Uday Kotak-led Kotak Mahindra Bank announced Thursday that it was acquiring the predominantly south India-based ING Vysya Bank in an all-stock deal that values the latter’s share at Rs 790, a 16% premium over its month-long average.
While the value of the deal was not known, analysts said it was above Rs 15,000 crore.
Kotak Mahindra’s board approved the proposal, which is subject to a series of approvals including from the RBI, the Competition Commission of India and the shareholders of Kotak Mahindra and ING Vysya.
Shares of the two banks ended at life-time highs on the Bombay Stock Exchange; while Kotak Mahindra surged 7.2% at Rs 1,157.05, shares of ING Vysya Bank ended 7.1% up at Rs 814.20.
Kotak Mahindra vice-chairman Uday Kotak said all ING Vysya branches and employees will become Kotak branches, and employees and ING Vysya’s CEO designate Uday Sareen will be inducted into the top management of Kotak.
“We are truly excited at our coming together,” Kotak told reporters. “This is a momentous occasion that brings together two ... institutions with significant complementary strengths.”
As per the share swap ratio suggested by SR Batliboi and Price Waterhouse, ING Vysya shareholders will receive 725 shares in Kotak for 1,000 shares of ING Vysya. The proposed merger would result in issuance of approximately 15.2% of the equity share capital of the merged Kotak. It will bring down the promoter stake to 34% from 40% and also gives time for Kotak to further pare down promoter stake to 30%, as per RBI norms, by December 31, 2016.
Market experts said the deal would benefit both parties. “It leverages the strengths of both banks – ING Vysya in the south and Kotak Mahindra in the north and west,” said Jignesh Shial of IDBI Capital Markets.
Netherlands’ ING entered the Indian banking space when it got a 10% stake in Vysya Bank in 1998 when it bought Belgium’s Bank Brussels Lambert SA. Later ING raised that investment to 20% in November 1999, and bought Vysya shares from the GMR Group in June 2002, to increase its holding to about 44%.
Although ING Vysya has reached its limit for foreign shareholding, the merged entity still has headroom for more FII participation, ING Vysya CEO Uday Sareen said.
According to Nomura Global markets research analyst Adarsh Parasrampuria, “The merger will be a happy marriage as it strategically fills many gaps for Kotak.... increase its branches and give access to ING’s SME (small and medium enterprises) business. SME is currently just 8% of Kotak’s loan portfolio.
Kotak has 641 branches with a deep presence in the West and North. The combined entity will have 1,214 branches, with a wide footprint.