Kotak Mahindra Bank acquires ING Vysya Bank

Moneylife Digital Team 20 November 2014

Shares of both Kotak Mahindra Bank and ING Vysya Bank hit their 52-week high on Thursday following news reports about the possible merger between the two lenders. The acquisition was later confirmed by Uday Kotak via Twitter

Private lender Kotak Mahindra Bank Ltd Thursday said it acquired ING Vysya Bank Ltd. No financial details were immediately available.

Uday Kotak, executive vice chairman and managing director of Kotak Mahindra Bank, tweeted "Kotak Mah Bank & ING Vysya Bk Merger Subject To Approvals. Will Work To Create Stakeholder Value".

Earlier, shares of Kotak Mahindra Bank and ING Vysya Bank hit their 52-week high on Thursday following media reports about possible merger between the two lenders. Before the annoucement, Kotak Mahindra Bank closed 7.28% up at Rs1,157 while ING Vysya ended the day 7.15% higher at Rs814.2 on the BSE. Both the scrips hit their 52-week high today. The 30-share benchmark Sensex closed Thursday flat at 28,067.

According to a report from Economic Times, Kotak Mahindra Bank was in the final stages of acquiring ING Vysya Bank. The news article indicated a merger ratio of two shares of Kotak Bank for every 2.5 shares of ING Vysya, implying a market cap of Rs165 billion for ING Vysya.

Both BSE and National Stock Exchanges have sought clarification from the lenders about the news report. In its reply to BSE, ING Vysya Bank had said, "We are aware of the Company's disclosure obligations under Clause 36 of the Listing Agreement. The Company will abide by its obligations to make appropriate disclosures as and when such disclosures are necessitated by decisions taken by the Company."

In a research note, Nomura said, the merger between Kotak Mahindra Bank and ING Vysya would be a 'happy marriage' as it could fill many gaps for Kotak Mahindra Bank. "Our Neutral rating for Kotak has been more valuation-driven, currently 3.25x September 2016 book. An acquisition of ING Vysya strategically would make sense, and if it happens at valuations which are about 10% EPS/ book accretive, then we would be incrementally positive on Kotak Bank," it said.

Here are a few points mentioned by Nomura in its report on the possible merger between the two lenders...

• Low geographical overlap: An acquisition will increase Kotak’s number of branches about 2x (from 600 branches in FY14 to ~1,200 branches). Except for some metro locations, branch overlap will be very low with ING Vysya having 66% of its branches in South India and Kotak having 68% of its branches in West and North India.

• Access to business banking/SME platform: Kotak is still largely an urban retail platform (50% of loans), while ING Vysya’s key strength is in SME/business banking (about 38% of loans) – this closes the vital product gap for Kotak as currently SME is just 8% of its loans.

• Liability mix very similar: CASA ratios for Kotak and ING Vysya at 32-33% are very similar, but since SME banking is CASA-heavy, liability franchise in the long run would benefit.

• Value-accretive way of diluting promoter stake: With the acquisition, promoter holding in Kotak will come off from about 40% to 33.5% and help partially comply with RBI’s deadline on promoter stake reduction.

Comments

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MG Warrier

1 decade ago

Financial sector, in which banks are major players, is facing several challenges. Private –public sector divide, or old-new differentiation or even size may not cover up the inadequacy of a national policy guidance for conduct of business in this sector. Now, problems, of bad management, of stress arising from weaknesses in regulation and supervision and most importantly-and this affects public sector banks more- external pressure are being handles on a crisis management basis as and when they crop up. There need to be conscious effort from Reserve Bank of India to address structural and policy issues with a holistic approach viewing the financial sector as one entity and its health as something which cannot be compromised for ‘popular’ or ‘business’ interests of government and corporates.