Kotak Mahindra Bank, ING Vysya Bank to merge

In a move that will catapult it to the position of India’s fourth largest bank in terms of branch network, Kotak Mahindra Bank announced its merger with ING Vysya Bank in an all-stock deal.

As per the deal, ING Vysya shareholders will receive 725 shares in Kotak for 1,000 shares of ING Vysya.

This exchange ratio indicates an implied price of Rs 790 for each ING Vysya share based on the average closing price of Kotak shares during one month to November 19, 2014, which is a 16 per cent premium.

“The deal will help Kotak Mahindra Bank to help accelerate its branch presence. It will also help in significant savings in terms of product and origination cost savings,” Kotak Mahindra Bank Executive Vice-Chairman and Managing Director Uday Kotak said.

The merger also leaves significant headroom for global institutions for more ownership in the combined entity as the foreign holding in the merged entity will only be at 46.9 per cent, Kotak added.

Post-merger, the ING Group will hold 6.5 per cent will promoter holding will be at 34 per cent. The combined entity will have a branch network of 1214 and a balance sheet size of Rs 2 lakh crore.

The proposed merger would result in issuance of approximately 15.2 per cent of the equity share capital of the merged Kotak. The merger is subject to the approval of shareholders of Kotak and ING Vysya respectively, Reserve Bank of India, the Competition Commission of India and such other regulatory approvals as may be required.

ING Vysya’s CEO designate Uday Sareen will be inducted into the top management of Kotak reporting directly to Uday Kotak.

Commenting on the timelines, Kotak said that it is subject to time taken for regulatory approvals.

“It will be tough to give timelines for the completion of the merger as we have to obtain many regulatory approvals. However, we hope to have a joint business from April 1,” Uday Kotak said.

We will work on gradually building return on assets and return on equity over a period of time, Kotak added.

Uday Kotak said that the deal will help the bank in significantly improving its presence in South India. “ING Vysya Bank has 573 branches with 64 per cent network in South India while we have 46 per cent of our branch network in West India. The merged entity will have 30 per cent of its branches in South India, 27 per cent in North India and 38 per cent of the network in South India,” Uday Kotak said.