MUMBAI: After four months of intense deliberations, IDFC and Shriram Group decided to make a clean break of the proposed ‘marriage made in heaven’ without even tying the knot. On Monday, both entities called off merger talks as they failed to arrive at a mutually-agreeable swap ratio.
The deal, announced in July, was not considered watertight right from the start given the complexities involved. “This is to inform you that despite best efforts, IDFC Group and Shriram Group have not been able to reach common ground on a mutually acceptable swap ratio for the merger,” IDFC said in a disclosure to the bourses.
The deal was considered complex for multiple reasons. For one, Shriram was a larger entity both in size and scale than IDFC and needed a complex re-organisation of its subsidiaries under the combined entity including retaining some businesses like Shriram Transport as standalone units, while others like Shriram City Union were to be subsumed into IDFC bank.
Then there was the issue swap ratio acceptable to shareholders of all four listed entities. It meant Piramal’s 20 per cent stake in Shriram Capital wasn’t expected to exceed the regulatory threshold of five per cent in IDFC Bank. Likewise, IDFC Ltd cannot reduce its stake below 40 per cent mark in IDFC Bank, complicating the issue of arriving at an acceptable swap ratio not just difficult, but impossible.
Also, both parties had to convince the Reserve Bank of India to make an exception to retain Shriram Transport Finance business independent of banking operations, while the regulator’s new guidelines insist that businesses can be undertaken inside the bank should not be conducted through an outside entity.
For IDFC Bank, the deal was expected to expand its retail business, which it intends to grow with or without Shriram. “IDFC Bank, while focusing on enhancing its strategic momentum, will continue to explore opportunities for inorganic growth as well,” it said. Both firms signed a 90-day exclusivity period in July, which was subsequently extended till November. As per the plan, almost all key businesses of Shriram Group were to merge with either IDFC Bank or IDFC.
Complex deal
Shriram Group is a large entity in size and scale than IDFC that needed complex re-organisation of its subsidiaries under the combined entity including retaining some businesses