IDFC, Shriram Group Companies Shares Fall Amid Merger Talks

Shares of IDFC and Shriram Group companies fell on Monday after both the companies informed Saturday that they have agreed to explore a merger to create a large retail-focused bank in the country. IDFC shares fell as much as 4.67 per cent while shares of Shriram Transport Finance Company and Shriram City Union Finance fell as much as 7.4 and 5.5 per cent respectively.

The proposed deal will be a three-tier structure under which, retail consumer centric businesses, Shriram City Union Finance and IDFC Bank will merge. IDFC will hold Shriram Transport Finance as a separate unlisted entity while all other Shriram Group businesses like life insurance, general insurance and asset management will be acquired by IDFC.

Addressing the media on Saturday, Shriram Capital chairman Ajay Piramal said, "The managements have been given 90 days to explore the merger and that share swap ratio will be decided after this."

IDFC Bank's Rajiv Lall said they hope to complete the merger in 12 months, excluding the exclusive 90-day period, if all regulatory approvals come in. He also said the share swap ratio will be decided only after the 90 days due diligence.

Domestic brokerage, Edelweiss Securities said, the proposed merger will require material regulatory approvals and minority shareholder's approval, which is uncertain as the merger seeks to create a financial conglomerate operating across credit, savings, asset management and insurance business.

However, the brokerage said that if the proposed deal goes through, it will be positive for IDFC Bank as it gives IDFC Bank "scale and ability to leverage on Shriram City Union Finance's customer base for liability traction." Meanwhile, the structure will also enable IDFC to bring down its holding in IDFC Bank to near 40 per cent without any significant dilution, the brokerage added. IDFC Bank shares were up 2.93 per cent at Rs 66.65 as of 11.45 am.

For the shareholders of Shriram City Union Finance and Shriram Transport Finance, the impact can be judged after the share swap ratio is decided, the brokerage said. (With agency inputs)