Centurion Bank of Punjab and HDFC Bank directors approve merger talks

 newsNew Delhi: The board of directors of Centurion Bank of Punjab and HDFC Bank,

who met separately today have accorded an in-principle approval to pursue merger

talks.

According to HDFC bank sources, the proposed merger has been lead by Housing and

Development Finance Corporation (HDFC) chairman Deepak Parekh who

masterminded the HDFC Bank's acquisition of Times Bank in November 1999, and

Centurion Bank of Punjab chairman Rana Talwar, and Ambit CEO Ashok Wadhwa.

HDFC Bank is one of the largest private sector lenders in the country, with 746

branches. Centurion Bank of Punjab is smaller, with 394 branches.

The merged entity would rank third in terms of size of a banking entity in the country,

just behind State Bank of India (SBI) and ICICI Bank.

This will be the second major merger for Centurion Bank of Punjab, which had

previously merged Lord Krishna Bank with itself in August 2007. Ther bank was

formed thfough the merger of centurion Bank and Bank of Punjab in June 2005.

In case the merger takes place, it would result in a combined entity that would be the

third largest in the country, with an estimated market capitalisation of around

Rs63,000 crore, if one was to go by current market values. HDFC bank is the third-

most valued bank in India, at over Rs52,000 crore. Centurion Bank of Punjab is

presently ranks tenth in India, with a market capitalisation of around Rs10,500 crore.

The deal is suggested to be an all-stock deal, with a swap ratio that would reportedly

net a Centurion Bank of Punjab shareholder one share of HDFC Bank for every 20

shares. The exact ratio would be announced later.

HDFC Bank, with Centurion's branches as part of its network, will surpass ICICI

Bank's count of branches, and will have a significant presence in the northern and

southern regions of the country, by around doubling its presence. Centurion Bank of

Punjab has a 170-branch network in the north, and another 140-odd branches in the

south. HDFC has around 250 branches in the north, and around 150 in the south.  

  

Centurion Bank of Punjab has a stronger portfolio of small and medium enterprises,

compared to a largely retail customer base of HDFC Bank. Reports indicate that were

the merger to go through, it would be a win-win situation for both, in terms of asset

size, as well as a larger banking footprint, in an increasingly competitive market.

Capital adequacy for HDFC Bank stands at 13.8 per cent, and for Centurion Bank of

Punjab at 11.5 per cent, which according to analysts is a good thing for creating a

strong banking entity.

HDFC Bank approves merger share swap ratio of 1: 29 Centurion Bank of Punjab shares newsMumbai: At its meeting held in

Mumbai this morning, the Board of HDFC Bank has approved a share swap ratio for

acquiring the country's fourth largest private bank, Centurion Bank of Punjab, at one

equity share of Rs10 of HDFC Bank for every 29 equity shares of Centurion Bank of

Punjab of a face value of Re1.

On Saturday, 23 February, the board of directors of Centurion Bank of Punjab and

HDFC Bank, met separately and accorded an in-principle approval to pursue merger

talks (See: Centurion Bank of Punjab and HDFC Bank directors approve merger talks)

The merger ratio, subject to due diligence to be conducted, was worked out by the

joint valuation report submitted by accounting firm Ernst & Young Pvt Ltd and Dalal

& Shah, chartered accountants.

The board noted that in the event of the merger, it would consider to its promoter,

Housing Development Finance Corporation Ltd, to enable HDFC to maintain its

shareholding percentage in the bank.

HDFC Ltd, HDFC Investments and HDFC Holdings jointly own 23.28 per cent in

HDFC Bank and FII's own 26.57 per cent.  Domestic mutual funds and insurance

firms jointly own another 6.20 per cent, while the central and state governments own

1.08 per cent

The bank's board will meet on 28 February to consider the draft scheme of

amalgamation and due diligence report.

The board also said that in the event of transaction being concluded, HDFC Bank Ltd

would make a preferential offer to its parent, Housing Development Finance

Corporation Ltd (HDFC), to enable it to maintain its shareholding percentage in the

Bank.

The announcement of the share swap ratio saw the HDFC Bank scrip rise to Rs1,524

(+3.33 per cent), while that of CBoP declined to Rs52.30 (-7.27 per cent).

The merger with Centurion, ranked fourth among private sector banks, will propel

HDFC Bank to become the third largest bank in the country with the largest branch

network among private banks.

HDFC Bank has a branch network of 754, behind the top private sector lender ICICI

Bank's 955-branch network, the second largest bank in the country after State Bank of

India. Centurion Bank of Punjab has 394 branches across 180 locations.

Despite being overtaken in terms of a combined branch network of the merged entity,

ICICI Bank would continue to be top private sector bank with thrice the assets size at

Rs376,700 crore  against Rs110,000 crore of the combined HDFC Bank-Centurion

Bank of Punjab.

Centurion Bank of Punjab, created through the merger of Centurion bank and Bank of

Punjab in 2005, had also acquired Lord Krishna Bank in August 2006. Its promoters

include HSBC Finance, Sabre Capital and Bank of Muscat, which holds the largest

equity of 14 per cent.

In November 1999, HDFC Bank had acquired Times Bank, promoted by the owners

of the country's largest publishing group, Bennett Coleman & Co, the owner of The

Times of Indiaand The Economic Times