HDFC Bank, CBoP seal largest merger

1;29 swap ratio fixed; scrip prices fall on BSE.

HDFC Bank on Monday approved the acquisition of Centurion Bank of Punjab (CBoP) for Rs 9,510 crore in the largest merger in the financial sector in India. However, the merged entity would still be two-fifth the size of the country's second largest lender, ICICI Bank.

CBoP shareholders will get one share of HDFC Bank for every 29 shares held by them. 

HOW BANKS STACK UP
Bank	Total assets  In Rs cr
SBI	6,50,000
ICICI Bank	3,76,700
PNB	1,79,688
Canara Bank	1,69,192
BoI	1,62,000
BoB	1,61,554
*HDFC Bank+CBoP	1,50,000
*After the merger HDFC Bank would be in the seventh position, up from 10th now # For period ended Dec 07

The two banks did not comment on the price at which the shares were valued for the purpose of the swap ratio. The valuation arrived at is based on HDFC Bank's closing share price of 1,474.95 last Friday and the total outstanding shares of CBoP.

HDFC Bank shares fell 3.54 per cent on the Bombay Stock Exchange on Monday to close at Rs 1,422.70 a share as investors felt the acquisition was a little costlier, while CBoP shares were down 14.45 per cent to Rs 48.25 a share as the price got aligned with the share-swap ratio.

The swap ratio was based on the recommendations made by joint valuers Dalal & Shah, a chartered accounting firm, and Ernst & Young, a consulting firm.

The merger will affect the performance parameters of the merged entity, which is compared to HDFC Bank now, as the productivity at CBoP was comparatively lower.

The boards of the two banks will meet again on February 28 to consider the draft scheme of amalgamation, which will be subject to regulatory approvals.

The HDFC Bank board will also consider making a preferential offer to its promoter, Housing Development Finance Corporation (HDFC), to enable it to maintain its shareholding in the merged entity.

HDFC held 23.28 per cent in HDFC Bank at the end of December 31, 2007. HDFC will need about Rs 3,900 crore to raise its shareholding after it falls to around 19 per cent after the merger.

CBoP's Non-Executive Chairman Rana Talwar will be appointed the non-executive director of the merged entity, while its Managing Director and CEO Shailendra Bhandari will join the board as executive director.

Rana Talwar's Sabre Capital would hold less than 1 per cent stake in the merged entity from 3.48 in CBoP, while Bank Muscat's holding will decline to less than 4 per cent from over 14 per cent in CBoP.