Mergers, Acquisitions, and Corporate Control represent a major force in the modern financial and economic environment. These have become corporate policy issues. The general rubric of corporate synergy signifies that value created by the combination of firms may result in more efficient management, economies of scale, improved production technique, the combination of complementary resources, the redeployment of profitable uses, the exploitation of market power or any number of value creating mechanisms. For a firm characterized by an objective of stockholder wealth maximization the appropriate test of a Merger's success is the Merger's effect on stock prices. In an efficient capital market, investor's expectations of the merger's future benefit should be fully reflected in stock prices by the merger date.

Formally if the capital markets are semi strong efficient, then the value of future benefits should be fully reflected by the first public announcement of the merger and should certainly be fully reflected by somewhat later merger date. The increase in the equity value of the acquiring firm in the wake of a successful merger is a compelling evidence for the synergy theory of mergers. This study analyses the Reliance Industries Limited merger with Reliance Petroleum Limitedthe largest ever merger in India. The study examines the effect of the merger on the wealth of the shareholders of Reliance Industries Limited and also on post merger corporate performance. The results fail to support the capitalization hypothesis that merger gains are captured at the beginning of the merger programs.

We find that the stockholders suffer loss for different time window period around the announcement period. The announcement day return was found to be 4.78%. But the average abnormal return from 20 days before until 20 days after the announcement period was found to be0.17%. Merged firm did not show improved operating performance in terms of per share ratio. The value created by the combination of firms may result from more efficient management, economies of scale, improved production techniques, the combination of complementary resources, the redeployment of assets to more profitable uses, the exploitation of market power, or any number of value creating mechanisms that fall under the general rubric of corporate synergy. Given that value is based on profits, and profits are the difference between revenue and cost, the magical arithmetic happens in at least two ways in a merger: shared cost (e.g., by sharing overhead) and enhanced revenue (e.g. by increasing sales without adding to costs).Two types of synergy need to be distinguished—cost based and revenue based. Cost based synergy focuses on reducing incurred costs by combining similar assets in the merged businesses.