The recent announcement of the merger between IDFC First Bank and IDFC Limited has had a significant impact on their respective share prices. IDFC First Bank shares plummeted by 5.9% to reach a low of Rs 77.10 on the BSE, while IDFC Limited witnessed a rally of 6.04% initially, reaching a high of Rs 115.70, but later reducing gains to 0.46%.
The share swap ratio for the merger dictates that IDFC First Bank will issue 155 equity shares of face value Rs 10 each for every 100 equity shares of face value Rs 10 each of IDFC Limited. This ratio has been favorably received by IDFC shareholders.
Following the merger news, CLSA has maintained its underweight stance on IDFC First Bank, with a target price of Rs 85. The completion of the merger is expected to take approximately 12 to 15 months, based on previous merger instances in the BFSI sector. Notably, the merger between Housing Development Finance Corp Ltd and HDFC Bank, valued at $40 billion, is the largest in India’s corporate history.
Nuvama, an organization involved in the analysis, has stated that the share spread trade will be recommended only when the spread is at adequate levels according to the merger closure timeline. They anticipate that the spread will contract, making favorable levels unlikely to occur. Nuvama also highlighted the positive swap ratio for IDFC in comparison to IDFC First Bank.
Overall, the merger announcement has led to a decline in IDFC First Bank shares and a rise in IDFC Limited shares. The completion of the merger and its impact on the market will be closely monitored in the coming months.
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