Tuesday, October 31, 2017

Sensational non-merger: IDFC and Shriram Group

What was flaunted as a $12 billion merger deal has floundered. Dr.Rajiv B.Lall, Managing Director of IDFC Bank, overtly spearheaded the move to merge IDFC group with Shriram Group though it was perceived by the public that the merger would benefit R.Thyagarajan and Ajay Piramal at the cost of IDFC and its shareholders which included the Government of India.

Rajiv Lall, a multi-linguist intellectual who propelled IDFC to be the largest lender in  infrastructure space, has himself to blame for the public fiasco of the sensational non-merger.

Lall known for his articulation and dynamism tied himself in knots on quite a few occasions through his inexplicable flip-flops. Before IDBI Bank was born, he swore in an AGM of IDFC Ltd., that the group would not enter retail banking. Within a year, IDFC obtained RBI's approval to open a commercial bank. In an AGM of IDBI Bank, Lall proudly announced that the bank's business strategy was unique. It would not rely on branch-banking and would rather concentrate on accessing customers through technology. He pacified the Chennai shareholders (the registered office of IDFC is in Chennai) with the lollipop of a branch in Chennai. Later on, he started evincing keen interest in merger with Shriram group ostensibly to enable the bank to manifest through many branches overnight.

Flip-flops, especially if serial, erode institutional credibility and IDFC is paying the price now. Rajiv Lall has gone on record that the merger deal failed because there was lack of agreement on relative valuation of the two groups. R.Thyagarajan, on the other hand, deceptively philosophises that the deal was "never alive to be dead". In his view, "the swap ratio is not all that important in any value creation exercise involving merger of entities." Isn't this too clever a statement?

Rajiv Lall has warned that IDFC Bank's returns for next 3 years would be weakened by the existing load of  high-interest bonds raised earlier by IFCI. This indicates faulty financial planning by IDFC of which Lall was an important decision-maker. Was Lall very keen about the merger in order to obfuscate the real reason for IDFC Bank's continuing performance malaise?

Lall spoke too much about the proposed merger too early. At one point of time he even indicated that he was orally assured of regulatory approvals. It took a long time for the ire of IDFC Bank's shareholders regarding the speculated swap-ratio to impact Rajiv Lall. But once he realised the enormity of shareholders' concern, he was probably looking for a face-saving modus operandi to call it quits from the merger deal. Did he really get one?

Failure of merger deals during discussions or on implementation is not uncommon. But the orchestration of the process by Rajiv Lall should have been more realistic and more subtle. Was he defeated by his own enthusiasm?

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