Indiabulls Financial proposes merger of UWB witht the company

Indiabulls Financial Services Ltd has announced that as per the RBI Guidelines that allow Merger / Amalgamation between an NBFC and a Bank the Board of Directors of Company has approved submission of an Expression of Interest to Reserve Bank of India (RBI) proposing merger of United Western Bank (UWB) with the Company. The proposal is subject to the approval of RBI and other requisite regulatory and statutory approvals.

The terms of the proposed merger would be to offer a merger ratio of 1 share of the Company, post demerger of the real estate business, for every 6 shares of United Western Bank. The offer is based on 53.77 million shares of United Western Bank as per its June 30, 2006 filings with the exchanges and will result in the issuance of approximately 9 million additional Company´s shares in exchange for United Western Bank shares. The Company currently has 161.4 million shares outstanding.

As announced earlier the Company is demerging its Real Estate business to its shareholders through a Scheme of Demerger. The Scheme of Demerger has already received in-principle approval of the stock exchanges and is expected to be completed in the third quarter of current fiscal year subject to the final approval from the High Court of Delhi.

The board of the Company is proposing the merger as it strongly believes that the proposed merger would provide the best outcome for all the stakeholders of United Western Bank and would create an extremely competitive universal bank with a diversified product and services offering large pan-India customer base and an extremely strong capital base.

The board believes that the key benefits for United Western Bank stakeholders would include:

- Strong Capital Base of the combined organization would provide necessary strength to UWB´s balance sheet and remove the risk that the bank’s current depositors face

- Enhanced equity value for UWB shareholders: The Company would offer 1 share of the Company (after demerger of Real Estate business) for 6 shares of UWB thus providing a large upside to UWB shareholders. This would result in significant value creation for UWB shareholders and would provide immediate relief and benefit to government organizations, institutions, 55,000 retail investors and employees of UWB who constitute the shareholder base of UWB.

- Strong Competitive advantage derived from its universal banking model: The entire spectrum of financial services products will be offered by the combined entity, it would act as one stop shop for the customer. This would provide significant competitive advantage to the combined entity and allow it to service its customers at lower cost and with greater profits. This would add to the financial stability and strength of the organization and the Company will be able to invest and grow its business in underserved areas such as rural and semi-urban areas.

- Technology and Operational Excellence would Increase Operational Efficiency as the bank would be able to benefit from the Company expertise and operational excellence with strong risk management and controls, and achieve among the lowest operating cost ratios in the industry.

- Proven Entrepreneurial and Managerial skills of the Company team in building the Company into One of India´s largest non banking financial services Company in a short span of six year.

- Enhanced value for existing customers: Improve the quality of service to UWB customers, while expanding the product range to the customers.

In addition, the proposed merger is in the best interest of the shareholders of the Company given the financial and strategic considerations of the transaction. The benefits of a large and diversified banking institution and the opportunity to cross-sell services to both customers would create immense value. The board believes that the key benefits For the Company include:

- Complete the product offering to include deposit and deposit linked products to the large customer base of the Company and thus provide for a stronger relationship as well as capture a larger share of customer wallet. The increased product offering is expected to have a high penetration rate of existing credit and securities customer and lead to good amount of incremental revenues.

- Diversify the funding sources for the credit business and strengthen the overall credit business with bank branch origination network

- Enhance the overall scale of business and thus create more opportunities and capital to invest in technology and operational improvements. A larger balance sheet and profitability would allow the Company to benefit from scale economies and lower operating costs (on a per unit revenue basis) while providing world class services

- Create shareholder value by transforming United Western Bank into a world class deposit, institution with competitive operating costs structure, revenue yields, credit management and operating profitability.

Source : Equity Bulls

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