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Kotak Mahindra Bank acquires ING Vysya Bank for Rs 15,000 cr in an all-share deal

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New Delhi | Updated: November 20, 2014 9:38:21 PM

The Uday Kotak run bank said consolidation was founded on leveraging significant...

(L to R) Dipak Gupta, Joint Managing Director, Kotak Mahindra Bank C Jayaram, Joint Managing Director, Kotak Mahindra Bank Uday Kotak, Executive Vice Chairman and Managing Director, Kotak Mahindra Bank Uday Sareen, CEO & MD Designate, ING Vysya Bank Shailendra Bhandari, CEO & MD.(L to R) Dipak Gupta, Joint Managing Director, Kotak Mahindra Bank C Jayaram, Joint Managing Director, Kotak Mahindra Bank Uday Kotak, Executive Vice Chairman and Managing Director, Kotak Mahindra Bank Uday Sareen, CEO & MD Designate, ING Vysya Bank Shailendra Bhandari, CEO & MD.

In India’s biggest banking merger, Kotak Mahindra Bank today announced acquisition of mid-sized private sector ING Vysya Bank for about Rs 15,000 crore.

The merger will catapult the nation’s fourth largest private bank to nearly Rs 2 lakh crore balance-sheet size ahead of the entry of new players next year.

In the all-share deal, 725 equity shares of Rs 5 each (face value) of Kotak Mahindra will be issued for every 1,000 shares of Rs 10 each held in ING Vysya Bank.

Post merger, Dutch lender ING Group NV which currently holds 42.73 per cent stake in ING Vysya Bank, will become the second largest shareholder in Kotak Mahindra Bank at 6.5 per cent.

Holding of Uday Kotak in the merged entity will also be diluted to 34 per cent from 39.71 per cent. The deal will help him to comply with RBI directive of bringing his stake down to 30 per cent by end of 2016.

The combined banking entity will have a network of 1,214 branches across the country.

Announcing the deal, Uday Kotak, Vice Chairman and Managing Director, Kotak Mahindra Bank said, the deal is expected to close by April 1 after it gets all statutory approvals, including from RBI and Competition Commission of India.

The share swap ratio announced indicates a price of Rs 790 for each ING Vysya Bank share based on average closing price this month, valuing the deal at just over Rs 15,000 crore.


ING Vysya Bank shares closed 7.15 per cent at Rs 814.20 per on the BSE ahead of the announcement which came after trading hours. Kotak Mahindra Bank too jumped by 7.28 per cent to close at Rs 1,157.05 per unit at the BSE.

This is the first amalgamation of a profit earning entity post global financial meltdown in 2008. Although two more mergers took place during this period but those were amalgamations under different circumstances.

In 2010, Bank of Rajasthan was merged with country’s largest private sector lender ICICI Bank. Bank of Rajasthan was a loss making entity and its networth had turned negative.

A subsidiary of SBI, State Bank of Indore was merged with the parent in the same year. This was in continuation of the proposed policy of amalgamation of its subsidiaries over a period of time.

Kotak-ING Vysya Bank deal: First merger since global meltdown

Kotak Mahindra Bank’s acquisition of ING Vysya Bank is the country’s first ever amalgamation of a profit earning entity post the global financial meltdown in 2008.
Although two more mergers took place during this period but those were under different circumstances.

In 2010, Bank of Rajasthan was merged with country’s largest private sector lender ICICI Bank. Bank of Rajasthan was a loss making entity and its networth had turned negative.

A subsidiary of SBI, State Bank of Indore was merged with the parent in the same year. This was in continuation of the proposed policy of amalgamation of its subsidiaries over a period of time.

SBI had merged State Bank of Saurashtra in August 2008, just a month before global meltdown was triggered by Lehman Brothers going kaput.

Prior to 2008, the other significant mergers that took place include HDFC Bank acquiring Centurion Bank of Punjab in 2008 and IDBI Bank acquiring United Western Bank in 2006.

Today Kotak Mahindra Bank announced amalgamation with ING Vysya Bank in a over Rs 15,000 crore deal. Post merger, the combined entity will have market capitalisation larger than Rs 1 lakh crore.

“This deal may trigger a possibility of fresh wave of deals in the banking industry in India. This is especially true in the context that there are several small to mid size banks in India,” SMC Global Securities Head of Research Jagannadham Thunuguntla said.

This deal will bring the combined bank much larger size. Especially when the economy is on the verge of take-off, this will have the combined bank enough bandwidth to take advantage of the future opportunities of the economy, he added.
Merger terms
The Boards of Kotak and ING Vysya respectively considered the results of a due diligence review covering areas such as advances, investments, deposits, properties & branches, liabilities, material contracts etc.

S.R.Batliboi & Co., LLP, Chartered Accountants, and Price Waterhouse & Co LLP, the independent valuers appointed by Kotak and ING Vysya respectively, have recommended a share exchange ratio, which has been accepted by the respective Boards.  Avendus Capital Private Ltd. provided a Fairness Opinion to Kotak on the share exchange ratio and Edelweiss Financial Services Ltd. provided a Fairness Opinion to ING Vysya.

Accordingly ING Vysya shareholders will receive 725 shares in Kotak for 1,000 shares of ING Vysya. The share exchange ratio is considered fair and reasonable given the underlying value of ING Vysya, as also giving shareholders the ability to benefit from the potential that can be realised upon merging into Kotak.

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% premium to a like measure of ING Vysya market price.

The proposed merger would result in issuance of approximately 15.2% of the equity share capital of the merged Kotak.

One of ING Vysya’s directors will be joining the Board of Directors of Kotak.

Strategic Rationale and benefits
Kotak, with 641 branches and relatively deeper presence in the West and North, has a differentiated proposition for various customer segments including HNIs, deep corporate relationships including emerging corporates, a wide product portfolio, including agricultural finance and consumer loans, and a robust capital position.

ING Vysya has a strong customer franchise for over 8 decades, with a national branch network of 573 branches and deep presence in South India, particularly in Andhra Pradesh, Telengana and Karnataka. ING Vysya has a large customer base across all segments. It is particularly noted for a best-in-class SME Business, as also 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.
Substantial efficiencies will arise out of the proposed merger, which is likely to result in significant benefits for all stakeholders, be it shareholders, employees or customers, and ultimately the banking industry:
·         Customers and employees will benefit from the combined Kotak having a wider geographical spread, expertise across customer segments, such as SME, HNI, Corporates, and on products such as private banking, asset management, insurance, investment banking, NRI offerings etc.
·         Kotak’s strong capital position potentially avoids capital raising and attendant dilution in the near to medium term for ING Vysya shareholders.
·         Additionally, with ING Vysya nearing the cap for foreign shareholding, the merger would yield more liquidity with significant foreign headroom in Kotak even after merger, with foreign shareholding at ~47%.

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