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Home » Finance Case Studies » The GTB-UTI Bank Merger Story

The GTB-UTI Bank Merger Story Finance Case Studies

On January 24, 2001, employees of the Hyderabad based Global Trust Bank (GTB) received an email from Ramesh Gelli (Gelli), Chairman and Managing Director (CMD), GTB. It read, "I am taking the opportunity of sharing some important and exciting news with you. We have now considered growing large through a process of merger. I am happy to inform you that we have now worked out a scheme of amalgamation with UTI Bank and Global Trust Bank. The merged bank will be called UTI-Global Bank with a registered office at Secunderabad. With this contemplated merger, UTI-Global would become the largest bank in private sector and would derive lot of synergy and complement each other strengths…. UTI Global Bank is expected to effectively combine the strengths and complementary features of the two banks. It will be strongly capitalized with a net worth likely to exceed Rs. 10 billion by the end of March 2001…. I am very confident that …we all can look to the future with greater amount of confidence and grow to be a dominant player in the financial sector."

The boards of UTI Bank and GTB were to meet on January 27, 2001, to consider the scheme of amalgamation. SBI Capital Markets Limited (SBI Caps) would facilitate the merger, do the valuation, and also act as advisor to both the banks. On January 27, 2001, the board of directors of GTB approved the amalgamation of GTB with UTI Bank. Soon after, the boards of UTI Bank and GTB approved the share-swap ratio. Said SBI Caps, "The boards agree to recommend to shareholders a swap ratio of nine shares of UTI Bank to four shares of Global Trust Bank" i.e., 2.25:1. Analysts felt that the swap ratio was in line with their expectations. Said one, "I had expected this as most of the financials of the bank pointed to the ratio being in favor of the GTB shareholder."

However, the proposed merger soon ran into problems. Before the merger was officially announced, the counters of UTI Bank and GTB at the Bombay Stock Exchange (BSE) witnessed huge volumes and a sizeable rise in prices. The sudden spurt in volumes raised eyebrows and sources watching the developments felt that this was an apparent case of informed buying and required a probe by the market regulator, Securities and Exchange Board of India (SEBI).

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, "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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