With CCI approval, IDFC Bank- Capital First merger moves ahead: A quick recap

Anti-monopoly watchdog Competition Commision of India (CCI) on Friday approved the merger of IDFC Bank and Capital First. The combined entity is slated to have assets under management of Rs 88,000 crore and a customer base exceeding 50 lakh.

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Total income fell 2.7% from the year-ago period to Rs 2,514.51 crore in the December quarter, the bank said in a notification to the stock exchanges. (IE)

Anti-monopoly watchdog Competition Commision of India (CCI) has approved the merger of IDFC Bank and Capital First. According to the company’s statement, the merger is still subject to RBI approval. In January this year, private sector lender IDFC Bank and Capital First, a leading provider of debt to micro, small and medium enterprises and retail consumers, had announced to to merge their businesses to create a combined entity with assets under management of Rs 88,000 crore and a customer base of 50 lakh. We take a look at key details of the merger. 

The share swap

 The scheme of amalgamation, to be effective from April 2018, requires IDFC Bank to issue 139 shares for every 10 shares of Capital First, the companies had said in a joint statement. IIFL, a research and brokerage firm says that the deal clearly favours Capital First in terms of swap ratio. According to its recent report, IDFC Bank is paying a huge premium for acquisition of retail assets. Another, research firm Antique Broking observed that there are no immediate synergies in IDFC Bank-Capital First merger deal. Further, Antique notes that Capital First is richly valued due to its RoE of 12-13%. Notably, the share swap deal implies a discount of about 12% to IDFC Bank’s valuation, based on its market capitalisation of Rs 23,019 crore on January 12th, the date the merger was announced. According to the company’s press release, the existing shareholders of IDFC Bank and First Capital will retain ownership shares of about 71.2% and 28.8%, respectively.

6-9 months for completion

Rajiv Lall, Chairman of IDFC said that the merger can take up to 6-9 months time to start operations, as after getting the requisite approvals from RBI, Securities and Exchange Board of India (SEBI) and Competition Commission of India (CCI), the merger process has to be navigated through two National Company Law Tribunals (NCLTs), for IDFC Bank in Chennai and Capital First in Mumbai. 

The synergies

Taking stock of the synergies provided by the planned deal, V Vaidyanathan Executive Chairman of Capital First had said that a banking platform provides a stable diversified liability base and is critical for building a large franchise. “We are excited about this merger because IDFC Bank provides a perfect platform for continued growth of the combined franchise, supported by low-cost funding,” he added. According to the arrangement,  V Vaidyanathan, the current chairman and managing director of Capital First, will succeed Rajiv Lall as the MD and CEO of the combined entity. Further, Rajiv Lall will take up the role of non-executive chairman of IDFC Bank and guide the transition process.

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