The merger deal between IDFC Bank and Shriram Group could not conclude as the bank sought a 40% discount on the value of Shriram Capital, the holding company of the Chennai-based non-banking finance company (NBFC).

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While Shriram Group wanted better valuation terms, IDFC Bank did not sweeten its offer.

"IDFC Bank had asked for a 40% discount in the value of Shriram Capital, the holding company of the Shriram Group. This was unacceptable to Shriram Group and IDFC failed to come up with a counter offer," a senior officer at Shriram Finance told DNA Money.

The unlisted Shriram Capital was being valued at around Rs 25,000 crore and IDFC at Rs 13,000 crore.

"They were asking for a discount. We told them that Shriram Finance is not a shell company. After that, they never came back with a counter offer," the officer said.

On Tuesday, the stock market, however, cheered the break-up. IDFC Bank shares rose 1.25% to end at Rs 56.65 on the BSE, while the shares of Shriram City Union Finance Ltd (SCUF) rose 5.23% to end at Rs 2,300. Shriram Transport Finance Company (STFC), however, fell 1.12% to end at Rs 1,167 on BSE.

IDFC had won a preliminary permit for its banking unit in 2014 and the lender has been publicly traded since November 2015.

The proposed merger between the bank and the NBFC would have created a three-tier structure. This would have meant the merger of Shriram City Union Finance, the group's retail consumer lending business, with IDFC Bank; STFC, the commercial vehicle finance arm, would continue to operate as a 100% subsidiary of IDFC Ltd and be delisted; and Shriram's insurance business would be transferred to IDFC, which would own close to 75% in both life and general insurance businesses.

STFC has almost Rs 80,000 crore of asset under management (AUM) as of March 31, while IDFC Bank has an AUM of Rs 66,500 crore. SCUF, which was to be merged with the bank, has an AUM of Rs 23,000 crore.

On Monday, IDFC Bank informed the stock exchanges that it is discontinuing merger talks with the Shriram Group. "Despite best efforts, the two groups have not been able to reach an agreement on a mutually acceptable swap ratio. Accordingly, the exclusivity period stands terminated with immediate effect," the IDFC note said.

IDFC and Shriram had, on October 5, extended an exclusivity pact for the proposed merger deal to November 8, citing "the extensive due diligence process involved in the ongoing discussions."

PARTING WAYS

  • While Shriram Group wanted better valuation terms, IDFC Bank did not sweeten its offer  
  • The unlisted Shriram Capital was being valued at around Rs 25,000 crore and IDFC at Rs 13,000 crore