The GTB-UTI Bank Merger Story



Themes: Merger and acquisition takeover
Period : 2001
Organization : GTB
Pub Date : 2002
Countries : India
Industry : Banking

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Case Code : FINC004
Case Length : 07 Pages
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Introduction Contd...

With the merger dogged by controversy, the promoters had to go for a second valuation of the share swap ratio by Delloite, Haskins and Sells. UTI Bank threatened to pull out of the proposed merger, over sharp differences on the issue of going for a fresh valuation. UTI Bank was of the view that the earlier valuation did not take into account the quality of GTB's assets and, more particularly, its capital market exposure.

However, GTB was unwilling to accede to UTI Bank's demand on the grounds that the share swap ratio, which was based on valuation by SBI Caps, had already been accepted by the boards and shareholders of both the banks. UTI Bank was however, firm in its demand. But, the GTB side was non-committal to the issue saying that the two sides should await the SEBI report on the alleged price rigging in the GTB scrip prior to the merger, before taking a decision.

In March 2001, Delliote, Haskins and Sells suggested a swap ratio 2:1, slightly lower than the 2.25:1 swap ratio proposed earlier by SBI Caps. On 23 March, UTI Bank submitted the second valuation report to the RBI.

Before taking a decision, the RBI waited for the SEBI report on the alleged price manipulation in the GTB scrip ahead of the merger. The allegation of price rigging in the GTB stock seemed to be true. A preliminary investigation by SEBI concluded that stock broker Ketan Parekh (Parekh), his associates, and two corporate groups were involved in ramping up the stock ahead of the merger. In Parekh/associates, GTB had one of the largest capital markets related loan exposures.

In early April, in a dramatic move, UTI decided to call off the merger. In a similar move, GTB announced their withdrawal from the merger following allegations that the share price of GTB was manipulated prior to the merger announcement. In a press release GTB said, "The bank would be uncomfortable to enter into a merger process with a finger pointed out for price prop and living with this memory will be onerous". In April 2001, a leading business daily wrote,2 "The merger was to create the biggest private sector bank in the country. The new entity would, it was hoped, be able to take on HDFC Bank and ICICI Bank. But UTI Global-which would have been the culmination of the UTI Bank and Global Trust Bank merger-remains a non-starter. But it was certainly an eventful non-event."

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2] HinduBusinessline, April 8, 2001.