Kotak Mahindra Bank and ING Vysya said in a joint statement on Thursday that their boards have approved a merger through an all stock transaction worth over $2.4 billion.
The deal, which is subject to shareholders’ approval besides other regulatory nods, would be the first significant M&A in the banking sector since 2010, when ICICI Bank snapped Bank of Rajasthan, and the second-biggest ever in the sector, as per data collated by VCCEdge, the data research platform of VCCircle. In 2008, Centurion Bank of Punjab merged with HDFC Bank in a $2.9 billion deal.
Under the deal, shareholders of ING Vysya will get shares of Kotak Mahindra Bank as per the swap ratio of 725 shares of Kotak for every 1,000 shares held by them in ING Vysya.
This exchange ratio indicates an implied price of Rs 790 for each ING Vysya share based on the average closing price of Kotak shares during one month to November 19, 2014, which is a 16 per cent premium to the comparable ING Vysya market price. Based on the implied merger share valuation, the deal works out to be over $2.4 billion in size.
The merged firm would have 1,214 branches, 1,794 ATMs points, 39,811 employees, total income (based on FY14 numbers) of Rs 13,576 crore and PAT of Rs 3,123 crore; total asset of Rs 1,98,983 crore with advances of Rs 1,20,976 crore and deposits worth Rs 1,10,963 crore.
With this, Kotak would consolidate its position as the fourth largest private lender in the country, behind ICICI Bank, HDFC Bank and Axis Bank.
ING Vysya shareholders will own approximately 15.2 per cent of the equity share capital of the merged Kotak.
Dutch financial services major ING Group, which owns around 43 per cent in ING Vysya, has indicated that it supports the proposed transaction. ING Group will become the largest non-promoter shareholder in Kotak post merger with an estimated holding of 6.47 per cent. Uday Kotak will own around 34 per cent of the combined entity.
ING Vysya also counts several PE investors namely ChrysCapital, Norwest Venture Partners, ICICI Venture and PremjiInvest. ChrysCap which has the single-biggest exposure among these, would hold 0.68 per cent of Kotak.
Kotak's largest institutional investor currently is Canadian sovereign wealth fund CPPIB. It holds 4.65 per cent which would come down to 3.9 per cent post merger.
Meanwhile, ING Group and Kotak intend to explore areas of cooperation in cross border business, on the basis of a Framework for Future Cooperation that has been entered into, subject to mutual agreement on specific terms and all laws and regulations.
All ING Vysya branches and employees will become Kotak branches and employees.ING Vysya’s CEO designate, Uday Sareen, will be inducted into the top management of Kotak reporting directly to Uday Kotak, executive vice chairman and managing director of Kotak.
Last month Shailesh Bhandari, CEO of ING Vysya Bank, had resigned from the firm.
One of ING Vysya’s directors will be joining the board of Kotak.
Uday Kotak, said, “The opportunities and synergies that this merger will create will place Kotak and its incoming stakeholders from ING Vysya on a new trajectory of excellence and leadership. I firmly believe this merger will pave the way for a bigger and better financial services player with deep Indian roots and global standards of service.”
Shailendra Bhandari, outgoing chief of ING Vysya Bank Ltd, said, “Our two companies are a perfect match at a perfect time. Our customers will see tremendous value from the combined entity as we fill the gaps, in terms of a much larger footprint and a complete product suite, both national and international.”
Shares of Kotak Mahindra Bank and ING Vysya Bank surged over 7 per cent in a strong Mumbai market on Thursday. The announcement of the merger came after market hours but the news was reported by a television channel on Wednesday.
Kotak has 641 branches and relatively deeper presence in the west and north regions of the country. ING Vysya has a national branch network of 573 branches and deep presence in south India, particularly in Andhra Pradesh, Telangana and Karnataka.
ING Vysya is particularly noted for its SME lending business and for serving large international corporates in India by access to the international relationships of ING Group.
The combined Kotak will have 1,214 branches, with a wide-spread pan-India network, getting both breadth and depth given the strong geographic complementarity between Kotak and ING Vysya.
ING Vysya is nearing the cap for foreign shareholding as per RBI norms and the merger with Kotak would provide more liquidity for shareholders with headroom for foreign investment in the combined bank. The total anticipated foreign shareholding post merger would be around 47 per cent. ING Vysya bank's total foreign shareholding as of September 30, 3014 was around 70 per cent.
The bank was formed from the 2002 acquisition of an equity stake in Indian Vysya Bank by the Dutch ING Group. Prior to this transaction, Vysya Bank had a seven-year-old strategic alliance with erstwhile Belgian bank Banque Bruxelles Lambert, which was also acquired by ING Group in 1998.
Kotak Mahindra is more than a bank and a much diversified financial services major with asset management, insurance, investment banking, private equity, stock broking among other allied businesses. The Kotak Group has a wide distribution network through branches and franchisees across India, and international offices in London, New York, Dubai, Abu Dhabi, Mauritius and Singapore.
S.R.Batliboi & Co., LLP and Price Waterhouse & Co are the independent valuers appointed by Kotak and ING Vysya, respectively. Avendus Capital provided a Fairness Opinion to Kotak on the share exchange ratio and Edelweiss provided a Fairness Opinion to ING Vysya.
EY (formerly Ernst & Young LLP) undertook due diligence review of ING Vysya for Kotak, and Amarchand & Mangaldas was legal advisors to Kotak. PricewaterhouseCoopers carried out due diligence for ING Vysya and AZB & Partners were its legal advisors.
(Edited by Joby Puthuparampil Johnson)