Federal, LKB differ on valuation, takeover deal off

M Venugopalan, chairman of the Aluva-based Federal Bank today announced that the bank has withdrawn from the deal to take over Lord Krishna Bank (LKB), for which it had given an in-principle consent on October 5.

He said that the withdrawal followed the failure to achieve a consensus over the valuation of LKB. He also said that the decision of the bank in this regard is final and it would not be re-opened. He also added that the agitation plan declared by its employees unions had in no way influenced the decision.

According to banking sources, the Kochi-based Federal Bank had estimated the size of the acquisition deal at Rs 300 crore. On the other hand, the LKB management had put a demand of around Rs 450 crore, almost thrice the size of its book-value at Rs 16.95 per share.

The employees unions of the Federal Bank have welcomed the decision. There was no consensus among the board members of Federal Bank over this issue. Its board meets over the issue were postponed twice within 11 days. Three of the eight members on the board were vehemently against the takeover move and hence the repeated postponement of the board meeting.

The employee unions of the bank had declared to resort to agitation, if the board cleared the merger move. These developments have affected the bank's GDR issue seriously which was planned in November. Meanwhile, a heavy fall in share price of the bank had also created concern over the Rs 350 crore worth issue.

The bank had already filed the draft prospectus with the securities & Exchange Board of India (Sebi), but has postponed the issue since it may not attract investors.

The terms for taking over LKB has made widespread criticism among small and medium shareholders, employees and officers organisations and political parties of the state.

They argued that LKB had not been doing well in the recent past and the financial position of the bank is critical. It is also feared that the non- performing assets (NPA) of LKB will become a liability for Federal Bank and affect its financials.

In an official press release, Federal Bank explained that the managements of Federal Bank and LKB have today decided to call off the ongoing discussions for merger of the two banks.