Deal envisages one ICICI Bank share for every 4.72 of BoR’s.
Bank of Rajasthan (BoR) is set to merge with ICICI Bank, the country’s largest private sector lender. Under the deal, ICICI Bank would give 25 shares for 118 shares (1:4.72) of BoR.
The proposal was approved in-principle by the boards of the two banks. In a statement, ICICI Bank said it had entered into an agreement with certain shareholders of BoR.
The swap indicates that ICICI bank is paying a 90 per cent premium over BoR stock’s closing price of Rs 99.50 on the Bombay Stock Exchange on Tuesday. The BoR stock touched a 52-week high on Tuesday, soaring 20 per cent. ICICI Bank’s shares closed 1.45 per cent lower at Rs 889.35 on a day when the benchmark Sensex rose by 0.24 per cent.
“The valuation implied by the share exchange ratio is in line with the market capitalisation per branch of old private sector banks in India,” ICICI Bank said in the statement. “It also compares favourably with relevant precedent transactions. The final determination of the share exchange ratio is subject to due diligence, independent valuation and approvals.” Due diligence and valuation by an independent valuer will be undertaken now.
BoR Managing Director G Padmanabhan said after the board meeting that Haribhakti & Co has been appointed jointly by both the banks to assess the valuation.The banks would seek regulatory approval from the Securities and Exchange Board of India (Sebi) as well as the Reserve Bank of India at an appropriate time, he said, adding that the “swap ratio was not discussed at the board meeting”.
The move to merge BoR with ICICI Bank comes in the wake of regulatory pressure mounted on the Tayals, who according to Sebi, hold nearly 55 per cent stake in the bank. At the end of 2009, the promoters held a 28.6 per cent stake in the bank, according to stock exchange data. Nearly 100 entities related to the Tayals were barred from dealing in securities.
| ICICI BANK’S MERGER RECORD 1997: Takeover of ITC Classic Finance 1998: Takeover of Anagram Finance 2000: Merger with Bank of Madura 2002: ICICI and ICICI Bank merge 2005: Acquires Russia’s IvestitsionnoKreditny Bank 2007: Amalgamation of Sangli Bank TAYALS’ TROUBLES Nov ‘09: RBI appoints additional director on BoR board Feb ‘10: RBI imposes Rs 25 lakh penalty on BoR Mar ‘10: Sebi bars 100 entities related to Tayals Mar ‘10: RBI orders special audit of BoR’s books May ‘10: Deloitte Haskins and Sells submits report |
BoR has a market capitalisation of Rs 1,600 crore compared with ICICI Bank’s Rs 99,000 crore. It reported a net loss of Rs 44.7 crore for the quarter ended December 2009 on a revenue of Rs 344.83 crore.
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In terms of assets, ICICI Bank is around 25 times as large as BoR. In terms of branch network, BoR with 463 branches, is less than one-fourth of ICICI Bank’s network.
Analysts said the takeover would help ICICI Bank in expanding its footprint further, which is in line with its new-found branch-focused strategy. As most of BoR branches are concentrated in northern India, ICICI Bank would gain deeper access in these markets.
Since 1997, when it acquired ITC Classic, ICICI Bank has periodically merged banks with itself to increase its reach.
P K Tayal, the main promoter of BoR said the deal was a win-win solution for everyone and the agreement with ICICI Bank envisaged that the bank’s employees would get the same position in the merged entity.
While analysts do not expect an adverse impact of the merger on ICICI Bank, they were worried about the lack of clarity on the legal liabilities of BoR.
They, however, said that based on December numbers, bad debts appeared to be under control for BoR.
“But given that the fourth quarter numbers are not announced for Bank of Rajasthan, and the controversy shrouding it, there are some worries,” said an analyst at a large Indian brokerage.
While Tayals have been under regulatory scanner for a while, pressure intensified earlier this year when Sebi accused them of misleading investors about the shareholding pattern of the bank.
In February, RBI also slapped a fine of Rs 25 lakh on the bank following violations related to know-your customer (KYC) guidelines, acquisition of immovable property, deletion of records in the bank’s IT system, irregularities in the conduct of accounts for certain companies and for failure to present documents to the regulator. It has also ordered a special audit of the books of the bank, after it found lapses in corporate governance and disclosure norms.
Subsequently, the Tayals, who have been under pressure to lower their stake in the bank to RBI-prescribed level of 10 per cent, were forced to start looking at options to exit BoR.