Mergers&Acquisition Report

GROUP NO. 4

Ankit Suneja – 7

Ganapathy – 23

Harsh Sachdeva – 31

Shivam Maurya – 53

Mergers & Acquisitions

Bank of Rajasthan ACQUISITION by ICICI Bank

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Bank of Rajasthan ACQUISITION by ICICI Bank

Table of ContentsTable of ContentsTable of ContentsTable of Contents

ICICI BANK ................................................................................................................................... 2

BANK OF RAJASTHAN (BOR) ............................................................................................................. 2

WHY BOR ..................................................................................................................................... 3

NEGATIVES .................................................................................................................................... 3

DEAL STRUCTURE/VALUATION .......................................................................................................... 4

SWAP RATIO .............................................................................................................................. 4

PROBLEMS ENCOUNTERED ................................................................................................................ 5

EGM- KOLKATA CIVIL COURT ........................................................................................................ 5

EGM AND COMPANY LAW ........................................................................................................... 6

UNION STRIKE ............................................................................................................................ 6

POST AMALGAMATION .................................................................................................................... 7

RAJASTHAN HIGH COURT.............................................................................................................. 7

SHARE MOVEMENT ...................................................................................................................... 7

REFERENCES .................................................................................................................................. 7

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ICICI BankICICI BankICICI BankICICI Bank

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81 billion) at March

31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year ended March 31, 2010. The

Bank has a network of 2,035 branches and about 5,518 ATMs in India and presence in 18 countries. ICICI

Bank offers a wide range of banking products and financial services to corporate and retail customers

through a variety of delivery channels and through its specialised subsidiaries in the areas of investment

banking, life and non-life insurance, venture capital and asset management. The Bank currently has

subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain,

Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United

Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Their UK subsidiary

has established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange

of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange

(NYSE).

Bank of Rajasthan (BoR)Bank of Rajasthan (BoR)Bank of Rajasthan (BoR)Bank of Rajasthan (BoR)

Bank of Rajasthan, with its stronghold in the state of Rajasthan, has a nationwide presence, serving its customers with a mission of " together we prosper " engaging actively in Commercial Banking, Merchant Banking, Auxiliary services, Consumer Banking, Deposit & Money Placement services, Trust & Custodial services, International Banking, Priority Sector Banking, Depository. Bank of Rajasthan, a leading Private Sector Bank, having branches all over India with prominent presence in Rajasthan having specialised forex and Industrial finance branches. The Bank is committed to the highest level of customer satisfaction through personalized and efficient services. Bank of Rajasthan is a listed old Indian private sector bank with its corporate office at Mumbai

in Maharashtra and registered office at Udaipur in Rajasthan. At March 31, 2009, Bank of Rajasthan had

463 branches and 111 ATMs, total assets of Rs. 172.24 billion, deposits of Rs. 151.87 billion and

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advances of Rs. 77.81 billion. It made a net profit of Rs. 1.18 billion in the year ended March 31, 2009

and a net loss of Rs. 0.10 billion in the nine months ended December 31, 2009.

Why BoRWhy BoRWhy BoRWhy BoR

• ICICI Bank Ltd, India’s largest private sector bank, said it agreed to acquire smaller rival Bank of

Rajasthan Ltd to strengthen its presence in northern and western India.

• Deal would substantially enhance its branch network and it would combine Bank of Rajasthan

branch franchise with its strong capital base.

• This acquisition would be ICICI Bank’s third one after Bank of Madura in 2000-01 and Sangli Bank

in 2006-07.

• In February, RBI imposed 25 lakh Indian rupees penalty on Bank of Rajasthan for various

violations. It also ordered a special audit of the books of the bank, after it found lapses in

corporate governance and disclosure norms.

• The deal, which will give ICICI a sizeable presence in the northwestern desert state of Rajasthan,

values the small bank at about 2.9 times its book value, compared with an Indian banking sector

average of 1.84.

• ICICI Bank may be killing two birds with one stone through its proposed merger of the Bank of

Rajasthan. Besides getting 468 branches, India's largest private sector bank will also get control

of 58 branches of a regional rural bank sponsored by BoR.

• The board approved the merger after considering the results of the due diligence covering

advances, investments, deposits, properties and branches and employee-related liabilities, and

the valuation report of Haribhakti and Co, Chartered Accountants.

• Post-merger, ICICI Bank's branch network would go up to 2,463.This is the third merger for the

bank, after it took over Bank of Madura and Sangli Bank.

NegativesNegativesNegativesNegatives

The negatives for ICICI Bank are the potential risks arising from BoR's non-performing loans and that BoR

is trading at expensive valuations. As on FY-10 the net worth of BoR was approximately Rs 760 crore and

that of ICICI Bank Rs 5,17,000 crore, he added. For the December 2009 quarter, BoR reported a loss of

Rs 44 crore on an income of Rs 373 crore.

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Deal Structure/ValuationDeal Structure/ValuationDeal Structure/ValuationDeal Structure/Valuation

The Board will consider the due diligence report and valuation report at a subsequent meeting. The

proposal if approved by the Boards of both ICICI Bank and Bank of Rajasthan would then be placed

before the shareholders of both banks for approval and would be submitted to Reserve Bank of India

(RBI) for its consideration.

Under the terms of the deal, ICICI Bank will offer 25 shares for every 118 shares of Bank of Rajasthan.

The valuation implied by the share exchange ratio is in line with the market capitalization per branch of

old private sector banks in India, The final determination of the share exchange ratio is subject to due

diligence, independent valuation and approvals.

According to the Securities and Exchange Board of India (SEBI), Tayals, the promoters of Bank of

Rajasthan hold nearly 55 percent stake in the bank. At the end of 2009, the promoters held a 28.6 per

cent stake in the bank, according to stock exchange data. ICICI is offering to pay 188.42 rupees per

share, in an all-share deal, for Bank of Rajasthan, a premium of 89 percent to the small lender, valuing

the business at $668 million. The Bank of Rajasthan approved the deal, which will be subject to

regulatory agreement.

Swap RatioSwap RatioSwap RatioSwap Ratio

The bank said the swap ratio is based on an internal analysis of the strategic value of the amalgamation,

average market capitalisation per branch of old private sector banks and relevant precedent

transactions. According to analysts, the swap ratio works out to a premium of 89.4 per cent over BoR's

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current market price. The merger is not likely to have any material impact on ICICI Bank's capital and the

only advantage is a readymade branch network. With a Tier-I capital of above 13 per cent, the impact on

ICICI Bank's capital would be less than 3 per cent.

Problems EncounteredProblems EncounteredProblems EncounteredProblems Encountered

EGMEGMEGMEGM---- KolKolKolKolkkkkata Civi lata Civi lata Civi lata Civi l CourtCourtCourtCourt

The extraordinary general meeting of Bank of Rajasthan convened to seek shareholders' approval for its

merger with ICICI Bank witnessed high drama with a Kolkata court staying the meeting that was

subsequently overruled by the High Court.

Extraordinary general meeting that was called to approve the merger was first cancelled after a Kolkata

civil court restrained the management from holding the EGM. This was based on a complaint filed by a

shareholder who was against the merger. The bank then went ahead and informed the exchanges that

the EGM has been cancelled following a court order.

The Managing Director of the bank then decided not to hold the meeting and he, along with other

officers of the bank, left the venue.

The bank also informed stock exchanges that the EGM has been cancelled following a court order.

However, some of the directors and shareholders, including dominant shareholder Mr P.K. Tayal went

ahead and held the meeting, chaired by Mr Dinesh Lakhani, a shareholder.

However, Bank of Rajasthan moved the Calcutta High Court contending that the city court did not have

the jurisdiction to hear the matter. The High Court vacated the stay. “The BoR EGM happened. A lower

court in Kolkata had issued an injunction against holding of the EGM. The Calcutta High Court has stayed

the lower court order,”

According to legal experts, it was the bank which requisitioned the meeting and later cancelled it

following the court order. Therefore, the meeting held by the shareholders after that is illegal and the

outcome of the ballot will not be legally binding on the bank. The extraordinary general meeting of Bank

of Rajasthan convened to seek shareholders' approval for its merger with ICICI Bank witnessed high

drama with a Kolkata court staying the meeting that was subsequently overruled by the High Court. Out

of the total 15 directors on the BoR board, 12 attended the board meeting held on May 18, said an

association representative. While seven directors voted in favour of the amalgamation, five abstained

from voting.

The stay was lifted after an order of the Kolkata High Court moved by ICICI Bank. The boards of both the

banks had approved the merger at a swap ratio of 1:4.72, – 4.72 shares of Bank of Rajasthan for one

share of ICICI Bank.

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EGM and Company LawEGM and Company LawEGM and Company LawEGM and Company Law

Of course you had all the shareholders who had gathered here and they decided that they could appoint

their own Chairman and continue with the meeting. There is no real process for something like this.

What the Companies Act provides is that 10% of the shareholders of a company could requisition a

meeting and make a request to the Board of the company to hold a meeting, and then the Board would

be mandated to hold such a meeting within a period of three weeks of such a requisition again by

following all the procedures.

Although you may have had the 10% who could have requisitioned the meeting but the onus eventually

was on the Board to then to take it forward. So if you look at it from a very technical perspective,

whether that shareholders meeting is a validly held meeting or not is very questionable. From a

company law point of view it could easily be a 50-50 case. Maybe that meeting was not valid in its own

right.

Union Union Union Union StrikeStrikeStrikeStrike

Three major employee unions of BoR -All India Bank of Rajasthan Employees Federation, All India Bank

of Rajasthan Officers' Association and Akhil Bhartiya Bank of Rajasthan Karmchari Sangh, have called the

strike demanding the immediate termination of the ICICI-BoR merger proposal.

The United Forum of Bank of Rajasthan Unions has opposed the merger of Bank of Rajasthan with ICICI

Bank, citing cultural compatibility issues. According to it, if a merger is essential it should be with a

public sector bank.

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Employees fear that the merger would result in job losses as the work cultures of both banks are

'extremely' different. This would also destroy the identity of one of the oldest private sector banks in the

country. More than 4,300 employees of BoR began a two-day all-India strike to protest against the

merger.

Post AmalgamationPost AmalgamationPost AmalgamationPost Amalgamation

Rajasthan High CourtRajasthan High CourtRajasthan High CourtRajasthan High Court

The Rajasthan High Court issued notices to the Reserve Bank of India, Bank of Rajasthan (BoR), ICICI

Bank and others on a petition filed by an employees union of the Udaipur-based BoR against its

proposed merger with ICICI Bank, the country's largest private sector lender.

"The High Court issued notices to all respondents - the Union of India, Reserve Bank, Sebi, BoR, ICICI

Bank, P K Tayal and S K Tayal (BoR promoters)," who filed the petition on behalf of the Akhil Bharatiya

BoR Karamchari Sangh.

The petition claims that the BoR board decision on 18 May 2010 to merge with ICICI Bank was illegal as

the Securities and Exchange Board of India had found out that the Tayals had acquired 55.1 per cent

equity in the bank in violation of its regulations.

Share movementShare movementShare movementShare movement

Shares of BoR jumped close to 20 per cent to a 52-week high on the back of reports of the merger. The

shares were locked in at the upper circuit at Rs 99.5 . Close to three crore shares of BoR were traded on

BSE and NSE , making for a total turnover of Rs 27,431 lakh. ICICI Bank was down more than one per

cent on both the exchanges.

On the BSE, the scrip was down 1.45 per cent at Rs 889.35. The ICICI Bank ADR was trading at $38.61

down $0.86 or 2.18 per cent on the NYSE.

ReferencesReferencesReferencesReferences

� http://www.ibtimes.com/articles

� http://www.thehindubusinessline.com

� www.icici.com

� www.bankofrajasthan.com

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Mergers&Acquisition Report