IDBI gets United Western for Rs28 per share

13 September 2006

United Western Bank was placed under moratorium on 2 September, 2006, by the central government on recommendation of the RBI. (See: United Western Bank placed under moratorium) More than a dozen major public and private sector banks and companies like IndiaBulls as well as the Maharashtra government had expressed their interest in acquiring UWB. Its branch network of more than 230 branches, including a large number in the Mumbai area, made UWB very attractive to potential acquirers. (See: The rush for United Western Bank)

Shareholders of UWB would be the happiest lot as they would be getting a premium to the current market price. As per the scheme, IDBI would acquire all the outstanding fully paid up equity shares of UWB for a cash consideration of Rs28 per share. UWB stock closed at Rs21.5 per share (down 3.15 per cent) on the NSE yesterday.

All shareholders of UWB as on the prescribed date, to be announced by the central government later, would be eligible to tender their holdings to IDBI. This buy out would cost more than Rs150 crore to IDBI.

This is probably the first case where shareholders of a troubled bank are getting an upfront payment for their holdings. In the earlier cases like Global Trust Bank (GTB) and Kerala-based Nedungadi Bank, shareholders received no such payments. A period of 12 years was fixed in the case of GTB for the acquirer, Oriental Bank of Commerce, to ascertain if there is any net surplus payable to shareholders (See: No share swap arrangement between GTB and OBC).

The RBI has directed that a balance sheet of UWB be prepared as on 2 September, 2006, to ascertain the current financial position of the bank. All the deposit and current accounts with UWB would be transferred to IDBI, which would honour all demands for principal and interest. In case any discrepancy is detected in any of the UWB accounts, IDBI can block such accounts for a period of three months for detailed verification.

The scheme has been sent to both the banks, which have been granted two weeks to consider the scheme and submit their observations. Shareholders, depositors and creditors of both the banks and public can also submit their objections and suggestions on the scheme.