November 23, 2014

Merger deal inked between Kotak Mahindra and Ing-Vysya Bank - Stock Market Pulse

Merger deal between Kotak Mahindra and Ing-Vysya Bank, what’s stored in for you?

Merger deal between the Kotak Mahindra Bank and Ing-Vysya Bank was the biggest news in the stock market. Last week markets touched the all time high, and fueling the rally was merger deal between the Kotak Mahindra Bank and Ing-Vysya Bank. The merger deal will sell the Kotak Mahindra’s lender market value and expand its national presence. Thus putting itself in a better position to compete with rivals such as ICICI Bank and HDFC Bank.

In a all stock deal, Kotak Mahindra will acquire control over ING Vysya Bank, which was announced on Thursday of the past week. ING Vysya Bank and Kotak Mahindra Bank were on a roll, hitting their respective 52-week highs on both the exchanges.

Kotak Mahindra Bank and ING Vysya Bank merger deal values at Rs. 16,500 crore. Kotak Mahindra is in the final stages to acquire ING Vysya Bank in a ratio of 2:2.5. For every 1000 shares of ING Vysya, shareholders will get 725 shares of Kotak Mahindra. Thus, the deal values ING-Vysya Bank at Rs ~160bn (Rs 839/sh) i.e. ~3% premium to CMP. The acquisition would lead to ~15% dilution of the merged entity & reduce Kotak Mahindra Bank’s promoter holding to ~34% (vs. ~40.1% now). The merged entity would have 1,214 branches (4th largest amongst PVT Banks), B/S size of Rs 2trn and G/NNPA of 1.6/0.7%.

Some of the benefits for Kotak Mahindra Bank post merger deal:

Increased presence: With the acquisition, Kotak Mahindra Bank’s branch network will almost be doubled without much of a regional overlap. Thus, making Kotak Mahindra Bank to become the 4th largest private bank in India.

Suitable mix for B/S: The acquisition would help Kotak Mahindra Bank to further diversify its loan book with access to ING-Vysya Bank’s forte segment of SME (38% of loans for VYSB vs. 7% for KMB). On the liability side, both the banks have a similar CASA proportion of 31-33%. Further, given INY-Vysya Bank’s low impaired assets and high tier I, the acquisition wouldn’t be a drag for Kotak Mahindra Bank.

Promoters stake to decline to ~34%: Post merger deal Kotak Mahindra Bank will witness ~15% dilution on the enhanced capital. Thus, the acquisition will reduce the promoter’s stake to ~34% and provide sufficient breathing space to meet the RBI time-line of reducing stake to 30% by Dec-16 and to 20% by Mar-18.

Meanwhile ING Vysya shareholders felt that the deal was tilted in the favor of Kotak Mahindra Bank. A clutch of institutional shareholders in ING Vysya Bank were unhappy with the merger swap ratio as they felt the valuation was tilted in the favor of Kotak Mahindra Bank.

Related Video of Kotak Mahindra Bank and ING Vysya Bank merger deal

Tags : Kotak Mahindra Bank, ING-Vysya Bank, merger deal

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