Kotak Mahindra Bank to acquire ING Vysya Bank

Private lender Kotak Mahindra Bank Ltd today said its board has approved the acquisition of local rival ING Vysya Bank Ltd, in which Dutch lender ING Groep NV  owns about 43 per cent, in an all-stock deal.

Uday KotakThe boards of Kotak Mahindra Bank Ltd and ING Vysya Bank Ltd at their respective meetings held today approved an all-stock amalgamation of ING Vysya with Kotak.

The boards also approved a swap ratio of 725 shares of Rs5 face value each of Kotak Mahindra for every 1,000 shares of ING Vysya of Rs10 each, the bank said in a statement.

The swap ratio indicates an implied price of Rs790 for each ING Vysya share, based on the average closing price of Kotak shares during one month to 19 November 2014, which is a 16 per cent premium to a like measure of ING Vysya market price.

The proposed merger would result in issuance of approximately 15.2 per cent of the equity share capital of the merged Kotak, according to the bank's the statement.

Upon ING Vysya's merger with Kotak, shareholders of ING Vysya will receive shares of Kotak in exchange of shares in ING Vysya at the approved share exchange ratio. All shareholders of Kotak and ING Vysya will participate thereafter in the (merged) Kotak business.

All ING Vysya branches and employees will become Kotak branches and employees.

ING Vysya's CEO designate, Uday Sareen, will be inducted into the top management of Kotak reporting directly to Uday Kotak, executive vice chairman and managing director of Kotak.

Kotak, with 641 branches and relatively deeper presence in the West and North, has a differentiated customer base, including HNIs, deep corporate relationships (including emerging corporate), 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 and ids considered a specialist in 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 complementarities 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, the release said.

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, it added.

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 per cent.

Commenting on the announcement, Uday Kotak, executive vice chairman and managing director, Kotak Mahindra Bank, said, ''This is a momentous occasion that brings together two banking institutions with significant complementary strengths. The opportunities and synergies that this merger will create will place Kotak and its incoming stakeholders from ING Vysya on a new trajectory of excellence and leadership. I firmly believe this merger will pave the way for a bigger and better financial services player with deep Indian roots and global standards of service.''

''Kotak values the diversity of ING Vysya, welcomes them as its family, and will work towards integrating them smoothly on this exciting journey that is ahead of us,'' he added.

''Our two companies are a perfect match at a perfect time. Our customers will see tremendous value from the combined entity as we fill the gaps, in terms of a much larger footprint and a complete product suite, both national and international. Together, both companies will participate in the growth of one of India's strongest and most successful banking franchises,'' Shailendra Bhandari, presently MD and CEO of ING Vysya Bank Ltd, said.

"This is a historic day in our 84 year heritage. I truly believe that the merger is a game-changer for us, laying the foundation to help us leap-frog by several years and be part of, and further scale a truly national franchise. The combination creates a company that will deliver maximum value for our shareholders, enormous opportunities for employees and deliver the entire suite of financial products and services to our customers,'' ING Vysya's CEO designate Uday Sareen, said.

The amalgamation is subject to the approval of the shareholders of Kotak and ING Vysya, respectively, Reserve Bank of India under the Banking Regulation Act, the Competition Commission of India and such other regulatory approvals as may be required, the release added.

SR 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.