On Tuesday, shares of IDFC gained 6.6% intraday, reaching a 52-week high of Rs 115.7. Conversely, IDFC First Bank witnessed a decline of 3.97%, with its shares dropping to Rs 78.70 on the Bombay Stock Exchange (BSE). The market reaction followed the announcement that IDFC First Bank's board members had approved the merger of IDFC with the bank.
Merger Ratios and Shareholder Stakes
In an important development, IDFC First Bank and IDFC Ltd have formally announced the share swap ratio associated with the merger. According to the announcement, IDFC shareholders will receive 155 IDFC First Bank shares for every 100 IDFC shares. This ratio defines the terms of the merger and helps to clearly understand the exchange mechanism. Currently, IDFC, through its subsidiary IDFC FHCL, holds a 39.93% stake in IDFC First Bank.
The merger is expected to increase the book value per share of IDFC First Bank. Based on its 2023 financials, the bank's stand-alone book value per share is expected to increase by 4.9%. These promising growth prospects make the merger announcement even more meaningful and could attract the attention of investors looking for opportunities in the banking sector.
Regulatory Approval and Schedule
The merger of IDFC First Bank and IDFC Ltd has entered a critical stage as the boards of directors of both companies have approved the merger. However, the proposed merger is subject to obtaining the necessary legal and regulatory approvals. Companies are taking important steps to ensure regulatory compliance. Both companies have requested Axis Capital to submit a fair opinion on the share swap ratio, and certified public accountants SSPA & Co as registered assessors to recommend a fair share swap ratio. In addition, a reputable law firm, Cyril Amarchand Mangaldas, has been appointed to handle legal due diligence, drafting, completion of the merger plan, and submission of regulatory filings.
The merger procedures are expected to be completed by the end of this fiscal year, barring unforeseen circumstances. The two companies aim to streamline their corporate structures by consolidating IDFC FHCL, IDFC Ltd, and IDFC First Bank into one entity. This restructuring will simplify regulatory compliance for the companies involved. Among other things, the merger will create an institution with a diverse set of public and institutional shareholders, partnering with other large private banks without ownership of the founders.
As the merger progresses, both companies will strictly comply with regulatory requirements and obtain the necessary approvals to ensure a smooth transition to a consolidated entity.
IDFC reported a consolidated net profit of Rs 3118 crore in the fourth quarter of 2023 as against a loss of Rs 84 crore in the fourth quarter of 2022. Operating income for the quarter was Rs 52 crore, up from Rs 5 crore in the same period last year.
IDFC First Bank reported a consolidated net profit of Rs 816 crore in the fourth quarter of 2023 from 352 crore in the fourth quarter of 2022, up 131.8% YoY. Operating income for the quarter was Rs 7822 crore, up from Rs 5384 crore in the same period last year.
Market reaction to the announcement of the merger of IDFC First Bank and IDFC Ltd was mixed. IDFC's share price closed the day at 1.8% higher. In contrast, IDFC First Bank shares fell 3.97% to Rs 78.70 on Tuesday. Each institution's approval of the reverse merger had different effects on the stock price. IDFC First Bank posted significant growth over the past year, while IDFC also posted profits, both outperforming the broader S&P BSE Sensex.
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