HDFC Merger with CBoP

hdfc.jpgThe corporate world is a place where only the vigilant, the sharp and the spontaneous can explore their way up the ladder, while the remaining admire or envy the success of the former . Here, every second tests the mental acumen of the professionals by putting them into various odd situations which demand spontaneous, impromptu decisions to be crafted, keeping a long-term perspective in sight.

The expected merger of the HDFC Bank with the Centurion Bank of Punjab (CBoP) is believed to broaden the scope and reach of HDFC by crediting to its already well-distributed network. The HDFC Bank, which currently spans India with its chain of 746 branches, will add to itself 394 branches of the CBoP to itself, to make its network bigger and stronger. The merger talks between the two banks began in January 2008, after the principal shareholders of CBoP – Bank Muscat with 14.02 per cent stake, Sabre Capital with 3.48 per cent stake and the Kephinance Investment (Mauritius) with 6.13 per cent stake decided to move away from this partnership. The HDFC Bank is further expected to pay Rs 100 billion to Rs 120 billion in shares for acquiring the CBoP. In what claims to be the largest ever private bank merger, the share swap ratio stands at 1:29, that is every shareholder of CBoP will get one share of HDFC Bank for every 29 shares of CBoP owned. Though this ratio is believed to have been worked out after rigorous discussions among the Board of Directors of both the banks, it has failed to receive a positive reaction from the CBoP shareholders. It has come as a yet another setback for them after a volatile period witnessing a decline in CBoP shares and an unstable management. The HDFC Bank which presently enjoys the 10th position in the list of largest banks in India on the basis of assets, and with this merger, will now witness a jump to the 7th position. At the same time, the current stake of HDFC in the CBoP, which is 23.38% is projected to fall to about 19% on completion of the deal.Another important concern that rises with such mergers is the question of blending the two distinct and diverse styles of functioning and ensuring a smooth transition to a new work culture, absorbing the strengths of both the merging companies. It is a meticulous task to ensure that the fundamental ways of working and the ideology of the two companies supplement the growth of each other rather than leaving any one of the potential organizations obsolete. This merger has come after a series of activities marking an eventful past for CBoP, which include acquiring the Lord Krishna Bank and the Bank of Punjab. As the CBoP stands at a new dawn, we wish it brings some reason to rejoice for the shareholders that have stood through its history of highs and lows.

Ishant Arora

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