InvestorQ : Can you help me understand the implications of the HDFC and HDFC Bank merger deal and what will be the benefit for shareholders?
Dawn Cherian made post

Can you help me understand the implications of the HDFC and HDFC Bank merger deal and what will be the benefit for shareholders?

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Mitali Bhutta answered.
1 month ago
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Monday morning opened to the massive deal announcement of the merger of HDFC Ltd with HDFC Bank. It would be a typical banking reverse merger wherein the stakeholder (HDFC Ltd) will merge into the investee company (HDFC Bank). This deal is not new and had bene first hinted at by Deepak Parekh in 2015. However, the deal had not been pursued since the regulatory framework was not conducive to implementing such a deal then.

Thanks to a more market friendly approach by the RBI, the regulator now allows such mergers in a market neutral way. Both HDFC Bank and HDFC see tremendous synergies from the merger. This synergy will arise in terms of a sharper business model, lower cost of funds, better yields and improved asset quality. The subsidiaries and associates of HDFC Ltd will now become a part of HDFC Bank Ltd as per the composite scheme of amalgamation.

Let me now turn to how the entire merger between HDFC Ltd and HDFC Bank will be structured for practical purposes.

1) Post the merger deal, HDFC Ltd will cease to exist as a separate entity. The boards have approved but shareholder approval and regulatory approval are pending.

2) Shareholders of HDFC Ltd will get 42 shares of HDFC Bank for every 28 shares of HDFC Ltd. Post the deal, HDFC shareholders will end up owning 41% stake in HDFC Bank.

3) On completion of the deal, HDFC Bank will become a 100% publicly owned company with no identifiable promoter group. HDFC Ltd will cease to exist as an entity.

4) All equity shares of HDFC Ltd will be extinguished and cease to exist post-merger. Against these HDFC Ltd shares, fresh shares of HDFC Bank will be issued to them.

5) This deal will help to reduce the unsecured loans of HDFC Bank as all mortgage loans of HDFC Ltd are, by default secured by assets.

6) As part of the deal, all branches of HDFC Ltd will become HDFC Bank branches even as HFDC Bank gains access to long tenor assets and long tenor liabilities.

The deal is subject to the approval of the RBI, NCLT, SEBI, stock exchanges and the Competition Commission of India (CCI). The overall deal could take up to a year.

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