Kotak Bank buys ING Vysya for Rs 15,000 cr in biggest merger

In Indias biggest banking merger private sector lender Kotak Mahindra Bank today announced the buyout of ING Vysya Bank in an allstock deal valued at Rs 15000 crore which is likely to set off consolidation moves ahead of the entry of new playersThis is a momentous occasion for Kotak Mahindra Bank and ING Vysya Bank and the countrys financial sector as a whole We are truly excited about our lives together Uday Suresh Kotak Executive ViceChairman and Managing Director of Kotak Mahindra Bank said at a late evening press conferenceThe allstock deal values ING Vysysa stock at Rs 790 a share which is a 16 per cent premium to the 30day stock price as of November 19 while pegging Kotak Bank at Rs 1119 a share in similar manner Accordingly ING shareholders will get 725 Kotak Bank shares for 1000 shares of the Bangalore based lender This values ING Vysya Bank at Rs 15033 crorePostdeal ING Groep NV will hold 65 per cent in the combined entity while Kotak promoters stake will be diluted to 34 per cent from 4012 per cent By December 2016 Kotak has to bring down his stake 30 per cent as per RBI norms We will now have time till December 2016 to trim promoter holding down to 30 per cent Kotak saidWith 64 per cent stake in Kotak Bank ING will be the second largest stakeholder The merger will result in Kotak Bank issuing 165 per cent additional shares The Dutch promoter holds around 43 per cent in ING bank and based on ING Vysyas book value as of Sept 30 ING will book a net profit of about USD 188 million from the deal according to analystsAll ING branches will become Kotak Mahindra Bank branches postmerger and all the ING employees numbering around 10000 will come to the Kotak Banks rolls The new entity will have 1214 branches and 1794 ATMs The combined bank will have a total asset of close to Rs 2 trillion and a market capitalization of around Rs 1 trillion at todays closing priceShares of Kotak Bank rose over 7 per cent and ING Vysya over 5 per cent Last merger in the private banking space took place whenICICI Bank was nudged by the government and the RBI to take over Bank of Rajasthan in 2010 Prior to that Centurion Bank was merged with HDFC Bank in 2008 and Global Trust Bank was taken over by the staterun Oriental Bank of Commerce in 2001in distress movesThe merged bank will have a CAR Capital Adequacy Ratio of a comfortable 16 per cent and Kotak ruled out any immediate plans to raise debt The proposed deal which is likely to be completed by April 1 next is subject to regulatory approvals This wouldbe the first merger in banking sector to be cleared by CCI Analysts gave thumbsup to the deal saying this is good for both the parties as well as the industryAshvin Parekh of Ashvin Parekh Advisory Services described the deal as a strategic buy for Kotak Bank The deal is good for Kotak Bank from strategic point of view But we need to see whether it can retain present RoA Return on Assets of 18 postmerger as INGs RoA is only 12 now Kotak Bank has to ensure the efficiency it was having all these years to make the deal a winwin Parekh saidGrant Thornton India Director for Financial Services Advisory Services Aman Bhargava said Public sector lenders still dominate the banking sector in the countryMost private sector banks do not really have national coverage and are regional players at best Consolidation especially amongst the private sector players is probably the quickest and most efficient way forward to attain the size and geographical coverage to compete for retail customers in a growing economy he saidKotak attributed the geographical synergy as the primary driver for the deal saying INGs strong presence in the South will complement Kotaks strengths in the North and Western regions He stressed that blatant and brazen cost rationalisation is not the motive behind the mergerINGs newlyappointed deputy chief executive Uday Sareen who will join the operating management committee of the merged bank said employees are at the heart of the deal and there will not be any costcutting but cost efficiencies postdeal Postmerger ING will have a board position on Kotak Bank Kotak said adding ING has volunteered for a oneyear lockin for its 65 percent stakeOn integration Sareen said it will take 36 months after all approvals are in place while Kotak Bank Joint MD Dipak Gupta said it will take up to a year for full integration Earlier Kotak said the relationship between the two entities goes back to a long time and ING in fact held some stake in Kotak Bank till 2007Asked whether the deal will change his plans to exit the bank outgoing ING Vysya Bank Chief Executive and Managing Director Shailesh Bhandari said the merger does not change his plan to leave the bank by end of January next Bhandari was at the helm of erstwhile Centurion Bank was merged with HDFC Bank in 2008