Two Indian Banks Plunge on Terms of Merger With Bank of Baroda

(Bloomberg) -- The two Indian banks which will be merged into Bank of Baroda saw their share prices plunge in reaction to news of the terms of the deal.

  • The share swap ratio has been set at 110 Bank of Baroda shares for every 1000 shares in Dena Bank, and 402 Bank of Baroda shares for 1000 shares of Vijaya Bank, according to an announcement late Wednesday.

Key Insights

  • Dena Bank and Vijaya Bank were hit by the terms of the swap, which values their shares at a discount to their current trading prices; Dena shares fell as much as 20 percent, the most in more than ten years, while Vijaya dropped as much as 7.5 percent.
  • The terms also suggest the worst is over for shares in Bank of Baroda, seen as the strongest of the three banks in the merger, according to Siddharth Purohit, a banking analyst at SMC Global Securities; Bank of Baroda shares gained as much as 3.4 percent on Thursday.
  • Attention will now shift to how Bank of Baroda manages the process of integrating the two smaller banks, with Chief Executive Officer P. S. Jayakumar’s tenure set to end in September 2019; there’s still a question over how much additional capital will be needed to clean up the books of the two smaller lenders, Purohit said.

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