Kotak Mahindra + ING Vysya Bank

Kotak Mahindra Bank, founded by broker-turned-billionaire banker Uday Kotak, who built it into India's fifth-biggest bank by market value in just over a decade, has clinched a deal with Dutch financial giant ING that will swell the Indian lender's market value and expand its national presence, putting it in a better position to compete with bigger non-state rivals such as ICICI Bank and HDFC Bank. As a result of the all-stock deal, Kotak will acquire control of Bengaluru-based ING Vysya Bank. “All ING Vysya branches and employees will become Kotak branches and employees“ after the deal is completed, the banks said. The transaction is subject to the approval of shareholders, the Reserve Bank of India, the Competition Commission of India and other agencies.
Once approved, the transaction will help nearly double Kotak's geographical reach, increase its earnings by one-fifth and its loan book by nearly two-thirds. ING Vysya's small and medium enterprises (SME) franchise will help complement Kotak's traditional strengths in corporate and retail banking.ING Vysya shareholders will get 725 shares of Kotak for every 1,000 they own. Dutch financial giant ING, which has a 42.73% holding in ING Vysya, will have a 25.3% stake in the merged entity, making it the largest non-promoter shareholder. It has agreed to a one-year lock-in voluntarily after the merger.
Banking experts see this as an opportunity for Kotak, which is betting big on the expected growth in India’s GDP over the coming years. The proposed merger would result in issuance of nearly 15.2% of the equity share capital of the merged bank. Executive vice-chairman and MD Uday Kotak’s holding will come down to 34% after the merger from 39.71% and will be lowered to 30% by 2016, in line with the RBI guidelines.
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 the one month to November 19, which is a 16% premium to the same measure of the ING Vysya stock. The merger move is positive and will strategically fill many gaps for Kotak, Nomura said in a report.
This will increase Kotak’s branches to 1,214 from 641 now. Kotak has a 68% presence in the west and north while ING Vysya is strong in the south, especially Andhra Pradesh, Telangana and Karnataka. Kotak will gain two million customers from this merger.
The deal will also give Kotak access to ING’s key strength in the SME business, which accounts for approximately 38% of its loans. “This is a momentous occasion that brings together two banking institutions with significant complementary strengths. 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,” Uday Kotak said.
Both stocks rose over 7% on BSE in anticipation of the deal. ING Vysya is the only Indian lender controlled by an overseas company and it had a market value of Rs.15,600 crore ($2.5 billion) before the announcement, compared with Kotak Mahindra’s Rs.89,200 crore. The deal differs from recent shotgun weddings when ailing lenders were forced upon banks which didn’t have much of a choice but to accept.
After the merger, one of ING Vysya’s directors will be joining the Kotak Mahindra Bank board. ING Vysya’s CEO designate Uday Sareen will be inducted into the top management of Kotak and will report to Uday Kotak.
Amarchand Mangaldas advised Kotak Mahindra Bank on the deal while ING Vysya Bank was advised by AZB .

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