2:1 swap for Bank of Madura merger with ICICI Bank

By Our Special Correspondent

CHENNAI, DEC. 11. The boards of ICICI Bank and Bank of Madura met today in Mumbai and Chennai and separately approved the merger of Bank of Madura with ICICI Bank. The scheme of amalgamation envisages a share exchange ratio of two shares of ICICI Bank for one share of Bank of Madura. The merger ratio was based on the recommendations of independent valuer Deloitte, Haskins & Sells.

The valuer has relied on discounted cash flows, book values and comparable multiples, among others, while recommending the merger ratio.

The shareholders of both the banks will meet on January 19 to clear the merger. The amalgamation will, however, be subject to the approval of the apex bank. The appointed date for the merger is set as February 1, 2001.

Post-merger, the bloated ICICI Bank will become the largest private sector bank with an asset base of Rs. 16,000 crores, customer base of 2.7 million and branch network of over 360. ICICI Bank will see the shareholding of ICICI come down to 55.6 per cent from 62.2 per cent. The holding of Bank of Madura promoters will be 2.7 per cent. Kotak Mahindra Finance Ltd (KMFL) will hold 1.2 per cent. Mutual funds and bank will have 1.4 per cent stake. FIIs will control 6.1 per cent. FIs will be having 5 per cent. The ADS (American depository shares) will represent 14.4 per cent. The balance 13.6 per cent will be the public holding.

Noted audit firm KPMG did the due diligence for the deal. DSP Merril Lynch was the advisor to BoM. Kotak Mahindra Capital Company is expected to advise ICICI Bank on the merger process.

The ICICI Bank has requested BoM Chairman, Dr. K. M. Thiagarajan, to join the board of the merged entity. ``Definitely I am considering it because it is an honour to be on the board of merged entity. I have agreed to have a role in the bank,'' Dr. Thiagarajan told presspersons here today.

Mr. H. N. Sinor, Managing Director and CEO of ICICI Bank, did concede that couple of areas - culture and technological integration, were key in any merger process. He did not see much problem in the area of culture integration. Nevertheless, he said, ``both groups will work hard in this area.''

On the issue of technology integration, Mr. Sinor saw no hiccup in BoM moving from ISBS to Banks 2000 package. In this context, he pointed to the successful transformation to Banks 2000 package by the UTI Bank.

The ICICI Bank CEO said a core group, comprising people from both banks, had been set up to ``sort out many issues at micro level''. There would also be sub-groups for respective areas like HR (human resources), information technology and audit, he pointed out. Asserting that there would be no threat to the jobs of BoM employees, Mr. Sinor said, ``ICICI Bank will see to it that nobody is put to any kind of inconvenience. They will be as much part of the ICICI Bank as the present staff of ICICI Bank.''

Quizzed on the fate of rural branches of BoM, Mr. Sinor declared, `` all rural branches will continue. We are looking at some kind of distribution channel - brick and mortor. We are very happy to have them.'' Mr. Thiagarajan butted in to point out that BoM itself had over the last five or six years had rationalised branches - rural, semi-urban and metros. Even in the Chennai city wherever there were duplication of branches BoM had rationalised them, he clarified. ``The combined network of branches will have very little overlap but will have very good representation,'' Mr. Thiagarajan claimed. ``In merger, we go and see what can be chopped off. Here in BoM, that has been done over the last five years,'' he said.

Stating that ``size is critical'' for any financial services organisation, more so to banks, in the current environment, the BoM Chairman justified the merger decision on the grounds that it would facilitate absorption of risk, sharing of technology and infusion of funds.

Queried as to why he did not opt for sale of his stake and preferred merger route instead, Mr. Thiagarajan quipped, ``it is a considered and balanced decision.'' The BoM chairman dismissed suggestions that he had opted to the merger route because his kins were not keen on the stepping into his shoes at the bank. ``In a bank you don't have a successor. It is not like a manufacturing company where you pass on. Even my own appointment is subject to RBI approval,'' he pointed out. Quizzed further, he said, ``we looked at what had happened in the case of a few private sector banks where promoters had sold their stakes. Their problems are not sorted out for years. All shareholders get equal treatment in a merger process. Getting permission from regulatory body is also easy. The entire process goes through smoothly.''

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