In Tuesday’s trading session, the shares of IDFC First Bank experienced a sharp decline of nearly 6 percent. In contrast, the shares of IDFC Limited surged over 6 percent. This movement came in response to the announcement of the swap ratio for the proposed merger between the two entities, which seems to favor IDFC shareholders. According to the disclosed details, the share exchange ratio for the amalgamation of IDFC Limited with IDFC First Bank will be 155 equity shares of IDFC First Bank, with a face value of Rs 10, for every 100 equity shares of IDFC Limited, with a face value of Rs 10.
Market analysts noted that the share swap ratio was in favor of the target company, IDFC Limited. Nuvama, an investment research firm, stated that the swap ratio stood at 1.55. Nuvama Alternative, on the other hand, had initially anticipated a range of 1.40 to 1.60, covering the worst and best-case scenarios. Consequently, the shares of IDFC First Bank faced a significant decline of 5.9 percent, reaching a low of Rs 77.10 on the Bombay Stock Exchange (BSE). In contrast, IDFC Limited shares initially soared by 6.04 percent to reach a high of Rs 115.70 in early trading. However, as the trading session progressed, IDFC Limited shares trimmed their gains to 0.46 percent, settling at Rs 109.60 per share.
The market reaction to the merger news was mixed, with IDFC First Bank witnessing a negative sentiment while IDFC Limited experienced fluctuating gains. Following the announcement of the merger, CLSA, a renowned brokerage and investment group, maintained its underweight stance on IDFC First Bank. They set a target price of Rs 85 for the bank’s shares. This indicates that CLSA believes the merger may not be sufficient to overcome the challenges and concerns associated with IDFC First Bank’s current position.
In conclusion, the share prices of IDFC First Bank witnessed a notable decline, while IDFC Limited experienced gains after the announcement of the merger swap ratio. Market analysts have observed that the swap ratio favors IDFC Limited shareholders. However, it is worth noting that CLSA maintains a cautious outlook on IDFC First Bank, indicating that there may be underlying challenges that need to be addressed even with the merger in place.