Mumbai: The interests of Shriram Group shareholders will be paramount in its merger with IDFC Ltd, said Shriram group chairman Ajay Piramal. Merger discussions may even be called off if the deal structure is not favourable to shareholders of the Shriram group firms, said Piramal, who is also chairman of Piramal Enterprises Ltd.
IDFC and Shriram announced their merger plans on 8 July. The exclusivity period for discussions ends on 6 October. “It is very clear for us; we will do whatever is in the best interest of Shriram shareholders. All throughout, if you see, our record has been to look after the shareholder interest," said Piramal in an interview. “We are aligned with all our shareholders and that’s what we will do. If it means extending it (exclusivity period), we will extend it. If it means discontinuing it, we will discontinue it and if it means settling it, we will do it do in a way it is right."
The decision to extend the exclusivity period may be taken by 5 October, said a person close to the development, requesting anonymity as the deal structure is still being decided.
According to the merger plan, the Shriram City Union was to be merged with IDFC Bank and Shriram Transport was to be delisted and made a wholly owned subsidiary of IDFC, which was to act as the holding company of the merged entity.
The deal is facing some headwinds from shareholders of Shriram and IDFC, two other people directly involved in the deal negotiation said.
“The government of India has a substantial stake in IDFC. There could be concerns about the extent to which the dilution will happen," one of these two people said. The government is the single largest shareholder in IDFC with a 16.38% stake.
The second person said while the shareholders have not “openly" protested against the merger yet, the Shriram Group expects the deal can upset the shareholders of Shriram Transport as they currently hold shares in a niche listed firm focused on vehicle financing. The current merger proposal envisages delisting of the company and such shareholders would hold shares of a diversified financial services firm (what IDFC will become post merger). Investors would typically apply a holding company discount to IDFC shares. According to Suresh Ganapathy, an analyst at Macquarie Research Equity, there is a need to ensure Shriram Transport Finance is kept as an independent listed company.
On Wednesday The Economic Times had reported that IDFC and Shriram were looking at a new, less complicated structure for the merger after opposition from shareholders.
Piramal said, “We are also Shriram shareholders and we will do what is in the best interest of shareholders. There is no fixed model. We are discussing with regulators, we are discussing with other parties about the valuation."
Piramal Enterprises Ltd is the single largest shareholder in Shriram Capital—the holding company Shriram Group with an effective stake of 20 %. It also holds 9.96% in Shriram Transport Finance Ltd and 9.98% in Shriram City Union Finance Ltd.
An IDFC spokesperson declined to comment. An email sent to Shriram Capital remained unanswered.
Reghu Balakrishnan contributed to this story.