Business Daily from THE HINDU group of publications
Saturday, Aug 26, 2006
Money & Banking - NBFCs
Boards approved merger agreement based on all stock deal
Ernst & Young handled the entire valuation exercise and advisory services for both the promoters
The new entity will have AUM of over Rs 4,584 crore (as on March 31, 2006) and joint disbursements of over Rs 2,500 crore in 2006-07
Kolkata , Aug. 25
Magma Leasing Ltd (Magma) and Shrachi Infrastructure Finance Ltd (SIFL), both operating in the retail financing space with presence in east, north and south India, have decided to merge to create a new financial services powerhouse in the name of `Magma Shrachi Finance Ltd'.
All stock deal
The boards of both the NBFCs, in separate meetings here today approved a merger agreement based on all stock deal, with no cash payout. Both companies have separately intimated the BSE on the development.
As per the swap ratio worked out by Ernst & Young, which handled the entire valuation exercise and advisory services for both the promoters, one Magma share will be issued for three existing shares of SIFL. The transaction, to take effect from April 1, 2006, is subject to approval of shareholders, High Court, RBI, stock exchanges and other statutory and regulatory authorities, as applicable to both the companies.
Briefing newspersons here on the development, Mr Sanjay Chamria, Managing Director of Magma, said the new entity, once in place, will have assets under management of over Rs 4,584 crore (as on March 31, 2006), and joint disbursements of over Rs 2,500 crore in 2006-07, with penetration in rural and semi-urban regions through 146 branches. The combined HR strength would be 2,288.
He said, with collective presence and infrastructure across strategic locations throughout the country, Magma Shrachi will emerge as a formidable player to combine resources and grow the business aggressively across a well diversified product portfolio. He said the aim was to become the largest retail financing outfit in India by 2007.
Commenting on the post-merger holding structure in the new company, Mr Chamria said Magma promoters will hold 42.8 per cent, SIFL 8.2 per cent and overseas investors (including Cambridge Place with whom allotments were completed on August 4, 2006) 21.3 per cent. The balance would be held by the public. He said the basic character of both the companies would be maintained.
The promoters and promoter group companies of Shrachi will be entitled to a non-compete fee as consideration for not competing with the businesses of the merged entity for a period of 6 years (inclusive of a lock-in period of three years). The fee is being discharged through an additional allotment of 3,29,000 equity shares by Magma.
Mr S. K. Todi, currently Chairman of SIFL, will be the Vice-Chairman of the new company, while Mr Ravi Todi, Managing Director of SIFL, will join the board of the merged entity in an executive capacity. Mr S. Chamria will be Managing Director of Magma Shrachi Finance. KPMG conducted the due diligence exercise.
The increase in equity capital post-merger would be to the extent of 19 per cent, asset base 36 per cent, disbursements 39 per cent, branch network 115 per cent and profit after tax 29 per cent. Increase in paid up equity.
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