India's Kotak Mahindra to Acquire ING Vysya Bank in $2.4 Billion Stock Deal -- Update

By Nupur Acharya And Ian Walker 

India's Kotak Mahindra Bank Ltd. on Thursday said it has agreed to acquire its smaller rival ING Vysya Bank Ltd. in an all-stock deal valued at $2.4 billion, which would create the country's fourth largest private-sector lender by assets.

Kotak Mahindra Bank will offer 725 shares for every 1000 shares of ING Vysya. The deal, which is subject to shareholder and regulatory approvals, implies a price of $12.75 for every share of ING Vysya, or a 16% premium to the bank's 30-day average share price.

Dutch bank ING Groep NV, which owns 43% of ING Vysya, said that it expects to book a net profit of EUR150 million ($188.01 million) from the deal and that it will hold 7% in the combined entity.

"In line with ING's Think Forward strategy, the merger of Vysya with Kotak will give ING a stake in a stronger bank with an excellent long-term potential for sustainable profitable growth," it said.

The merger brings together two banks with complementary strengths in businesses and reach, Uday Kotak, the executive vice chairman of Kotak Mahindra Bank told reporters at a news conference.

"We achieve an accelerated branch presence, which is key," he said. The combined entity will have 1,214 branches with little overlap. The merged bank is likely to start operations by April, he added.

Kotak has deeper presence in the west and north of the country, and a strong presence in segments such as corporations, agriculture finance and consumer loans.

On the other hand, Bangalore-based ING Vysya has a large branch network in southern India and a strong presence in small and midsize business segments.

"It is a win-win deal," said Manish Ostwal, head of research with Mumbai-based brokerage K.R, Choksey Shares & Securities Ltd.

"Kotak has the ability to pull up the operating margins with strong retail focus while ING Vysya has a strong asset book of small and medium enterprises," Mr. Ostwal said.

The combined entity will better compete with big players such as Axis Bank Ltd., India's third largest nonstate bank by assets, he said.

ING Vysya's chief executive officer designate Uday Sareen will be part of the top management and one of the bank's directors will join the Kotak board.

India has had only a few bank mergers. In 2010, ICICI Bank Ltd. acquired Bank of Rajasthan. Before that, HDFC Bank Ltd. acquired Centurion Bank of Punjab in 2008.

Shares of both banks rallied on the Bombay Stock Exchange to touch 52-week highs on reports that Kotak was in the final stages of buying ING Vysya. Kotak shares closed at 1,157.05 rupees, up 7.28% while ING Vysya ended up 7.15% at 814.20 rupees.

Write to Nupur Acharya at [e-mail] and Ian Walker at [e-mail]

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