Friday, November 16News That Matters

IDFC calls off $12-bn merger plan with Shriram Group on differences over swap ratio :

The much talked about proposed USD 12 billion mega merger between IDFC Group and Shriram Group has been called off by the former as the two were unable to reach common ground on the swap ratio.

The confidentiality, exclusivity and standstill (CEST) agreement entered into to evaluate a strategic combination of relevant financial services of the Shriram Group with the IDFC Group stands terminated with immediate effect, according to a release by IDFC.

The decision was taken at IDFC’s board meet today to discuss second-quarter results as well as the merger.

“Despite best efforts, the two groups have not been able to reach an agreement on a mutually acceptable swap ratio,” said an IDFC spokesperson.

“IDFC Bank’s strategy to expand its retail business at an accelerated pace and diversify its corporate business outside of its traditional infrastructure focus remains on track. IDFC Bank, while focusing on enhancing its strategic momentum, will continue to explore opportunities for inorganic growth as well.”

A deal to combine Shriram Capital and the group would have created a financial conglomerate with a universal bank and the ability to provide a range of financial products from insurance to vehicle finance.

As per the proposed plans, Shriram City Union Finance Ltd. was to be merged into IDFC Bank Ltd., while Shriram Transport Finance Co. was to remain a standalone unit of IDFC.

The life and general insurance units of Shriram Group were to become units of IDFC, IDFC Bank Chief Executive Officer Rajiv Lall had said in July.

The Indian government is IDFC’s biggest shareholder with 16.4 percent stake, while a unit of Malaysia’s sovereign wealth fund Khazanah Nasional Berhad holds 9.5 percent, according to exchange filings. The biggest shareholders of IDFC Bank — other than IDFC, which owns a 52.8 percent stake — are the Indian government with a 7.7 percent stake and the Khazanah unit with 4.4 percent.

Valuation

The unlisted Shriram Capital, the holding company of Shriram Group, was being valued at around Rs 25,000 crore (USD 3.8 billion) for the proposed deal, the people said. IDFC, which has a market value of about Rs 10,000 crore, was being valued at about Rs 13,000 crore, as per Bloomberg reports.

IDFC won a preliminary permit for its banking unit in 2014, and the lender has been publicly traded since November 2015.

Piramal Enterprises Ltd. bought a 20 percent stake in Shriram Capital in 2014. The firm backed by billionaire Ajay Piramal also has stakes in Shriram Transport Finance and Shriram City Union Finance, the publicly traded units of Shriram Capital.

IDFC and Shriram had, on October 5, extended an exclusivity pact for the proposed deal to November 8, citing “the extensive due diligence process involved in the ongoing discussions,” according to stock exchange filings.

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