Mumbai: Shareholders of the troubled Bank of Rajasthan Ltd (BoR) are set to get 25 shares of ICICI Bank Ltd for 118 shares of BoR in the ratio of 4.72:1, after the boards of the two banks decided to go ahead with a merger.
“This is based on an internal analysis of the strategic value of the proposed amalgamation, average market capitalization per branch of old private sector banks and relevant precedent transactions,” an ICICI Bank release said, after its board gave its in-principle approval to the proposal.
BoR promoter Pravin Kumar Tayal termed the proposed merger as a “win-win” situation for all—the banks, their employees and investors.
In a day of high drama, BoR stock rose 19.95% on the Bombay Stock Exchange to close at Rs99.50, its year high, and after trading hours, the bank sent a release to the stock exchanges saying its board will meet in the evening to discuss a proposal of merging the bank with ICICI Bank.
Boads of both banks met in the evening separately, and after the meeting ICICI Bank sent a release, saying, it “has entered into an agreement with certain shareholders of Bank of Rajasthan agreeing to effect the amalgamation of Bank of Rajasthan” with itself.
ICICI Bank stock was down 1.45% to Rs889.35.
Audit firm Haribhakti and Co. and Deloitte Haskins and Sells will assess the valuation of Bank of Rajasthan and the boards of both banks will meet on 23 May to seal the deal.
“The final determination of the share exchange ratio is subject to due diligence, independent valuation,” ICICI Bank said.
Also See A History of Mergers (Graphic)
Most banking analysts said the currently proposed swap ratio is highly favourable to Bank of Rajasthan shareholders.
A back-of-the-envelope calculation by analysts values the deal at more than Rs3,000 crore and per branch acquisition cost at Rs7 crore for ICICI Bank, almost equivalent to ICICI’s per branch opening cost.
ICICI Bank, India’s second largest lender, is among banks that held talks to buy a controlling stake in Bank of Rajasthan, The Economic Times reported on 6 May.
This will be ICICI Bank’s third acquisition after Bank of Madura in 2000-01 and Sangli Bank in 2006-07. The first acquisition helped ICICI Bank step up its presence in the south and the second in the west. The BoR acquisition will strengthen its network in northern as well as western India.
BoR has a network of 463 branches and 111 ATMs. About 60% of its branches are in Rajasthan. ICICI Bank, India’s largest private sector lender, has a network of 2,009 branches and 5,219 ATMs.
ICICI Bank has an asset base of Rs3.63 trillion and posted a net profit of Rs4,025 crore in 2010. BoR’s asset base is Rs17,224 crore and in first nine months of fiscal 2010, its net loss was Rs9.82 crore. It posted a net loss of Rs44.70 crore for the December quarter and has not announced March quarter earnings.
BoR’s net non-performing assets as a percentage of total loans in December was 1.05%. The comparable figure for ICICI Bank for the year-end is 1.55%.
“The proposed amalgamation would substantially enhance ICICI Bank’s branch network, already the largest among Indian private sector banks, and especially strengthen its presence in northern and western India. It would combine Bank of Rajasthan’s branch franchise with ICICI Bank’s strong capital base,” the ICICI Bank release said.
India’s capital markets regulator in March banned BoR promoter Tayal and about 100 companies and people associated with his family from trading in securities for improper disclosure about their holdings in the bank.
According to the Securities and Exchange Board of India, the Tayal family owned 55.01% of the bank in December, even though Tayal claimed his group stake was 28.06%.
BoR has also been under the scanner of the Reserve Bank of India (RBI) for alleged violation of banking regulations, including those on corporate governance.
G. Padmanabhan, BoR managing director and chief executive officer, was appointed by RBI in November for two years with a mandate to improve corporate governance practices at the bank.
RBI has also ordered two major audits of the bank.
Graphic by Yogseh Kumar / Mint
Anup Roy contributed to this story.