERGERS

AND ACQUISITIONS IN EMERGING CAPITAL

MARKETS: NEW EVIDENCE” have tried to define the

impact of corporate mergers and acquisitions on

company performance. They have contributed to the

existing literature by examining the influence of M&A

deals on company value in the short-run using the event

study method. Examining a sample of 80 deals initiated

by companies from emerging capital markets over 2002-

2009, they found that M&As are value-destroying deals

for the combined firms. Reddy, Nangia & Aggarwal

(2013) The study has applied earnings management

approach (event study) to compute average abnormal

returns (AAR) around the merger announcement for

select Indian M&A cases. Further, accounting ratios are

considered to assess the long‐run financial performance.

Thereafter, t‐stat was applied for testing the proposed

hypotheses. In particular, it has performed a later test to

the means of financial ratios and variables for both

services and manufacturing sectors in accounting ratios.

The selected Indian M&A cases showed superior

performance during the post‐merger period for both

manufacturing and services sectors, and observe a

balance sheet improvement in the long‐run. Shah &

Arora (2013) examined a sample of M&A

announcements in the Asia-Pacific region to identify the

post-facto effect of M&A announcements on the stock

prices of the target firms. The study has used the event

study methodology where the Cumulative Average

Abnormal Returns (CAAR) of the target firm’s stock

prices in different event windows have been analyzed. A

paired sample analysis has also been conducted by

comparing the pre-announcement and post-

announcement returns of the target and bidder firms’



stock prices in the event window of ±2 days. Across all

the event windows, target firm’s stock price yields

positive CAAR that is significantly different from zero.

The target firms depict that the post announcement

returns are significantly greater than the pre-

announcement returns, indicative of the immediate

market reaction to the information disclosure. Sinha,

Kaushik & Chaudhary (2010) in their research paper

“Measuring Post Merger and Acquisition Performance:

An Investigation of Select Financial Sector

Organizations in India “- examined the impact of

mergers and acquisitions on the financial efficiency of

the selected financial institutions in India. The analysis

consisted of two stages. Firstly, by using the ratio

analysis approach, calculated the change in the position

of the companies during the period 2000-2008.

Secondly, examined changes in the efficiency of the

companies during the pre and post-merger periods by

using nonparametric Wilcoxon signed rank test. Results

showed a significant change in the earnings of the

shareholders, there is no significant change in liquidity

position of the firms. The result of the study indicate that

M&A cases in India show a significant correlation

between financial performance and the M&A deal, in the

long run, and the acquiring firms were able to generate

value. Campa &Hernando (2005), in their research

paper “M&A performance in the European Financial

industry”, reported evidence on shareholders returns

from mergers. Mergers announcements brought positive

excess returns to the shareholders of the target company

around the date of the announcement. Returns to

shareholders of the acquiring firms were essentially zero

around announcement. One year after the announcement,

excess returns were not significantly different from zero

for both the firms i.e. acquirer and the target firm.

Dhiman, & Parray, in their research paper titled

“Impact of Acquisition on Corporate Performance in

Indian Manufacturing sector” found out the result and

analysis of the key financial ratios of the acquiring firms

shows that there is no significant effect on the

profitability of the firms following acquisitions. The

main finding of the study is that there is strong evidence

that the profitability of a firm that performed an

acquisition has no statistical difference between pre

acquisition period and post acquisition period.

Dilshad(2012)- A merger or acquisition is assumed to

create value if the returns on the shares of the acquirers

and targets increase on the announcement of the merger.

This research had one primary objective that is to

examine the effects of a merger announcement of banks

on stock values. Evidence here supports that significant

cumulative abnormal returns were short lived for the

acquirers. At the end of the event window, the

cumulative abnormal returns were 0. Evidence of excess

returns after the merger announcement was also

observed along with the leakage of information that

resulted in the rise of stock prices few days before the

announcement of merger or acquisition. At the same

time, the results of cumulative abnormal returns showed

that target banks earned abnormal returns on the merger

announcement day. Pilloff (1996) used both the

accounting and market data to study the gains achieved

in a sample of forty-eight mergers involving publicly

traded institutions that merged between 1982 and 1991.

To assess the overall gain in wealth, the consolidated

sum of acquirer and target abnormal return was

measured. The results suggest that merger announcement

typically do not lead to overall gain in stockholder

wealth. The abnormal return findings suggest that on

average market does not expect mergers to lead to gains

in performance, a result consistent with actual measured

performance gains.

Liargovas (2010) in his reseach paper titled

“The Impact of Mergers and Acquisitions on the

Performance of the Greek Banking Sector: An Event

Study Approach examined the impact of mergers and

acquisitions on the performance of Greek banking sector

over the period 1996-2008, by using two approaches;

event study methodology and operating performance.

The results from event study methodology, using a 30-

day event window indicate that stock prices show

significant positive cumulative average abnormal returns

(CAARs) before the announcement for a period of ten

days (for targets and bidders banks). The overall results

(the weighted average of gains to the bidder and target

bank), indicate that bank mergers and acquisitions have

no impact and do not create wealth. The empirical results

also indicate significant implications for rejection of the

“semi-strong form” of Efficient Market Hypothesis

(EMH) of the Athens Stock Exchange, possibly

reflecting leakage of information. By measuring twenty

financial ratios, it was found that the Greek banking

industry is moderate and not highly concentrated (many

banks with low market shares). Operating performance

does not improve following mergers and acquisitions

while there are controversial results when comparing

merged banks with the group of non-merging banks.

David A. Becher (2000) examined the valuation effects

of sample of 558 bank mergers from 1980- 1997. The

overall results indicated that bank mergers create wealth.

A basic event study was done to calculate abnormal

returns for target and bidder firms and the author focuses

on two different widow periods, 36 day window and an

11 day window. The returns to the bidder firms were

statistically negative in the 11- day window, while the

returns to the target firms and combined firms remain

statistically positive in both windows. Their results are

also consistent with the notion that bank mergers occur

for synergistic reasons and are not the result of empire

building. Kithinji & Waweru, (2007) found out from

his studies that results are mixed for stock market

approach and accounting based approach. The analysis

of pre and post-merger profitability and efficiency ratios

for the acquiring firms shows that there is a differential

impact of mergers for different ratios and different

sectors.

In nutshell, it is observed that company

performance after M&A are situational and the

performance vary accordingly influenced by different

factors relating to M&A. Thus, to overcome the



situation, the factors affecting M&A needed to be

determined and how it can affect need to be explored so

as to act accordingly.

II. RESEARCH METHODOLOGY

OBJECTIVES OF STUDY

The broad objective of this study is to measure

the performance of manufacturing sector companies

after corporate restructuring using two basic

approaches namely: MARKET MODEL METHOD

AND FINANCIAL RATIOS APPROACH in Indian

corporate Sector .A sample of 8 companies have been

undertaken which have undergone corporate

restructuring during the period of 2000-2014. Many

scholars examined the impact of M&A on corporate

performance using two different approaches. Some

research analyzed performance of companies around

M&A through providing evidence on stock market

reactions for the companies involved in M&A. Other

researchers measured the M&A effect on companies

performance based on accounting data.

1) The present study purposes to test the impact of

mergers and acquisitions on Bidder Company’s

performance first by using market model method.

Event study method analyzes the cumulative abnormal

return around announcement date and dividing the time

as pre-merger and post-merger. The amount of

announced M&A in most industry decreased during

2007 to 2009, and increase during 2009 to 2010.

Financial crisis is suspected as one of the cause of

fluctuating movement of amount of announced M&A

during 2007 to 2010.

Previous literature about M&A generally shows

increasing in return to target firm and some show

insignificant impact for bidder firms. The positive

impact of M&A comes from many sources, such as

revenue enhancement and cost reduction (Cornett, et al.,

2006). The negative impact is caused by some reasons,

like agency problems and the cost of integration

(Bertrand & Betschinger, 2012.

Performance changes are measured by stock

prices data of companies between pre- and post- M &

As.

2) To examine and evaluate the impact of mergers and

acquisitions on the liquidity and leverage position of the

selected units by some important parameters of liquidity

and leverage& management efficiency ratios such as:-

Current Ratio

Debt to Equity Ratio

return on assets

Earnings per share(EPS)

BVS(book value per share)

Net profit margin

Interest coverage ratio

Return on capital employed

III. SCOPE OF STUDY

The scope of the study is limited to the merger

and acquisitions of the 8 Indian companies in the

corporate sector involved in corporate restructuring with

domestic as well as cross border companies.

The period of coverage to study the

performance of mergers and acquisitions in the Indian

corporate sector is from 2000 to 2014.

IV. DATA

Data for event study analysis has been gathered

from various sites like NSE etc.

This empirical study analyses the financial data

of selected merging firms in the period 2000-2013. In

order to evaluate the financial performance of the

merging firms in the long run, at least three years

financial data is required, for one year before the merger

and one year after the merger.

Data for financial ratios analysis has been

collected from CMIE Prowess database, annual financial

statements of companies and various other internet sites

to determine the financial performance of the firm in

ultimate long run using standard ratios.

Data Sample

Companies under study has been selected on a

random basis.

Table 1 gives the overview of key information

of the selected mergers in the sample has been given.

The sample covers companies in Indian corporate sector

who underwent corporate restructuring in the period

2000-2013 countries. From the data set, it can be seen

that mergers vary in sizes from small ones like Lakshmi

& TVS merger and big ones like Satyam and tech

Mahindra

TABLE 1: COMPANIES SELECTED UNDER STUDY

Acquiring firm Target firm

1 Dhampur sugar limited JK sugar mills

2 Satyam computers Tech Mahindra

3 Reliance industries limited Indian petrochemicals limited

4 VIP industries limited Aristocrat luggage limited

5 Tata chemicals General chemicals limited

6 TVS limited Lakshmi auto parts limited

7 Hindalco Indo gulf cooperation limited

8 JK tyres Tornel



V. TOOLS OF ANALYSIS

Two methods are used to study the success of

mergers and acquisitions- event study analysis via

market model method and financial ratios using

accounting data.

VI. DATA ANALYSIS AND

INTERPRETATION

Analysis of event studies based approach

DHAMPUR SUGAR MILLS & JK SUGAR LIMITED

Where the regression equation is

Y= 0.0007+ 0.695078 X

Where .0007 represents the intercept of the

regression equation (if a return on reference stock index

is 0 then firm’s return will be .0007 which is a negligible

case.

And .695 represents the slope (change in the

reference stock will cause change in firm’s stock) for

every additional increase in the returns of reference stock

index there will be 0.695 times increase in the firm’s

stock.

MULTIPLE R-29% of positive correlation

exists between the two variables. This is a very weak

relationship

R SQUARE- 8% percentage of variance in the

dependent variable (firms return) that can be explained

by the independent variable (returns on reference index

CNX NIFTY).whereas 92% of variance in dependent

factor is attributable to other factors.

Abnormal returns over the estimation window

of 120 days. Just before the merger announcement AR

has fallen steeply. Around the merger news it is on a

little bit rise but after the news it has fallen steeply with

little magnitude of rise.

VII. MAHINDRA SATYAM & TECH

MAHINDRA

Y=0.002065276+ 0.282984806X


regression equation (if returns on reference stock index

is 0 then firm’s return will be .0020 which is

negligible.And.2829 represents the slope (change in the




stock.


exists between the two variables which is a very weak

relationship.

R SQAURE- 2% percentage of variance in the



CNX NIFTY). This means that 98% variation in firm’s

stock prices is accounted by other factors.



Abnormal returns over the estimation window of

120 days.

VIII. RELIANCE INDUSTRIES

LIMITED& IPCL

Y= .0001446+1.044X



is 0 then firm’s return will be .000014 which is

negligible.

And 1.04 represents the slope (change in the




stock.

MULTIPLE R- 83% of positive correlation

exists between the two variables which shows high

degree of correlation between the two variable.

R SQUARE- 69% percentage of variance in

the dependent variable (firms return) that can be

explained by the independent variable (returns on

reference index CNX NIFTY). the remaining 31% of

variation in dependent variable is explained by other

factors.


of 120 days. Around the merger announcement AR is on

rise. But before merger it rising and falling

inconsistently. After the merger it is on a rise majorly.

IX. VIP INDUSTRIES& ARISTOCRAT

LUGGAGE LIMITED

Y= -0.000677396+0.403087384X

Where -0.00067 represents the intercept of the

regression equation(if returns on reference stock index is

0 then firm’s return will be -0.00067 which is a

negligible case.

And 0.403 represents the slope (change in the reference

stock will cause change in firm’s stock) for every

additional increase in the returns of reference stock index

there will be .403 times increase in the firm’s stock.


exists between the two variables which is a very weak

relationship.

R SQUARE- 5% percentage of variance in

the dependent variable (firms return) that can be

explained by the independent variable (returns on

reference index CNX NIFTY) whereas 95% variation in

dependent variable is due to other factors.




of 120 days. Normal behavior of AR is showing very

steep rise before the merger announcement. Then rising

and falling at a normal rate after announcement news.

Around the end of merger period it is falling steeply.

X. HINDALCO AND INDO GULF

CORPORATION LIMITED

Y=-0.00011741 +0.440002314 X

Where -.000117 represents the intercept of the


is 0 then firm’s return will be -.000117 which is a

negligible case.

And .4400 represents the slope (change in the reference





exists between the two variables which is low degree of

correlation.




CNX NIFTY). Whereas 92% variation in dependent

variable is caused by other factors.


of 120 days. Major behavior of AR is showing deep falls

in the estimation window. After the merger

announcement has fallen steeply. Fall of AR is

magnificent than the rise of AR.

XI. JK TYRES & TORNEL

Y=-0.00075+0.812465 X



0 then firm’s return will be -.000117 or case of negative

returns.






exists between the two variables which is a moderate

degree of correlation between two variables.


dependent variable (firms return) can be explained by the

independent variable (returns on reference index CNX

NIFTY). Whereas remaining72% variation in dependent

variables is attributable to other factors.




of 120 days. Pattern of AR is showing steep rises and

steep falls around the estimation period showing

inconsistency.

The returns are negative both on pre and the

post announcement date due to the financial crisis of

USA affecting Indian stock markets in 2008.

XII. TATA CHEMICALS LIMITED&

GENERAL CHEMICAL LIMITED

Y=0.000108624+0.879548278X



0 then firm’s return will be .00001 which is a negligible

case.

And .879 represents the slope (change in the



index there will be .879 times increase in the firm’s

stock.

60% of positive correlation exists between the

two variables(firms return and returns on reference index

CNX NIFTY) which is a moderate degree of correlation.

36% percentage of variance in the dependent

variable (firms return) that can be explained by the


NIFTY).whereas remaining 64% variation in dependent

variable is caused by other factors.


of 120 days. 60 days before and 60 days after the

merger. Before the merger, AR is falling and rising

inconsistently but around the merger date, AR is

plummeting steeply.

TVS MOTOR COMPANY& LAKSHMI AUTO

COMPONENTS

Y=-0.0038083 +0.60318362X



is 0 then firm’s return will be -.0013 or negative returns.





9% of positive correlation exists between the two

variables.which is a very low degree of relationship

between two variables.

.08% percentage of variance in the dependent

variable (firms return) that can be explained by the


NIFTY).




of 120 days. AR of TVS is insignificant and around 0

almost in the whole estimation period expect in last few

days where it had a drastic fall.

XIII. MEASURING CORPORATE PERFORMANCE OF MERGER USING FINANCIAL

RATIOS

Dhampur sugar & JK sugar limited-

CLASS OF

RATIOS

2011 2012 2013 performance

LIQUIDITY current ratio 0.82 0.65 0.56 poor

FINANCING debt equity ratio 1.81 1.87 2.9 poor

PERFORMANCE return on capital employed 7.89 10.17 8.51 good

PERFORMANCE EPS 1.53 5.24 3.1 good

PERFORMANCE BVS 92.77 88.39 84.93 poor

PERFORMANCE return on assets 92.77 88.39 84.93 good

PERFORMANCE net profit margin(%) 0.37 1.85 1.53 good

LIQUIDITY interest coverage ratio 0.88 1.46 1.35 good

According to this approach, Dhampur sugar has

performed good on the performance parameters like

book value per share, return on assets, return on capital

employed, EPS and on interest coverage ratio. 5

parameters out of 8 has improved for Dhampur after

merger with JK sugar.

Satyam and tech Mahindra

CLASS OF

RATIOS


LIQUIDITY current ratio 0.98 0.95 2.1 good

FINANCING debt equity ratio 0.33 0.26 0.03 good



PERFORMANCE BVS 70.08 326.45 367.86 good


PERFORMANCE net profit margin(%) 8.78 10.87 16.48 good


According to this approach, satyam and tech

Mahindra has outperformed

on all the 8 ratios used to access the performance of a

company after merger. All the ratios have improved after

the merger of the two technical giants.

Reliance industries & IPCL

CLASS OF

RATIOS




PERFORMANCE return on capital employed 17.37 18 15.68 poor




PERFORMANCE Net profit margin(%) 11.4 10.69 14.54 good


Reliance has performed well on all performance indicators except ROCE and it has shown poor performance 3

indicators out of 8 parameters employed.



VIP industries & aristocrat luggage-

CLASS OF

RATIOS


LIQUIDITY current ratio 0.65 1 0.97 poor

FINANCING debt equity ratio 1.42 1.01 0.95 good

PERFORMANCE return on capital employed 12 17.8 18.43 good




PERFORMANCE Net profit margin(%) 2.58 3.22 3.6 good


Vip industries has performed good on all the

indicators after merger except one. So it seems that it has

reaped the merger benefits according to this appraoch

Hindalco& gulf corporation-

CLASS OF

RATIOS




PERFORMANCE return on capital employed 20.43 15.2 13.08 poor

PERFORMANCE EPS 91 92.12 62.95 poor

PERFORMANCE BVS 587 615 669.44 good


PERFORMANCE net profit margin(%) 28.38 27.66 11.29 poor

LIQUIDITY interest coverage ratio 13.11 18.47 9.36 poor

Hindalco has performed poor on 7 indicators

out of 8. Only BVS of the company has improved after

the merger with gulf cooperation.

Tata chemicals and general chemicals limited

CLASS OF

RATIOS

2008 2009 performance

LIQUIDITY current ratio 0.62 0.62 poor

FINANCING debt equity ratio 0.66 1.01 poor

PERFORMANCE return on capital employed 11.3 13.36 poor

PERFORMANCE EPS 40.56 19.22 poor

PERFORMANCE BVS 152 154.01 good

PERFORMANCE return on assets 152.61 154.01 good

PERFORMANCE net profit margin(%) 22.77 5.32 poor

LIQUIDITY interest coverage ratio 31 6.71 poor

Tata chemicals has performed poor on 6

parameters out of 8 after merger. Its performance has

improved on ROCE which is a important indicator. May

be Tata would reap merger benefits from general

chemicals limited after 1 or two year.

Tvs motors & Lakshmi auto parts limited-

CLASS OF

RATIOS

2003 2004 performance

LIQUIDITY current ratio 0.85 0.73 poor



FINANCING debt equity ratio 0.29 0.21 good

PERFORMANCE return on capital employed 38.01 32.29 good

PERFORMANCE EPS 56 5.94 poor

PERFORMANCE BVS 183.09 24 poor

PERFORMANCE return on assets 183.09 24.33 poor

PERFORMANCE net profit margin(%) 4.74 4.8 good

LIQUIDITY interest coverage ratio 18.43 21.76 good

TVS has performed good on 4 important

indictors like net profit margin, debt equity ratio, ROCE,

interest coverage liquidity. But poorly on ROA which is

an important indicator of managerial efficiency

Jktyres and tornel

CLASS OF

RATIOS

2007 2008 2009




PERFORMANCE EPS 21.67 10.56 4.64 poor

PERFORMANCE BVS 19.22 2.97 2.97 poor

PERFORMANCE return on assets 170.71 150.42 138.97 poor

PERFORMANCE net profit margin(%) 2.37 1.4 0.38 poor

LIQUIDITY interest coverage ratio 2.11 1.7 1.55 poor

Jk tyres has performed good on just one

indicator ROCE. Records show that jk tyres reaped the

merger benefits from tornel after 2011 because of the US

financial crisis that occurred in 2007 in USA. Tornel is a

Mexican firm who was also affected by the global

slowdown. So the performance of this cross merger

improved after the ending regime of crisis.

XIV. SUMMARY AND CONCLUSIONS

METHOD 1- EVENT ANAYSIS USING MARKET MODEL METHOD

DAILY CAR (CUMULATIVE ABNORMAL RETURNS) of companies in corporate sector.

The above diagrammatic representation shows

that the abnormal returns picked a rise before the merger

news. Around the merger news, the returns start falling

as shareholders started selling their share because of

earlier over valuation.

1 5 9

13

17

21

25

29

33

37

41

45

49

53

57

61

65

69

73

77

81

85

89

93

97

101

105

109

113

117

121

CA

R

number of days

DAILY CAR OF SELECTED COMPANIES IN CORPORATE SECTOR FROM 2000-2013



But few days after the merger again the returns have gain

momentum before a slant fall at the end of the estimation

period.

In this study, few significant mergers took place

in the year 2002, 2007, 2008.

These years are considered to be the years of

financial turmoil because of trashing of World Trade

Centre of USA in 2002 and the arrival of USA subprime

crisis in mid October 2008 when the Indian stock market

crashed significantly because of financial contagion as a

result of globalization. Any event in global stock market

directly affect Indian stock market which increases its

volatility too much.

According to this approach companies like

reliance and IPCL merger, VIP and aristocrat merger,

TVS and Lakshmi auto parts limited, they proved to be

the winners as their merger synergy effects are visible on

the stock markets.

Various companies like JK tyres and Tornel,

Tata chemicals and general chemicals limited merger

reaped the merger benefits after some time due to several

factors affecting the Indian stock market at the time of

their merger.

XV. RESULT OF HYPOTHESIS TESTING OF CAR (CUMULATIVE ABNORMAL

RETURNS) USING Z- TEST

z-Test: Two Sample for Means

Variable 1 Variable 2

Mean 0.035762165 -0.203202211

Known Variance 0.02 0.31

Observations 60 60

Hypothesized Mean Difference 0

Z 3.222194994

P(Z<=z) one-tail 0.000636063

z Critical one-tail 1.644853627

P(Z<=z) two-tail 0.001272125

z Critical two-tail 1.959963985

Hypothesis testing suggests that the alternate

hypothesis is true that there is increase or decrease in the

shareholder’s wealth after the merger. Even from the

diagrammatic representation of CAR over the estimation

period shows that the AR around the merger news

started falling for few days. They gain a momentum after

the merger with positive CAR for few days before taking

a sharp fall around the end of the estimation period. May

be due to leakages in the information of merger news

spreads into the whole market leading to the rising

returns of stocks.

But around the merger news period, shareholders start

selling their stocks due to its overvaluation caused by

leakages in the merger news. And this ultimately causes

the price to fall around the merger period.

But again after some time stocks start rising may be

because of hyped synergy benefits from any merger deal

announced by the company.



XVI. METHOD 2-FINANCIAL PERFORMANCE USING ACCOUNTING RATIOS

CLASS OF RATIOS NAME

Number of poor performance

companies(post-merger year)

Number of good performance

companies(post-merger year)

LIQUIDITY current ratio 1 7

FINANCING debt equity ratio 4 4

PERFORMANCE return on capital employed 5 3

PERFORMANCE EPS 4 4

PERFORMANCE BVS 5 3

PERFORMANCE return on assets 5 3

PERFORMANCE Net profit margin (%) 5 3

LIQUIDITY interest coverage ratio 5 3

According to this approach, most of the

companies have performed well on the performance

indicators Like Book value per share, return on assets,

return on capital employed, net profit margin which

shows their Managerial efficiency. All the companies

except 1 failed to maintain the ideal current ratio. The

current ratios of most of the companies are really poor

after the merger. There is no significant improvement in

the company’s ability to maintain liquidity. Whereas

50% of the total companies have shown good

performance in their BVS and debt equity ratio

If we talk individually, then tech Mahindra and

Satyam merger outperformed according to this financial

ratios approach. All the ratios of this company have

shown good performance after the merger. Majority

companies took time to reap the merger benefits due to

several reasons. They took more than a year to absorb

the merger synergy benefits to reflect the glow in their

performance.

XVII. SUMMARY

A merger or acquisition is assumed to create

value if the returns on the shares of the acquirers firm

increase on the announcement of the merger and

improve the performance in terms of accounting ratios.

Eight acquiring companies and 8 target

companies were used in the sample for the study of price

reactions of stocks. Returns on stocks of companies were

compared to the market returns i.e. CNX Nifty index.

The findings reveal that there is definitely action in the

returns of stock around Day 0, but the analysis also

shows that the merger may not be significant in

determination of the reason for the particular behavior on

the movements of stocks.

There are so many other abnormal events like

global financial depressions, announcement of the

budget of the central government etc. that have captured

their effect on the returns of stocks around the

announcement news of merger in this study.

Whereas the other accounting ratio approach

concludes that it takes time to absorb the synergy

benefits arising from merger. Period of one year is not

sufficient to measure the performance of the companies

in terms of their financial ratios after one year. May be

even after one year synergy benefit wont arise from the

corporate restructuring deal because success of any

M&A deal depends on so many factors that were not

taken into account implicitly.

REFERENCES

[1] Annual financial statements of companies.

[2] Berger, M. (2011, February 10). Famous Stock and

Securities Market Mergers and Acquisitions. News in

Brief, Retrieved July 2011.

[3] Berger,A. N, Bonime, S. D, Goldberg, L. G, &

White, J. L. (2004, October). The Dynamics of Market

Entry: The effects of Mergers and Acquisitions on Entry

in Banking Industry. The Journal of Business, Retrieved

June 2011. http://www.jstor.org/stable/10.1086/422439.

[4] Billet, M. T, King,T. H. D, & Mauer, D. C. (2004,

February). Bondholder Wealth Effects in Mergers and

Acquisitions: New Evidence from the 1980s and 1990s.

The Journal of Finance. Retrieved June 2011.

http://www.jstor.org/stable/3694891

[5] Campa & Hernando (2005),“M&A performance in

the European Financial industry”

[6] Data extraction from- CMIE (Centre for monitoring

Indian economy) Prowess database.

[7] Halpern, P. (1983). Corporate Acquisitions: A theory

of Special Cases. A Review od event studies applied to

Acquisitions. The Journal of Finance , 297-317.

[8] http://dx.doi.org/10.2307/2327962.

[9]

http://www.publicradio.org/columns/marketplace/busine

ss-news-briefs/2011/02/famous_stoc

k_market_mergers_and_acquisitions.html

[10] Liargovas, P(2010).The Impact of Mergers and

Acquisitions on the Performance of the Greek Banking



Sector: An Event Study Approach, International Journal

of Economics and Finance Vol. 3, No. 2; May 2011.

[11] Petrunina(2013). THE PERFORMANCE OF

MERGERS AND ACQUISITIONS IN EMERGING

CAPITAL MARKETS: NEW EVIDENCE

[12] Shah & arora (2014). M&A Announcements and

Their Effect on Return to Shareholders: An Event

Study,Accounting and Finance Research, vol 3, no. 2;

2014

[13] Sinha, Kaushik & Chaudhary(2010).Measuring Post

Merger and Acquisition Performance: An Investigation

of Select Financial Sector Organizations in India,

International Journal of Economics and Finance Vol. 2,

No. 4; November 2010.

Documents

Corporate Restructuring: A Performance Appraisal of