IDFC Ltd, which had on July 8 entered into a 90-day exclusivity agreement with Shriram group for a potential merger, on Thursday extended the agreement till November 8.
IDFC Ltd, which had on July 8 entered into a 90-day exclusivity agreement with Shriram group for a potential merger, on Thursday extended the agreement till November 8. “Given the extensive due diligence process involved and the on-going discussions, the parties have agreed for extension of the confidentiality, exclusivity and standstill agreement up to November 8,” IDFC said in a statement.
The proposed transaction would be subject to completion of the due diligence process, definitive documentation and board, shareholder, statutory, regulatory and other third party approvals, it said.
As per the contours of the merger shared by the two companies in July, Shriram City Union, a financier of two-wheelers, is slated to be merged with IDFC Bank, while Shriram Transport Finance is supposed to remain as a listed subsidiary of IDFC Ltd. The life and general insurance businesses of the Shriram Group are also supposed to become subsidiaries of IDFC, which would hold a 75% stake in them.
Justifying the coming together of a strong retail franchise and a wholesale lending business, the companies had said the two groups complemented one another and it would help to build a mass retail franchise with a universal bank at its core that would offer customers a wide range of products.
Last week, Ajay Piramal, chairman of Piramal group and Shriram group, had said the contours of the proposed merger are still being worked upon and have not yet been finalised. “The status of the deal is, as we had announced even in August, we are going to explore ways to see if a merger works out on the basis of what the RBI approves and on the basis of what the valuations are. So, we are still looking at it,” Piramal had said.
Piramal Enterprises, the flagship company of the Piramal group, owns 20% stake in Shriram Capital and 10% stake each in Shriram Transport and Shriram City Union. Ajay Piramal became the chairman of Shriram Capital in 2015.
Sources close to the deal said shareholders of Shriram Transport are unhappy with the current structure of the merger as they fear dilution in value and are pushing for a change in the structure of the deal. Since the assets of Shriram Finance were substantially higher than IDFC Bank, it was decided to keep it as a subsidiary of IDFC Ltd.
On being asked if the structure of the proposed merger would be changed due to opposition from a section of shareholders, Piramal said, “We will see. It is all about opposition of shareholders. We are the largest shareholder. We will never do anything which is not in the interest of shareholders. We have a vested interest to see that. But even otherwise, as a group, Piramal has always seen to it that all shareholders get the most appropriate deals. So that’s what we will see.”
Shriram group companies lend to small entrepreneurs selling them loans to buy second-hand trucks and also individuals to whom it gives two-wheeler loans. Shriram Capital, the holding company for the financial services and insurance companies of Shriram group, has a customer base of more than 120 lakh, 3,000 offices and assets under management in excess of Rs 90,000 crore.
IDBI Bank has around 90 branches and more than 11,000 touch points and a customer base of more than 16 lakh.