FIRST PHASE

CASE STUDY

ING VYASA AND KOTAK BANK (MERGER)

SUBMITTED TO:
MR. VICTOR NAYAK
ASSISTANT PROFESSOR
GALGOTIAS UNIVERSITY

SUBMITTED BY:
SHEFALI SHUKLA
15GSOL101017

INTRODUCTION

The Indian banking sector did not witness too many M&A performance when compared to
western and other countries. After the first stage of nationalization in 1969, only 34 mergers took
place in the Indian banking sector. In 26 of these deals, PSBs acquired private sector banks that
were on the verge of failure, mostly on a directive from the RBI. The remaining 8 deals
happened between private sector banks.
The merger prior to the Kotak and ING Vysya merger in the private sector banking space took
place in 2010 when Bank of Rajasthan merged with ICICI Bank in a US$398 million deal. There
were many reasons for the low number of M&As in India. These included restrictive regulations,
a major part of the banking industry being owned by the Indian government, and the rigid
resistance by strong employees unions.

THE DEAL

Kotak Bank Buys ING Vysya in Record $2.4 Billion Share Deal Kotak Mahindra Bank has
agreed to buy ING Vysya in an all-share deal valuing its smaller rival at $2.4 billion, bulking up
as analysts predict the start of long-awaited consolidation in a crowded banking sector. Dutch
lender ING Groep NV owns roughly a 43 per cent stake in ING Vysya. It will be the secondlargest shareholder in Kotak Mahindra after the deal -- the largest in the Indian banking sector to
date -- with a holding of about 7 per cent. India has 40 publicly traded banks, 24 of them
majority owned by the government. The state banks account for over 70 per cent of a total of $1
trillion advances in India, leaving dozens of small lenders in their wake with tiny market shares.
Analysts expect the sector to begin coalescing around a few major players after the country's
central bank in April granted licences to set up two new banks. Deals, though, have been rare in a
banking industry hampered by restrictive regulation, reluctant investors and strong unions. (Also
read: ING Vysya Bank Acquisition Will be Good Fit for Kotak, Says Nomura) Thursday's deal,
subject to regulatory approvals, is the first major bank takeover since top privately held lender
ICICI Bank bought Bank of Rajasthan four years ago.
"Most private sector banks ... do not really have coverage across India and are regional players at
best," Aman Bhargava, director of financial services advisory at Grant Thornton India LLP, said.
"Consolidation, especially amongst the private sector players, is probably the quickest and most
efficient way forward to attain the size and geographical coverage to compete for retail
customers in a growing India." The combination of Kotak Mahindra and ING Vysya will create
India's fourth largest private sector bank by branch network. The share exchange ratio indicates a

price of Rs 790 rupees for each ING Vysya share based on the average closing price of Kotak
shares during the month to Wednesday, valuing the deal at $2.4 billion, according to Reuters
calculations. That compares to ING Vysya's closing price of 816.95 rupees on Thursday. The
combined banking entity will have 1,214 branches with a widespread network across the country,
the two banks said in a statement. The merged bank will also leverage ING's network to tap
international business. Kotak Mahindra's bolstered balance sheet and expanded branch network
-- assuming the deal completes -- will also put it in a better position to tap a pickup in demand
for credit from Indian corporates and individuals in the near future, analysts said. The transaction
is expected to close in the second half of 2015, the statement said. ($1 = Rs 61.88)

REGULATORY APPROVALS:

As banks are not companies registered under The Companies Act, 1956, it needs to follow the
separate procedure for approval of the merger from the shareholders.
As per Section 44A of the Banking Regulation Act, 1949, draft scheme of amalgamation has to
be approved by the shareholders of each banking company by a majority in number representing
two-thirds in value of the shareholders.
Before convening the meeting for the purposes of obtaining the shareholders approval, the draft
scheme of amalgamation needs to be approved individually by the Boards of Directors of the two
banking companies.
A dissenting shareholder is entitled, in the event of the scheme being sanctioned by the Reserve
Bank, to claim from the banking company concerned, in respect of the shares held by him in that
company, their value as determined by the Reserve Bank when sanctioning the scheme and such
determination by the Reserve Bank as to the value of the shares to be paid to the dissenting
shareholders shall be final for all purposes.
As per RBI act, no promoter can exercise voting rights more than 10% so getting approval of
public shareholder is one of the challenges. In this case though, such approval is almost a pregone conclusion though the legal aspects entail the following.

The first thing both banks need is approval from their shareholders. That approval threshold is
based on those present and voting at the shareholders meeting. The resolution needs approval
of a majority in number representing two-thirds in value of the shareholders of those present
and voting including proxies. Two-thirds, that is 67 percent, which in the case of both banks
would have been easy in the ordinary case, because in each case the promoter owns
approximately 40 percent. So in both cases, assuming full attendance at the meeting of every
owner of every share the maximum public support needed would be 27 percent or even less.
But banking regulations cap an individuals voting rights in a bank to 10 percent, which means
Uday Kotak cannot exercise full 40 percent vote and nor can ING. Hence in both cases they will
need public support than they would have needed otherwise.