BIGGEST MERGER IN THE HISTORY

 Mortgage Firm HDFC Ltd Will Merge With HDFC Bank

     In the biggest merger in the history of India Inc, mortgage firm HDFC Ltd will merge with HDFC Bank, creating a banking behemoth with a market capitalisation of Rs 14 lakh crore. After the merger, HDFC Bank will be 100 per cent owned by public shareholders, and existing shareholders of HDFC Ltd will own 41 per cent of HDFC Bank.

     Shareholders of HDFC Ltd will receive 42 shares of HDFC Bank (face value of Re 1 each) for 25 shares of HDFC Ltd of Rs 2 each — a ratio of 1:1.68. The combined market capitalisation will enable HDFC Bank to overtake TCS and become No. 2 in valuation after Reliance Industries Ltd (Rs 18.01 lakh crore). The Scheme and the Proposed Transaction is subject to customary closing conditions. The scheme is subject to the receipt of multiple approvals. J.P. Morgan, Goldman Sachs and Citi were among financial advisers to HDFC Bank for the deal, while Credit Suisse, Kotak Securities and Jefferies were among advisers to HDFC Ltd.

      HDFC Ltd is India’s largest housing finance company with total assets under management of Rs 5.26 lakh crore and a market cap of Rs 4.85 lakh crore. HDFC Bank is India’s largest private sector bank by assets with a market cap of Rs 9.17 lakh crore. Subsidiaries and associates of HDFC Ltd will become subsidiaries and associates of HDFC Bank. HDFC and its two subsidiaries currently hold 21 per cent stake in HDFC Bank. This stake will be extinguished after the merger. HDFC was among the first to receive an in-principle approval from the RBI to set up a bank in the private sector as part of the RBI opening up the Indian banking industry in 1994. HDFC Bank was incorporated as a subsidiary of HDFC and later listed its shares on the bourses. H T Parekh was the founder chairman of HDFC, the first retail housing finance company in the country set up in 1977.

     According to equity analysts, the amalgamation of HDFC into HDFC Bank is likely to create the third-largest entity in India in terms of market capitalisation. The two entities’ managements expect the amalgamation process to be completed by the second or the third quarter of FY24, after requisite regulatory approvals. So far, the focus has primarily been on the management structure, business integration, benefits for both sides and so on. The operational details around interest rates, shifting of accounts from HDFC to HDFC Bank and so on are yet to be formally announced.

     Top management of HDFC and HDFC Bank as well as industry experts feel the mega-merger is a win-win for the two organisations, stakeholders, customers and even the economy. However, HDFC’s depositors and borrowers are bound to have certain doubts regarding the future of their long-term contracts. The promoters of HDFC group have done the maths, and it is music to shareholders' ears that despite the regulatory costs, the merger would be earnings accretive for the merged entity HDFC Bank right from day one.

      This is India's largest and most transformational merger in the Indian financial services sector. With this merger HDFC Bank gets an unparalleled advantage through the mortgage portfolio providing it a quantum leap in distribution to semi urban and rural areas with a huge opportunity to cross-sell bank products to a very, very sticky client base. The combined entity will be able to extract substantial synergy benefits which bode well for all stakeholders and shareholders. 

     The merger is in line with the broader trend of consolidation in the financial industry. Public sector banks have already seen the first round of consolidation, driven in part by the need for building stronger balance sheets. Axis Bank has recently acquired Citibank’s consumer business in India. Other banks, especially the private sector ones, and non-banking financial companies (NBFCs) may now look for acquisitions to strengthen their balance sheets, and acquire scale. This could dramatically alter the country’s financial landscape.