This paper examines the outcome of selection of inorganic mode of expansion by HDFC bank in its brown field investment of $2.4 billion for acquiring Centurion Bank of Punjab in India. This work investigates the achievement of operating performance by HDFC Bank-CBoP deal, up to five-year post acquisition, against a benchmark established using the concept of Economic Value Added. This work is an attempt by author to have deeper investigation in Mergers &Acquisitions deal. Mergers & Acquisitions though used synonymously refers to two distinct facet of financing, management dealing & strategy making with the intention of making capital investment decision that can help a corporation grows leap and bound and cut competition. Mergers may result in creation of new entity with some others cease to exist whereas in acquisitions both acquirer and acquired entity may co-exists. Mergers and Acquisitions though a century old mode of expansion of entities, adopted by corporate giants all over the world, the surge in these activities all over the globe during the last three decades owe its reasons first to urge of CEOs for survival and expansion through all ways and avenues to prove their calibre under global recession scenario. Moreover, reduction in cost to communicate across border and to transport goods throughout the world and spread of trade liberalization by government of almost all countries all over the world has been a major contributor for spurt in mergers and acquisitions activities. Many times, M&A was done to smooth seasonal business fluctuations, sometimes to find requisite investment for firms sitting on large stack of idle cash and sometimes to hedge investment portfolios.
Trillions & trillions of dollars worth of transactions happened during past decades which showed that M&A remained popular activity for growth among corporations. Day by day, newer deals record for volume & worth of dollars are being created. Evidences shows that out of such a large number of M&A transaction only few have benefited the shareholders of acquiring companies and major accumulation of wealth occur to the shareholders of target companies. The shareholders of acquiring firms receive either small or zero or even negative returns from mergers. This author, firstly, established the threshold limit of performance and then evaluating the actual performance of the deal against the benchmark established. The excerpts of the paper belong to authors own work undertaken during his doctoral programme and is pioneer and proven research with establishment of new methodology for analyzing M&A deals with entirely new financial angle. Positivist approach has been adopted to analyze the case. The deal resulted in the overall negative operating performance for HDFC Bank. The analysis shows HDFC Bank failed to achieve positive EVA and performance benchmark in five years (2007-2012) post merger rendering the acquisition of Centurion Bank of Punjab a bitter pill for HDFC Bank managers.
Keywords: economic value added, mergers and acquisitions, operating performance.
JEL Classification: G34, M1.
Cite as: Sharma, M., Shukla, S. K. (2019). Beginning of Consolidation in Indian Banking Sector: Measuring Operating Feasibility against Standard Benchmark: A Case Study of HDFC Bank Acquisition of Centurion Bank of Punjab. Financial Markets, Institutions and Risks, 3(1), 5-17. http://doi.org/10.21272/fmir.3(1).5-17.2019.