After over three months of negotiations, the merger talks between IDFC Group and Shriram Group were called off today as the two were unable to reach a common ground on the share swap ratio.
Infrastructure lender IDFC, which entered the banking space in 2015, and Piramal Group's financial services firm Shriram entered into Confidentiality, Exclusivity and Standstill (CES) Agreement on July 8 for a merger to create the largest retail-focussed bank in the country.
"This is to inform you that despite best efforts, IDFC Group and Shriram Group have not been able to reach common ground on a mutually acceptable swap ratio for the merger," IDFC Ltd said in a regulatory filing.
Following this, it said, both the parties have agreed to call off discussions on a "potential merger and the exclusivity period pursuant to the CES Agreement entered into between the concerned parties stands terminated with immediate effect".
The structure envisaged was that of a conglomerate. All the operating businesses of two groups, including IDFC Bank and operating businesses of Shriram Capital, notably Shriram Transport Finance, Shriram City Union Finance (SCUF) and insurance arms were to come together under IDFC Ltd.
The retail-centric business of SCUF were to be absorbed directly into IDFC Bank to expand the balance sheet by Rs 20,000-25,000 crore to help expand its reach and retail network.
Under a complex three-tiered structure, the retail arm SCUF was to be merged with IDFC Bank Ltd; Shriram Transport Finance would have become a fully owned unit of IDFC and be delisted; and IDFC would have also become the holding company for the Shriram Group's insurance businesses.
Currently, Shriram Group has a loan book of over Rs 80,000 crore, while IDFC and its banking arm IDFC Bank together have loan book of over Rs 60,000 crore. The total assets of the merged entity would have crossed Rs 9 lakh crore.
It is to be noted that the due diligence could not be completed in the initial 90 day exclusivity period from July 8, 2017. As a result a final agreement on transaction structure and swap ratio for the merger could not be arrived, forcing extension of CES Agreement up to November 8, 2017.
The two had, on October 5, extended the exclusivity pact for the proposed deal citing "the extensive due diligence process involved in the ongoing discussions".
Analysts had already raised doubts on this plan saying it would not be easy to merge them given the Reserve Bank's reluctance to allow corporate entity entering into banking sector as well as its norms capping promoters' stake to under 10 per cent.
They also cited Piramal Group's large and successful real estate business as another hurdle.
There were opposition from Malaysian sovereign wealth fund Khazanah, which owns about 9.5 per cent of IDFC and also from government of India having 16.38 per cent stake in IDFC.
IDFC Ltd stock closed 2.68 per cent down at Rs 61.70, while that of Piramal Enterprises moved up 2.08 per cent to Rs 2,760 on BSE. Shriram City Union Finance gained 1.93 per cent to close at Rs 2,186.25 on BSE.
IDFC Bank in a statement said its strategy to expand its retail business at an accelerated pace and diversify its corporate business outside of its traditional infrastructure focus remain on track.
It has built a base of 2 million active customers, growing at the rate of 1,25,000 customers a month and serviced through our 100 regular bank branches, 383 business correspondent branches, and 10,258 Micro ATMs.
IDFC Bank, while focusing on enhancing its strategic momentum, will continue to explore opportunities for inorganic growth as well.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)