In recent trading, IDFC First Bank witnessed a significant drop of 5.9% in its share price, reaching a low of Rs 77.10 on the BSE. On the other hand, IDFC shares initially rallied by 6.04% and reached a high of Rs 115.70, but later trimmed the gains to 0.46%.
The sharp decline in IDFC First Bank's share price came in response to the announcement of the swap ratio for the proposed merger between IDFC First Bank and IDFC Limited. Interestingly, IDFC Limited's shares experienced a gain of over 6% following the news. This indicates that the swap ratio is perceived to be favorable for IDFC shareholders.
Under the merger agreement, IDFC First Bank will exchange 155 equity shares of face value Rs 10 each for every 100 equity shares of face value Rs 10 each of IDFC Limited.
Market analysts are closely monitoring the situation, anticipating the potential contraction of the spread at the opening of Wednesday's trading. Nuvama, a market expert, mentioned in a note that they would recommend a spread trade only if the spread reaches adequate levels according to the merger closure timeline. However, it is unlikely that the spread will be available at the desired 13-14% level.
It is worth noting that the IDFC-IDFC First Bank merger news emerged shortly after Housing Development Finance Corp Ltd merged with HDFC Bank in a historic $40-billion deal, marking the largest merger in India's corporate history.
The completion of the IDFC merger is expected to take approximately 12 to 15 months. Nuvama cited two recent BFSI (Banking, Financial Services, and Insurance) merger instances to provide an estimate. The merger formalities for HDFC twins were completed in 15 months, while the merger of Shriram Transport Finance Company and Shriram City Union Finance took 12 months to conclude.
Investors and market participants will continue to monitor the developments surrounding the IDFC and IDFC First Bank merger, as it carries implications for shareholders and the overall banking sector. The timeline & details of the merger will play a crucial role in shaping the future prospects of the entities involved.