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Bank of Baroda – Vijaya Bank – Dena Bank Merger - What’s in it for you?
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Bank of Baroda – Vijaya Bank – Dena Bank Merger –  What’s in it for you?

In September’18, Government announced that 3 state-owned banks - Bank of Baroda, Vijaya Bank and Dena Bank will be merged to create country's third largest lender as part of efforts to revive credit and economic growth. This move was in similar lines of SBI merging with 5 of its subsidiaries in 2017 and taking over Bharatiya Mahila Bank, catapulting it to be among top 50 global lenders. It is believed that the decision taken by 'Alternative Mechanism' to amalgamate three banks would create a mega lender which will be stronger and sustainable with an advances and deposits market share of 6.9% and 7.4%, respectively.

The merger of 3 banks moved a step forward on Wednesday 2nd Jan’19 with the Cabinet approving scheme of amalgamation for the same and board of therespective banks giving their nod to the share swap ratio. The scheme will come into effect on 1 April’19.

There is no RECORD date yet. It will be announced in due time once approvals from the CCI, SEBI and exchanges come.

The swap ratios approved are as follows:

(a) For every 1000 equity shares of Vijaya Bank, one would get 402 equity shares of BOB i.e. a swap ratio of 1:2.48 (1000/402).

(b) For every 1000 equity shares of Dena Bank, one would get 110 equity shares of BOB i.e. a swap ratio of 1:9.09 (1000/110).

So if anyone is holding 2500 shares of Vijaya Bank, he/she would get 1005 (2500/2.48) shares of BoB. Hence we advise to hold the number of stocks in the multiples of 500 (calculated on basis of pro rata) so that none of the shares are null and voided.

Similarly if anyone is holding 2500 shares of Vijaya Bank, he/she would get 275 (2500/9.09) shares of BoB. Hence we advise to hold the number of stocks in the multiples of 100 (calculated on basis of pro rata) so that none of the shares are null and voided.

It is quite clear that the share swap ratios are favorable to BOB shareholders which is fair given BOB’s superior franchise and NPA coverage position.Though the process of merging multiple entities might present its own set of challenges in the near term, BoB stands to benefit over the long term.  We believe that fall in BOB after merger announcement captures some of the risk related to integration; however, clarity on integration, long-term leadership and capital allocation would be the key going forward.

 

Note: The above blog is for purely informative purposes only. The author(s) and Adroit research team may have some positions based on this analysis and may have recommended to clients. Please assume we are biased and do consult your financial advisor before taking any positions.

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