I believe, approval for IDFC will be different since IDFC First is a bank vs. approval from RBI for SFBs.
RBI wants all banks to move to uniform NOFHC scheme and apply same rules to all banks. May be approval for IDFC could be delayed from RBI.
GOI also needs to allow tax-free/efficient reorganization for IDFC to avoid/minimize tax loss.
Management approval from IDFC First is another key issue. May be some value needs to be captured for IDFC First shareholders too to approve the merger. There is overlap between IDFC and IDFC First shareholders. If there is possibility of merger then special situation investors might move in to get the deal done.
GOI is shareholders in both the entities and recently GOI directors withdrew from both boards. IDFC can try to acquire IDFC First shares from GOI to get deal done or GOI could bless the merger to get higher amount from the divestment.
Itās still not smooth path but definitely step in the right direction.
Sell of the AMC would be another positive step. Aditya Birla(AB) AMC listing could provide another data point for AMC valuation.
IDFC MF could attractive target for TATA MF or L&T MF acquirer to build scale. AB + IDFC AMC could catapult them to 2/3 position ahead of HDFC AMC.
Yes. This is what Jefferies have also said as quoted by BloombergQuint.
Quote:
āIDFC Ltd. may indirectly benefit, but needs to sell stake in the asset management company to simplify holding company structure,ā Jefferies said.
Dear Sir/ Madam,
We would like to inform you that the Reserve Bank of India (āRBIā) has, vide its letter No.
DORā¦HOL.No.SUOā75590/16.01.146/2021ā22 dated July 20, 2021, clarified that after the expiry of
lockāin period of 5 years, IDFC Limited can exit as the promoter of IDFC FIRST Bank Limited.
We request you to kindly take the above on record.
Built a sheet for evaluating the current Holdco discount and potential swap scenarios for upcoming mergers in IDFC, Equitas & Ujjivan. One can download the sheet and change their assumptions according to their thesis and get Holdco discount, Bank Book value increase,Valuations.
IDFC Ltd will sell the AMC Business & cash proceedings will be used to swap with IDFC First Bank shares. - AMC sale proceedings & Swap Price can be edited in sheet.
IDFC Ltd then merged with IDFC First Bank with some discount- Swap rate can be adjusted in the sheet.
Equitas & Ujjivan- will have a plain vanilla meger with the their respective banks with some discount.
Since equitas has declared a holdco discount of 3.6% i have used a similar rate for IDFC & Ujjivan in the sheet- This can be changed based on your thesis in the actual swap ratio input.
Final merger creates value to Holding company & Bank shareholders in 2 ways.
Swap Ratio: The ratio which will be decided by the board based on independent valuer at some discount to what they are holding. - This will benefit the Holdco shareholders by reducing the holdco discount.
eg: Equitas Holds Equitas bank shares in ratio 100:273 but, final ratio is at 100:226.
Book Value Increase: Since the merger swap ratio is at a discount, some shares will be removed from total shares- this will result in book value increase for residual bank shareholders so, Holdco & Bank Minority shareholder will benefit from the book value increase.
From Equitas example, since 273-226=47 shares of Equitas bank shares were removed for every 100 Holdco shares, this will increase the book value of bank shareholders by 16.46%.
Edit Only Green boxes.
Summary of Observations:
Considering merger at below holdo discounts- IDFC Ltd seems to be trading at super cheap valuation, If IDFC merger discount is less than 4.22%, then current valuation is <1 P/B [This discount is expected due to uncertainity in AMC sale timelines]
Iteam
Units
IDFC Ltd
Equitas Holdings
Ujjivan Holdings
Total Holdco Discount
%
4.22%
3.68%
3.64%
Bank Current Price
Rs
53
63.2
28.8
Post Merger P/B
#
1.41
1.82
1.42
Holdco Price
Rs
58
131
240
Post Merger P/B
#
1.03
1.67
1.22
In terms of Bank Minority Shareholders, Ujjivan seems to have the highest Upside in terms of BV Increase, followed by Equitas and IDFC Ltd. This is expected since shareholding of Holdco in the Bank are in this order.
IDFC Ltd
Equitas Holdings
Ujjivan Holdings
Total BV Increase
11.82%
16.46%
18.19%
Only IDFC First Bank will have tangible value interms of increased networth boost on aggregate level,This will help them in expanding their balance sheet by 30,000cr without raising new capital. In Equitas and Ujjivan- Itās just capital structure changes without any business impact.
This is very interesting for IDFC. If the RBI allows Corporate ownership of banks then there would be a long line of suitors for IDFC Ltd. This would remove the need to sell the AMC alltogether (assumng an acquirer would be happy to own the AMC) and as the RBI has already clarified that IDFC can exit as promoter of IDFCB there would be nothing to stop a big corporate/fintech from buying IDFC-
At 8.15 onwards in this video the anchor mentions that an NBFC is looking to buy out IDFC Ltd. Is this even possible and has anyone heard anything about this and is this the reason the premium between the Bank and IDFC has increased so much in the last month?
There is nothing stopping an NBFC from acquiring IDFC Ltd if it wants to, subject to approval from the RBI. If you remember in 2017 Shriram Capital and IDFC Ltd had attempted a merger which didnāt eventually work out due to cultural issues etc.
nothing in the call, no concrete steps have been taken by the management so far. They will be presenting various alternatives during the AGM which I am sure all the investors are aware of. The call was a disaster as all the shareholders expressed their frustration over the lethargic attitude of the management and value destruction.
Another co. where Shareholders are raising voice. Almost everyone in IDFC Ltd concall slammed to management for the delay execution of sale of AMC Business and reverse merging with Bank.
Thought the call was a step in the right direction, Board mebers have recieved unflitered feedback from all shareholders and an ultimatium has been given. Hopefully a buyer for the entire company is found as the speaker from ENAM suggested. Removes need to sell AMC or the Foundation.
But what will they do with sale proceedsā¦if they distribute it as dividend, there will be a huge tax burden on shareholdersā¦
.
and In case it is a all stock deal, that wont change anything for IDFC Limited shareholdersā¦
If a listed company like say Bajaj Holdings is interested in buying IDFC then a merger can happen where IDFC shareholders get shares in the listed company in exchange for their IDFC shares, this way there will be no leakage of any money.
True, but then we will have shares of just another holding company ā¦only the name will change from IDFC Limited to Bajaj Holdingā¦and again wait for reverse merger or some other solution for the shares of AMC and Bankā¦what does that changeā¦??
The shares you get in the acquiring company will be atleast valued at NAV of IDFC, which is currently around Rs 100, you can then sell them in the market if you want to exit.
