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?

IDFC's disorderly AGM

IDFC conducted its 18th AGM at Kasturi Srinivasan Hall of The Music Academy on 30th July. The Hall was too small to accommodate the shareholders and company officials. The Chairman had the black humour to say that when he entered the Hall, he thought that the place was eminently suited for 'compact' conversation with shareholders.

Many shareholders complained about the smallness of the venue and the unprofessional way in which registration of attendees was handled. It was extremely noisy because of disgruntlement of shareholders outside the hall and whenever the only door to the hall was opened, the meeting was obviously disturbed. But the Chairman Rajiv B.Lall was unperturbed. He was perhaps glad that shareholders would air their grievances about arrangements for the AGM and therefore there would be little discussion on the company's performance. His tactics succeeded. Despite the continuing melee outside the hall which was audible inside, the Chairman did not try to do anything about it even once. If this is the style he follows in the company, the company is doomed.

Several shareholders complained that they did not receive the annual report. This happened last year also. Grievances regarding the company's website were also expressed by many. It is strange that the company's annual report for 2014-15 was not uploaded in the website till the previous day. If SEBI has no guideline on this, it is time SEBI looked at this issue seriously.

Many were pleasantly surprised that IDFC's gross NPA as on 31st March was only 0.7% (Serious deterioration is seen as on 30th June, 2015.)

The Chairman cleverly spent a lot of time speaking on the proposed IDFC Bank. He expected the shareholders to clap / rejoice when he repeatedly mentioned that every single share in IDFC is entitled to automatic allotment of one share in the bank. The shareholders know the difficulties encountered by new banks and therefore there was hardly any enthusiasm among them. Lall then cracked the age-old joke of an economist making a prediction without mentioning when the prediction would come true. (He was trying to say that the bank would do well in the long-run, when we are all dead?) Because of the cheerless atmospherics in the hall, this joke also fell flat.

It must be admitted that Lall was tenacious till the very end and he never gave up the pretence that he was very mindful of shareholders' views. The disarming smile on his face never disappeared. He adopted the same style in the last AGM also. He was the only one who spoke on behalf of the company. Even the Secretary had no role. He could do this because whenever anyone complained about the company, without trying to verify the facts from from his executives, he profusely apologised. Is he so confident about the company's weaknesses? For example, quite a few equity holders complained about the company's telephonic (non-) response. Lall did not care to have this problem verified. After a long time, another shareholder (?) came to the company's rescue and said he did not face any problem. It is noteworthy that Rajiv B.Lall is the 'executive' chairman. In the meeting, one got the distinct impression that perhaps he is too pleasant-mannered and tolerant to be an effective leader.