1.IDFC Ltd holding in IDFC First bank is in the ratio 1.4313.
- IDFC Ltd merger can only happen if NOFHC doesn’t have any other business. So, sale of AMC business which give some 3500cr. Since 2500cr is indexed cost, they’ll have some tax outflow on that 1000cr. Even at 25%, net proceeds will be 3250cr.
Now: add to it contingent liabilities( 300cr), Bonus & other expenses (50cr). Final net value can be 2900cr.
- This merger is 1-2 years down the line, so addup 160cr PAT accrual till that time & maybe some small dividends.
Final cash value can be 3100cr i.e cash value per share of 19.4
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During the merger, if IDFC First is trading at 2× book (rs.66) then IDFC shareholders will get 0.3/share of IDFC First bank for the Rs.19.4 cash swap.
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Total = 1.4313+0.3 = 1.7313
Consider 5% discount - 1.64
Consider 10% discount- 1.55
Even 10% discount is too high, considering IDFC First will need some 5000cr cash infusion during 2022-2023 for maintaining 25% growth rates.
It is a classic win win for both companies shareholders.
Update:
I didn’t factor in less voting rights(26%) of IDFC Ltd in IDFC FIRST bank.
Updated calculations:
IDFC holds 36.6% of IDFC First bank of which voting rights are limited to 26% so, 10.6% non voting shares.
Considering there is no further dilution till the reverse merger & 40% discount on the non voting rights holding (10.6%), IDFC Bank pro rata swap ratio will be impacted by around 11.5%. so, instead of 1.4313 it’ll become 1.265.
So, 1 share of IDFC = 1.265 + 0.3 = 1.5565 IDFC First bank.
5% discount = 1.478
10% discount= 1.4
Incase there is additional dilution in IDFC First bank before this reverse merger, swap ratio will become more favourable to IDFC holders.