Professional Documents
Culture Documents
Chapter -1
Introduction
This project is about the mergers and acquisitions in banking industry. A merger occurs when
two companies combine to form a single company. A merger is very similar to an acquisition or
takeover, except that in the case of a merger existing stockholders of both companies involved
retain a shared interest in the new corporation. By contrast, in an acquisition one company
purchases a bulk of a second companys stock, creating an uneven balance of ownership in the
new combined company.
Recent years have also brought about a change in the nature and quality of employment
in the sector. As far as retail banking is concerned, most of the Indian private sector banks are
becoming more aggressive. They are following the acquisition route for getting more and more
retail customers. During the last few years the Indian Banking system has witnessed some very
high profile mergers, such as the merger of ICICI Ltd. with its banking arm ICICI Bank Ltd. the
merger of Global Trust Bank with Oriental Bank of Commerce and more recently the merger of
IDBI with its banking arm IDBI Bank Ltd.
A merger occurs when two companies combine to form a single company. A merger is very
similar to an acquisition or takeover, except that in the case of a merger existing stockholders
of both companies involved retain a shared interest in the new corporation. By contrast, in an
acquisition one company purchases a bulk of a second companys stock, creating an uneven
balance of ownership in the new combined companies.
TYPES OF MERGERS
Merger or acquisition depends upon the purpose of the offeror company it wants to
achieve. Based on the offerors objectives profile, combinations could be vertical, horizontal,
circular and conglomeratic as precisely described below with reference to the purpose in view of
the offeror company.
The following main benefits accrue from the vertical combination to the acquirer company i.e.
1. It gains a strong position because of imperfect market of the intermediary products, scarcity
of resources and purchased products;
2. Has control over products specifications.
It is a merger of two competing firms which are at the same stage of industrial process.
The acquiring firm belongs to the same industry as the target company. The mail purpose of such
mergers is to obtain economies of scale in production by eliminating duplication of facilities and
the operations and broadening the product line, reduction in investment in working capital,
elimination in competition concentration in product, reduction in advertising costs, increase in
market segments and exercise better control on market.
It is amalgamation of two companies engaged in unrelated industries like DCM and Modi
Industries. The basic purpose of such amalgamations remains utilization of financial resources
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Acquisition
The case when two companies (often of same size) The case when one company takes over another and
decide to move forward as a single new company establishes itself as the new owner of the business.
instead of operating business separately.
The stocks of both the companies are surrendered, The buyer company swallows the business of the
while new stocks are issued afresh.
For example, Glaxo Wellcome and SmithKline Dr. Reddy's Labs acquired Betapharm through an
Beehcam ceased to exist and merged to become a agreement amounting $597 million.
new company, known as Glaxo SmithKline.
2. The merger of the city bank with Travelers Group and the merger of Bank of America
with Nation Bank have triggered the mergers and acquisition market in the banking sector
worldwide.
3. With the help of M & A in the banking sector, the banks can achieve significant growth in
their operations and minimize their expenses to a significant level Competition is reduced
because merger eliminates competitors from the banking industry.
4. In India mergers especially of the PSBS may be subject to technology and trade union
related problem. The strong trade union may prove to be big obstacle for the PSBS
mergers. Technology of the merging banks to should complement each other NPA
management. Management of efficiency, cost reduction, tough competition from the
market players and strengthens of the capital base of the banks are some of the problem
which can be faced by the merge entities. Mergers for private sector banks will be much
smoother and easier as again that of PSBS.
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1. Technology drive has benefited the customers in terms of faster improve convenient banking
services and Varity of financial products to suit their requirement. ATMs, Phone Banking,
Net banking, Anytime and Any where banking are the services which bank have started
offering following the changing trend in sectors. In plastic money segment customer have
also got a new option of debits cards against the earlier popular credit card. Earlier customers
had to conduct their banking transaction within the restricted time frame of banking hours.
Now banking hours are extended.
2. ATMs, Phone banking and Net banking had enable the customers to transact as per their
convince customer can now without money at any time and from any branch across country
as certain their account transaction, order statements of their account and give instruction
using the tally banking or on online banking services.
3. Bank traditionally involve working capital financing have started offering consumer loans
and housing loans. Some of the banks have started offering travel loans, as well as many
banks have started capitalizing on recent capital market boom by providing IPO finance to
the investors.
Impacts on Employees
Mergers and acquisitions may have great economic impact on the employees of the organization.
In fact, mergers and acquisitions could be pretty difficult for the employees as there could always
be the possibility of layoffs after any merger or acquisition. If the merged company is pretty
sufficient in terms of business capabilities, it doesn't need the same amount of employees that it
previously had to do the same amount of business. Due to the changes in the operating
environment and business procedures, employees may also suffer from emotional and physical
problems.
Impact on Management
The percentage of job loss may be higher in the management level than the general employees.
The reason behind this is the corporate culture clash. Due to change in corporate culture of the
organization, many managerial level professionals, on behalf of their superiors, need to
implement the corporate policies that they might not agree with. It involves high level of stress.
Impact on Shareholders
Impact of mergers and acquisitions also include some economic impact on the shareholders.
If it is a purchase, the shareholders of the acquired company get highly benefited from the
acquisition as the acquiring company pays a hefty amount for the acquisition. On the other
hand, the shareholders of the acquiring company suffer some losses after the acquisition due
to the acquisition premium and augmented debt load.
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ADVANTAGES OF MERGERS
Mergers and takeovers are permanent form of combinations which vest in management
complete control and provide centralized administration which are not available in combinations
of holding company and its partly owned subsidiary. Shareholders in the selling company gain
from the merger and takeovers as the premium offered to induce acceptance of the merger or
takeover offers much more price than the book value of shares. Shareholders in the buying
company gain in the long run with the growth of the company not only due to synergy but also
due to boots trapping earnings.
Mergers and acquisitions are caused with the support of shareholders, managers ad
promoters of the combing companies. The factors, which motivate the shareholders and
managers to lend support to these combinations and the resultant consequences they have to bear,
are briefly noted below based on the research work by various scholars globally.
Managers are concerned with improving operations of the company, managing the affairs
of the company effectively for all round gains and growth of the company which will provide
them better deals in raising their status, perks and fringe benefits. Mergers where all these things
are the guaranteed outcome get support from the managers. At the same time, where managers
have fear of displacement at the hands of new management in amalgamated company and also
resultant depreciation from the merger then support from them becomes difficult.
Mergers do offer to company promoters the advantage of increasing the size of their
company and the financial structure and strength. They can convert a closely held and private
limited company into a public company without contributing much wealth and without losing
control.
4) Benefits to general public
(a) Consumers
The economic gains realized from mergers are passed on to consumers in the form of
lower prices and better quality of the product which directly raise their standard of living and
quality of life. The balance of benefits in favour of consumers will depend upon the fact whether
or not the mergers increase or decrease competitive economic and productive activity which
directly affects the degree of welfare of the consumers through changes in price level, quality of
products, after sales service, etc.
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Mergers and acquisitions are regulated under various laws in India. The objective of the laws is
to make these deals transparent and protect the interest of all shareholders. They are regulated
through the provisions of:
Permission for merger: - Two or more companies can amalgamate only when
the amalgamation is permitted under their memorandum of association. Also, the
acquiring company should have the permission in its object clause to carry on the
business of the acquired company. In the absence of these provisions in the
memorandum of association, it is necessary to seek the permission of the
shareholders, board of directors and the Company Law Board before affecting the
merger.
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Information to the stock exchange: - The acquiring and the acquired companies
should inform the stock exchanges (where they are listed) about the merger.
Sanction by the High Court: - After the approval of the shareholders and
creditors, on the petitions of the companies, the High Court will pass an order,
sanctioning the amalgamation scheme after it is satisfied that the scheme is fair
and reasonable. The date of the court's hearing will be published in two
newspapers, and also, the regional director of the Company Law Board will be
intimated.
Filing of the Court order: After the Court order, its certified true copies will be
filed with the Registrar of Companies.
Transfer of assets and liabilities: - The assets and liabilities of the acquired
company will be transferred to the acquiring company in accordance with the
approved scheme, with effect from the specified date.
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Whether the benefits of the combinations outweigh the adverse impact of the
combination.
Thus, the Competition Act does not seek to eliminate combinations and only aims to
eliminate their harmful effects
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Commercial banks,
(ii)
(iii)
Co-operative banks.
The Reserve Bank of India is the supreme monetary and banking authority in the country
and has the responsibility to control the banking system in the country. It keeps the reserves of all
commercial banks and hence is known as the Reserve Bank.
Commercial Banks has been in existence for many decades. Commercial banks mobilize
savings in urban areas and make them available to large and small industrial and trading units
mainly for working capital requirements. After 1969 commercial banks are broadly classified
into nationalised or public sector banks and private sector banks.
Current Scenario:
The Indian Banking industry has been undergoing rapid changes reflecting a number of
underlying changes. Liberalization and deregulation witnessed in the Indian markets in the 1990s
have resulted in a spurt in banking activity in India. Significant advances in communication have
enabled banks to expand their reach, both in terms of geography covered as well as new products
introduced. With increased competition in wholesale banking due to the entry of foreign banks
and new private sector banks, the sector has witnessed a squeeze in margins.
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3. Timings of announcement:
Public announcement should be made within four days of finalization of negotiations or
entering into any agreement or memorandum of understanding to acquire the shares or the voting
rights.
4. Contents of announcement:
Public announcement of offer is mandatory as required under the SEBI Regulations.
(1)
Paid up share capital of the target company, the number of fully paid up and
partially paid up shares.
(2)
a) The public offer of minimum 20% of voting capital of the company to the
shareholders;
b) The public offer by a raider shall not be less than 10% but more than 51%
of shares of voting rights. Additional shares can be had @ 2% of voting
rights in any year.
(3)
The minimum offer price for each fully paid up or partly paid up share;
(4)
(5)
The identity of the acquirer and in case the acquirer is a company, the identity
of the promoters and, or the persons having control over such company and
the group, if any, to which the company belong;
(6)
The existing holding, if any, of the acquirer in the shares of the target
company, including holding of persons acting in concert with him;
(7)
Salient features of the agreement, if any, such as the date, the name of the
seller, the price at which the shares are being acquired, the manner of
payment of the consideration and the number and percentage of shares in
respect of which the acquirer has entered into the agreement to acquirer the
shares or the consideration, monetary or otherwise, for the acquisition of
control over the target company, as the case may be;
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The highest and the average paid by the acquirer or persons acting in concert
with him for acquisition, if any, of shares of the target company made by him
during the twelve-month period prior to the date of the public announcement;
(9)
Objects and purpose of the acquisition of the shares and the future plans of
the acquirer for the target company, including disclosers whether the acquirer
proposes to dispose of or otherwise encumber any assets of the target
company:
Provided that where the future plans are set out, the public announcement
shall also set out how the acquirers propose to implement such future plans;
(10)
The date by which individual letters of offer would be posted to each of the
shareholders;
(11)
The date of opening and closure of the offer and the manner in which and the
date by which the acceptance or rejection of the offer would be
communicated to the share holders;
(12)
The date by which the payment of consideration would be made for the
shares in respect of which the offer has been accepted;
(13)
Disclosure to the effect that firm arrangement for financial resources required
to implement the offer is already in place, including the details regarding the
sources of the funds whether domestic i.e. from banks, financial institutions,
or otherwise or foreign i.e. from Non-resident Indians or otherwise;
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(14)
Provision for acceptance of the offer by person who own the shares but are
not the registered holders of such shares;
(15)
(16)
(17)
(18)
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Chapter -2
Review of literature
ACCORDING TO CAPIRO & LEVINE
There are two interrelated factors of the financial intermediaries that affect corporate
governance.
Directors poor decisions and ineffective board processes are to pay the price. For measuring
the board performance4 against certain benchmarks set for good governance,
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Kishor Mundargi
The Shamrao Vithal Co-operative Bank Ltd.
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References:
www.google.com
www.yahoo.com
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Chapter -3
Research Methodology
Research methodology is a way to systematically solve the problem. It is a game plan
for conducting research. In this we describe various steps that are taken by the researcher,
All progress is born of inquiry. Doubt is often better than overconfidence, for it leads to
inquiry and inquiry leads to invention.
Research in a common parlance is a search for knowledge. Research is an art of scientific and
systematic investigation. Thus research comprises defining and redefining problems, formulating
hypothesis or suggested solutions; collecting, organizing and evaluating data, making deductions
and reaching conclusions. Research methodology is the arrangement of condition for collection
and analysis of data in a manner that aims to combine relevance to the research purpose with
economy in procedure. Research Methodology is the conceptual structure within which research
is conducted. It constitutes the blueprint for the collection measurement and analysis of the data.
Research methodology is a framework for the study and is used as a guide in collecting and
analyzing the data. It is a strategy specifying which approach will be used for gathering and
analyzing the data. it also includes time and cost budget since most studies are done under these
two constraints. The research methodology include over all research design, the sampling
procedure, the data collection method and analysis procedure.
Issues regarding research are:
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Significance of Research
Research provides the basis for all government policies in our economic system.
It has its special significance in solving various operational and planning issues of
business and industry.
For professional in research methodology, research may mean a source of live hood.
Research Design
This part contains relevant information pertaining to research design and methodology used in
the research project. The research design has been distinctive described to the objective of the
study.
There are three types of research design that are used frequently used by the various researchers.
These are:
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LIMITATIONS
Mergers & Acquisitions are hard to occur, so the information about them is very
less.
It was not possible to cover every aspect. This poses to be a serious limitation.
The information was collected from secondary data, so the limitation occurred in
the exact interpretation.
Also the information was collected from secondary data, so sometimes the results
may be related to some specific area/aspect.
As the process of mergers and acquisitions of banks is kept secret with the general
public, so the exact procedure and the reasons behind them are difficult to find.
As the data has been taken form the books and various websites, the data available
is not recent.
Various financial terms related to mergers and acquisitions are the difficult to
understand.
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Chapter -4
Analysis
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CASE STUDIES
Case study 1
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BoR
ICICI BANK
CASA Deposits
Rs 4163crores
Rs 21000crores
Rs 47crores
Rs 304crores
0.7%
1%
1.05%
2.1%
Implied price per branch lower than last deal in the sector
In the last deal in the sector, HDFC Bank had valued CBoP at Rs285m per branch and
0.5x the deposit base. ICICI Bank had acquired Sangli Bank at Rs3.5b, valuing Sangli
Bank at ~Rs18m per branch. While the price that ICICI Bank is paying is in line with the
valuations of other old private sector banks, it is significantly lower than the CBoP deal.
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Banks
BRANCHES
Sangli bank
UWI
LKB
CBOP
BOR
200
229
118
394
463
Deposits
20
65
20
207
152
Approx price
Value
Value
3.5
3.5
3.3
112.2
30.5
(branches)
17.5
15.3
28.0
284.8
65.9
(deposits)
0.18
0.05
0.17
0.54
0.20
500
450
400
350
300
250
branches
deposits
app. Price
value
value2
200
150
100
50
0
sangli
uwi
lkb
cbop
bor
The rationale for the merger, according to the ICICI Bank management, is that it would
have taken the bank three years to build the kind of low-cost current account and savings
account (CASA) relationship; it gets to build upon now with the latest move. ICICI Bank
has had its sights set firmly on expanding its share of CASA deposits.
Adds 25% to their branch network.
CASE STUDY 2
State Bank of India is the largest state-owned banking and financial services company in
India, by almost every parameter - revenues, profits, assets, market capitalization, etc.
SBI has 21000 ATMs, 26500 branches including the branches of its associate banks.
The bank has 131 overseas offices spread over 32 countries. It has branches of the parent
in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and environs, Los
Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo.
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Mar '06
Mar '07
Mar '08
Mar '09
Mar '10
11.21
10.12
11.65
12.03
10.54
15.94
14.50
13.72
15.74
13.89
3.71
3.85
3.87
3.79
3.82
5.10
5.44
6.32
7.20
7.26
56.32
59.35
65.23
67.28
66.66
11.88
12.34
13.47
14.25
13.39
65.66
76.16
78.31
78.34
74.22
62.11
73.44
77.51
74.97
75.96
Interest expended/
Interest earned
Capital Adequacy Ratio
Advances/total funds(%)
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Mar'06
Mar'07
Mar'08
Mar'09
Mar'10
30
20
10
0
NPM
RONW
NII
ATR
IE
CAR
ATF
CDR
State Bank of Indore was formerly named as Bank of Indore Ltd. It was established under
a special charter of His Highness Maharaja Tukojirao Holker-III, the then ruler of Malwa
region.
It became a subsidiary of State Bank of India on 1 January 1960, under the State Bank of
India Subsidiary Banks Act, 1959.
In the following year (1962), State Bank of Indore took over the business of The Bank of
Dewas Ltd.
In 1965, State Bank of Indore took over The Dewas Senior Bank Ltd. as well.
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The business turnover of the Bank crossed Rs.47000 Crore at the end of December 2008.
It has emerged as the premier bank of Madhya Pradesh due to its steady progress.
The SBI with the sanction of Govt. of India entered into negotiations with State Bank of
Indore for the acquisition on Oct 8, 2009.
The Board of Directors of State Bank of Indore On October 31, 2009, approved the
Scheme of Acquisition of State Bank of Indore (SBIN) by SBI, under Section 35 of the
SBI Act, 1955.
SBI has already announced a share swap ratio of 34:100 for the merger. That means, SBI
would give its 34 shares for every 100 shares of State Bank of Indore held by minority
shareholders.
For this purpose, SBI would issue up to over 1.16 lakh shares of face value Rs 10 each to
minority shareholders of State Bank of Indore.
After the merger, the issued capital of SBI would increase from Rs 634.96 crore up to a
maximum of Rs 635.08 crore.
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Case study 3
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The merger that was announced on, 2006 between Deutsche Bank and Dresdner Bank,
Germanys largest and the third largest bank respectively was considered as Germanys response
to increasingly tough competition markets.
The merger was to create the most powerful banking group in the world with the balance
sheet total of nearly 2.5 trillion marks and a stock market value around 150 billion marks. This
would put the merged bank for ahead of the second largest banking group, U.S. based citigroup,
with a balance sheet total amounting to 1.2 trillion marks and also in front of the planned
Japanese book mergers of Sumitomo and Sukura Bank with 1.7 trillion marks as the balance
sheet total.
The new banking group intended to spin off its retail banking which was not making
much profit in both the banks and costly, extensive network of bank branches associated with it.
The merged bank was to retain the name Deutsche Bank but adopted the Dresdner Banks
green corporate color in its logo. The future core business lines of the new merged Bank included
investment Banking, asset management, where the new banking group was hoped to outside the
traditionally dominant Swiss Bank, Security and loan banking and finally financially corporate
clients ranging from major industrial corporation to the mid-scale companies.
With this kind of merger, the new bank would have reached the no.1 position of the US
and create new dimensions of aggressiveness in the international mergers.
But barely 2 months after announcing their agreement to form the largest bank in the world, had
negotiations for a merger between Deutsche and Dresdner Bank failed on April 5, 2000.
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In the preliminary negotiations it had been agreed that Kleinwort Benson would be
integrated into the merged bank. But from the outset these considerations encountered resistance
from the asset management division, which was Deutsche Banks investment arm.
Deutsche Banks asset management had only integrated with Londons investment group
Morgan Grenfell and the American Bankers trust. This division alone contributed over 60% of
Deutsche Banks profit. The top people at the asset management were not ready to undertake a
new process of integration with Kleinwort Benson. So there was only one option left with the
Dresdner Bank i.e. To sell Kleinwort Benson completely. However Walter, the chairman of the
Dresdner Bank was not prepared for this. This led to the withdrawal of the Dresdner Bank from
the merger negotiations.
Case study 4
Private Banks are taking to the consolidation route in a big way. Bank of Punjab (BoP) and
Centurion Bank (CB) have been merged to form Centurion Bank of Punjab (CBP). RBI has
approved merger of Centurion Bank and Bank of Punjab effective from October 1, 2005. The
merger is at a swap ratio 9:4 and the combined bank is will be called Centurion Bank of Punjab.
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Case study 5
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According to HDFC Bank Managing Director and Chief Executive Officer Aditya Puri,
Integration will be smooth as there is no overlap. In an interview, he mentioned that at 40%
growth rate there will be no lay-offs. The integration of the second rung officials should be
smooth as there is hardly any overlap.
The boards of the two banks will meet again on February 28 to consider the draft scheme of
amalgamation, which will be subject to regulatory approvals. HDFC Bank will consider
making a preferential offer to its parent Housing Development Finance Corp Ltd (HDFC).
The move would allow HDFC to maintain the same level of shareholding in the bank.
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Indian mergers and acquisitions in 2011 may surpass this years record $71 billion of deals,
led by oil and gas, metals and mining companies, according to M&A bankers including Topsy
Mathew of Standard Chartered.
Billionaire Sunil Mittals $10.7 billion acquisition of mobile-phone operators in Africa led an
almost four-fold increase in takeovers this year as deals surpassed 2007s $69 billion,
according to data compiled by Bloomberg.
Companies in Asia-Pacific including India and China are expected to be the most acquisitive
buyers in 2011 as attractive valuations and domestic competition drive deals globally,
according to Bloombergs M&A Global Outlook survey. Overseas firms may target Indian
pharmaceutical and consumer firms, and local enterprises will seek natural resources, said
Bank of America, ranked No. 3.
Outbound deals would continue to be highly active given that international companies
valuations are still relatively depressed, and Indian companies have access to debt and equity
capital, Saurabh Agrawal, the 41-year-old head of India investment banking at Charlotte,
North Carolina-based Bank of America, wrote in an e-mailed response to questions. Inbound
and local deals will also take place.
Cross-border deals rose to a record $59.2 billion in India this year, after Mittals New DelhiBharti Airtel in March agreed to buy the African assets of Zain for $10.7 billion. Outbound
M&A accounted for 74% of that volume. The acquisition spree in India, China and Brazil
contrasts with a slowdown in global deals. Mergers worldwide are down 46% from 2007s
record. In the US, the worlds largest market, volumes are 51% lower, and levels in Europe are
down by 59%.
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Chapter -5
Conclusion
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SUGGESTIONS
Nothing can guarantee that the shiny new company will bring with it untold riches, nor can
you assure yourself that you won't be exposing your most sensitive information assets to risk
by coupling your network infrastructures. What you can do is mitigate the risk of a costly and
embarrassing security breach. Link it to your financial due diligence and make it happen.
Assess the Business Risk
Analyze the external perimeters
Pay attention to attitude
Review the company's security program
Review critical applications
Pay attention to antiviral efforts
Learn how security intelligence is gathered and systems are monitored
Look at emergency response processes
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BIBLIOGRAPHY
www.google.com
www.yahoo.com
www.icici.com
www.obc.com
www.pnb.com
www.investopedia.com
www.business.mapsofindia.com
www.bloomberg.com
www.legalserviceindia.com
www.slideboom.com
www.papercamp.com
www.moneycontrol.com
Books:
Mergers & Acquisitions- J. Fred Weston & Samwel C. Weaver
Financial Services M. Y. Khan
Marketing of Financial Services- V. A. Avadhani
Newspapers & Magazines
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