Canada-based firm Fairfax offers all-cash deal to acquire IDBI Bank

IDBI Bank's disinvestment process began in October 2022, with LIC and the government selling their respective shares of 30.24% and 30.48%

Fairfax, led by Canadian billionaire Prem Watsa, has re-entered the bidding for IDBI Bank, presenting an enhanced proposal to acquire the bank in an all-cash deal, according to a report by Hindu Businessline (HBL). The revised offer from Fairfax was reportedly conveyed to government officials approximately two weeks ago.

Fairfax has not only put forth a new offer structured around an all-cash payment scheme for the acquisition of IDBI Bank, but Watsa has also committed to preserving the bank's identity following the completion of the acquisition.

The divestment process of IDBI Bank began in October 2022, with the Life Insurance Corporation of India (LIC) and the government selling 30.24 per cent and 30.48 per cent stakes, respectively, in the bank.

According to the HBL report, the all-cash component of the deal may offer Fairfax a unique advantage, as most bidders so far have shown reluctance to accept this form of compensation.

What are the revised conditions of Fairfax's offer?

In its previous proposal, Fairfax intended to maintain IDBI Bank as a separate entity for a few years post-acquisition before merging it with CSB Bank. However, there were concerns over IDBI Bank losing its identity in the merger.

Under the revised offer, Fairfax India Holding, the Indian arm of the private equity firm, would submit a bid for IDBI Bank.

Given that Fairfax also serves as the promoter of CSB Bank, it is anticipated that CSB Bank may be amalgamated into IDBI Bank following the completion of the deal.

Indian banking regulations stipulate that an investor cannot serve as the promoter of two banks simultaneously.

Fairfax India Holdings Corporation, a stakeholder in IIFL Finance, also recently agreed to provide up to $200 million in liquidity support to IIFL Finance, which faces liquidity concerns following an RBI ban on gold loans. The company also fetched an impressive compounded annualised return of over 20 per cent in six companies, including Digit, IIFL Finance, CSB Bank, NSE, Fairchem Organics and 5paisa, at the end of 2023.