There is a Shareholder Voting from 7th JAN onwards …any clue if this related to reverse merger
It’s for appointment of Independent director.
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=7655a982-1a66-4980-8dcc-eb3c670c3839
Interesting move. can you please share your rationale for this(IDFC first to IDFC). what is the arbitrage opportuniyt you see in this.
Note - I am investor in both IDFC - IDFC First wanted. I also want to invest more but bit confused which on to buy.
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Unless our reading is worng, IDFC Limited should make more sense, because 1 share of IDFC gives you
(a) approx INR 25 / share of Cash from the AMC share (INR 4500 cr of realisation less taxes = approx INR 4000 crore over an IDFC Ltd equity base of 160 cr shares). Some of this might come in the form of distribution, and some may get invested into IDFC FB in lieu of shares of the Bank, also helping the Bank shore up its CRAR.
(b) In case the reverse merger plays through as expected in the next 12 months or so, each share of IDFC Limited should translate into 1.4 shares of the Bank… At current prices of approx INR 60 for the Bank, the potential intrinsic value of each Limited share works out to UPTO 60*1.4 + 25 = INR 109, against the present INR 85.
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The sale of IDFC AMC was completed on 31.01.2023 and IDFC received an amount of INR 4,490.50 cr. Just now read the exchange filing.
Now reverse merger is the next step.
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356a5204-6553-4adb-9c71-e6cc7ecf5dae (1).pdf (162.3 KB)
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2200 crores to increase holding in IDFC First to 40% (max. permissable)
1760 crores to pay special dividend of 11 rs per share.
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but 2200 crores for 22 crore odd number of shares…will they subscribe at 100 rs per share of IDFC First Bank…?
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It will be additional equity. And 40% will be after that dilution
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Thanks…forgot to account for that in excitement of dividend probably … xD
Still we can try to estimate the price at which the bank will issue shares considering bank wants to raise around 4000 crores and out of which 2200 crores come from IDFC Limited…that will give us an idea of swap ratio.
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Something is wrong here… If IDFC first raise 4000 crores then IDFC Limited won’t be able to raise their holding to 40% with 2200 crores only, they will need more money to subscribe to major part of that fund raise…or IDFC First won’t raise entire 4000 crore before reverse merger…
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They don’t have to raise the whole 4k crores in one go. The approval is to raise in multiple tranches.
They might go for 2.2k from idfc in first tranche and the rest post reverse merger.
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Disappointed that they are preferring the dividend option to the buyback option. Buyback would have created more shareholder value. 30% tax on Rs 11 would effectively make it Rs 7.7.
Not a good decision as far as retail investors are concerned.
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True. People still think dividend is free money. The day dividend got taxed at peak slab rate of the individuals it lost its sheen, at least for me.
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The shares were proposed to be issued below the CMP of IDFCFB. Good deal for IDFC shareholders.
701ad693-b0c1-4000-8be7-de81c33c989d.pdf (786.0 KB)
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Now the idfc limited has 1.65 shares of idfc bank?
264,64,38,348 i.e.
39.99% post issue of current consideration of issue by IDFC FB.
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Yeah
Total shares owned of IDFC First Bank: 264,64,38,348
Total outstanding shares of IDFC: 159,64,35,942
Ratio: 1.6577
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Based on today’s closing price (after excluding dividend of Rs 11) IDFC Ltd shareholders should get 135-140 shares of IDFC First for every 100 shares. However, based on the current shareholding after issue of new shares, they should get at least 165 shares of IDFC First. The arbitration is about 20%.
There are two different methods to play this. One, hold 50% IDFC and 50% IDFC First in your account. In that case, if the arbitration story plays out, one gets 10% extra gain on the best case scenario and 0% on worst case (assuming one won’t get less than the ratio of CMP)
The second method is to hold 100% IDFC - the best case is 20% and worst case is 0% on the arbitrage. So purely based on the above argument, the first method seems unnecessary.
But still I am more comfortable with first method. Since I don’t know how the share prices are going to move in the market and suppose the 1.35 comes down to 1.1, and the final merger is based on the share price and not on intrinsic value. I have no knowledge of the regulations, and therefore I am not sure if intrinsic value will be definitely considered for merger, or only last 3 months average price. Or maybe some other formula. Can anyone elaborate on this?
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Question - why should stock price decide the merger ratio ? if you hold IDFC which is more like a shell structure now, and has no asset other than the bank shares, the merger ratio should be in proportion to the shares of IDFC first bank held by IDFC + any residual cash
just thinking aloud. stock price would only matter if IDFC had some assets. for IDFC first bank, they are just changing the shareholder from IDFC to individuals who hold IDFC and maybe issue a few additional shares for the residual cash/asset
I agree with you. So, once IDFC Ltd goes ex dividend, it will be prudent to buy them back again from the market, my assumption is that the shares will fall by the identical amount of special dividend, i.e. Rs 11.
Based on today’s closing price, IDFC would be ex dividend @ Rs 80.10
Suppose one buys 1000 IDFC @ 80,100 + brokerage
Same money would have fetched 1363 qty of IDFC First at CMP
However, when the reverse merger happens, an IDFC shareholder would get 1650 shares of IDFC First, which is the 20-21% arbitrage one could hope for. Right?
Santanu
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agree. the valuation problem existed before the cash was invested in IDFC first bank and special dividend. now IDFC exists more or less like a pass through ownership of the bank shares.
put it another way, what is IDFC bank getting for the merger ? a few 100 crs at best. so they can issue a small bit shares for that. outside of that, its a non event for the bank. they just change the ownership of the shares from IDFC to shareholders of IDFC and transfer those shares.
So the merger ratio would how many shares of IDFC first bank we hold per share of IDFC ltd
So discount basically should close as the probability of the merger increases.