you can show this merger under failed category, as it was called off by two companies. find reasons in the slide

1. CALLED OFF MERGER
BETWEEN
“IDFC AND SHRI RAM”
UNDER GUIDANCE OF MR. VIVEK BHATIA
(CORPORATE MERGERS ACQUISITIONS & RESTRUTURINGS)
PRESENTED BY,
NEETU CHAUDHARY
AMRITANSHU
ABHISHEK
DEEPAK

2. INTRODUCTION OF SHRI RAM GROUP
Type Private
Industry Conglomerate
Founded 5 April 1974, 43 years ago in Chennai, Tamil
Nadu, India
Headquarters Chennai, India
Area served India
Key people Ramamurthy Thyagarajan, Ajay
piramal(Chairman)
Number of employees 45,000 (2016)

3. Shriram Group is an Indian conglomerate founded on 5 April 1974 by Ramamurthy Thyagarajan,
AVS Raja and T. Jayaraman. They have their headquarters in Chennai, Tamil Nadu, India. The
group had its beginning in chit funds business and later on entered the lending business through
Shriram Transport Finance (Commercial Vehicle Finance) and Shriram City Union Finance.
Group Companies
Shriram Capital.
Shriram Chits Tamil Nadu Pvt Ltd
Shriram City Union Finance Ltd.
Shriram Transport Finance.
Shriram Life Insurance.
Shriram General Insurance
Shriram Properties Pvt. Ltd
Shriram EPC
Shriram Fortune Solutions Ltd.
Shriram Housing Finance Ltd.
Shriram Asset Management Company Limited.

4. INTRODUCTION OF IDFC
• IDFC Bank Ltd. is an Indian banking company with headquarters in Mumbai that forms part
of IDFC, an integrated infrastructure finance company. The bank started operations on 1
October 2015.
• Headquarters: Mumbai
• CEO: Rajiv Lal (1 Oct 2015)
• Founded: October 2015
• Number of employees: 4,838 (Oct'17)
• Subsidiaries: Grama Vidiyal, IDFC Capital Limited
• Parent organizations: Infrastructure Development Finance Company, IDFC Financial
Holding Company Limited

5. IDFC was incorporated on 30 January 1997 with its registered office in Chennai and started
operations on 9 June 1997. In 1998 the company registered with the Reserve Bank of India
(RBI) as a non-banking financial company and in 1999 it formally became a Public Financial
Institution.
IDFC Bank started operations with 23 branches in Madhya Pradesh, Delhi, Mumbai,
Hyderabad, Bengaluru, Pune, Chennai, Ahmedabad and Kolkata. 15 branches are in settlements
with a population of less than 10,000. IDFC bank has launched it's 100th branch in Honnali,
Karnataka in October 2017.
Prime Minister Narendra Modi formally inaugurated IDFC Bank on 19 October 2015.
The bank IDFC Bank is the first in India to launch aadhaar-linked cashless merchant solution.
One of its largest loans into e-commerce includes a 300 crore rupees one to Flipkart. On
November 8, 2017, IDFC Bank entered into a strategic partnership with digital payments
solution company MobiKwik to launch a co-branded virtual Visa prepaid card for customers of
MobiKwik.

7. • Infrastructure finance company IDFC and Chennai-based financial
services Shriram Group planned to merge their business to form a
$10 billion entity.
• Shriram Group's Shriram Transport Finance and Shriram City
Union Finance will be merged with IDFC Bank, in which IDFC
holds a 52.86 per cent stake.
• The announcement was made on July 8. IDFC and Shriram Group
are said to have between 90-120 days to carry out talks regarding
the merger.

8. • Both companies agree on a 90-day exclusivity period for
completing the due diligence process. The exclusivity period was
later extended until 8 November.
• SHRIRAM AMC will merge with IDFC AMC as a listed company
under IDFC.

9. Valuation of deal
• IDFC BANK & SHRIRAM CITY UNION will put swap ratio of
40:1.
• IDFC’s individual subsidiaries such as IDFC Bank, the securities
unit, private equity arm, asset management business and so on
would value the firm at Rs104 per share, or Rs16,600 crore.
• IDFC shareholders have sought a share swap ratio that would
ensure they hold 45-50% of the merged entity.

10. DEAL’s FUTURE IMPACTS

13. Synergy effect of deal
• This merger will add 20,000cr in retail book of IDFC.
• IDFC BANK can gain excess to 10 million customers of Shri ram.
• IDFC can inherit of earnings of Shri ram companies.
• Though this merger Shri ram can offer wide range of product to its
customers like saving, wealth management etc.
• A merger with SCUF( Shri ram city union ), a lender catering to mostly
small borrowers in rural and semi-urban areas with products ranging
from SME lending, two-wheeler financing, lending against gold and
small ticket housing finance should help expanding its retail footprint.
• Both the companies can now balance there liabilities.

14. Challenges
• As per the current proposed structure, SHTF will comes under a holding
company and will be subsequently delisted.
• After the merger SCUF with IDFC bank, based on current valuations, IDFC ltd
holding in the bank will come down to about 30%, which is significantly lower
than the mandated 40%.
• The merger of IDFC Bank, which is a more urban-centric wholesale business,
with SHTF and SCUF, which are more of rural play, looks like a merger with
negligible business overlap.
• Secondly, in the near term, SHTF and SCUF’s portfolio will be able to meet IDFC
Bank’s priority sector lending obligation. However, the proposed merger will
also imply higher SLR and CRR for both SHTF and SCUF portfolio.

15. Cont…
• Regulatory challenges will be one of the biggest challenges for the
deal. One regulatory challenge would be housing an NBFC and a
bank under the same Non-Operative Financial Holding Company
(NOFHC) (IDFC Ltd) since RBI does not allow an NOFHC to have
separate entities where the same business can be done across
departments.
• Other challenges include integration-related issues, especially
technology and workforce related. Ensuring the best interest of
minority shareholders of SHTF which will be delisted will have to
be kept in mind.

16. CONFLICT IN THE DEAL
• Shareholders of IDFC such as Enam Holdings Pvt. Ltd and Sipadan
Investments (Mauritius) Ltd, a subsidiary of Malaysian sovereign
wealth fund Khazanah Nasional Bhd, have demanded a higher
valuation for the company.
• Shriram Capital has been valued at Rs16,000 crore. IDFC’s current
market capitalization is around Rs10,000 crore. This would entail
IDFC shareholders holding around a 38% stake in the merged
entity, with Shriram shareholders owning the rest. Such a swap
ratio would have diminished the holding of IDFC shareholders
which is not acceptable by shareholders.

17. • Assigning values to IDFC’s individual subsidiaries such as IDFC
Bank, the securities unit, private equity arm, asset management
business and so on would value the firm at Rs104 per share, or
Rs16,600 crore. The investment banker for the merger had valued
IDFC at Rs58.50 per share, or Rs9,336 crore.
• Some shareholders of IDFC have demanded a much higher
valuation

18. REGULATORY HURDLES
• RBI wont allow if IDFC BANK goes 100% subsidiary to SHRIRAM
TRANSPORT FINANCE.
• Conglomerate cant hold more than 5% stake in bank, RBI wont allow it.

19. Reasons of Failure
• IDFC’s individual subsidiaries such as IDFC Bank, the securities unit, private equity
arm, asset management business and so on would value the firm at Rs104 per share,
or Rs16,600 crore. The investment banker for the merger had valued IDFC at Rs58.50
per share, or Rs9,336 crore
• IDFC shareholders have sought a share swap ratio that would ensure they hold 45-
50% of the merged entity. The banker for the deal proposed a 38% holding for IDFC
and 62% for Shriram Capital in the final merged entity.