Merger of ING Vysya with Kotak Mahindra Bank

Nestlé under Fire over Unhealthy Product Portfolio: Will the Company Emerge Unscathed?
Case Code: BSTR471
Case Length: 16 Pages
Period: 1985 - 2014
Pub Date: 2015
Teaching Note: Available
Price: Rs.400
Organization : Kotak Mahindra Bank Limited,ING Vysya Bank Limited
Industry : Banking
Countries : India
Themes: Mergers & Acquisitions
Nestlé under Fire over Unhealthy Product Portfolio: Will the Company Emerge Unscathed?
Abstract Case Intro 1 Case Intro 2 Excerpts


M&A Activity In Indian Banking Sector

The Indian banking sector did not witness too many M&A activities when compared to western and other countries. After the first stage of nationalization in 1969, only 34 mergers took place in the Indian banking sector. In 26 of these deals, PSBs acquired private sector banks that were on the brink of failure, mostly on a directive from the RBI. The remaining 8 deals happened between private sector banks.

The merger prior to the Kotak and ING Vysya merger in the private sector banking space took place in 2010 when Bank of Rajasthan merged with ICICI Bank in a US$398 million deal. There were many reasons for the low number of M&As in India. These included restrictive regulations, a major part of the banking industry being owned by the Indian government, and the rigid resistance by strong employees unions. ..

About Kotak Mahindra Bank Limited (Kotak)

Kotak started as a Non Banking Financial Company (NBFC) – Kotak Mahindra Capital Management Finance Limited (KMCMFL) – in 1985 in India. KMCMFL was renamed Kotak Mahindra Finance Limited (KMFL) in 1985 and it received its banking license in February 2003 to become the first NBFC to be converted into a full-fledged private bank in India. It was renamed as Kotak Mahindra Bank Limited (Kotak)..

About ING Vysya Bank Limited(ING Vysya)

ING Vysya was incorporated as Vysya Bank Limited (Vysya Bank) in 1930 in Bangalore, Karnataka, in Southern India. In 2002, ING Vysya came into existence when the ING Group acquired a major stake in Vysya Bank. This was the first acquisition of an Indian bank by any foreign bank. ING Vysya offered various financial services under four business segments – Treasury, Corporate / Wholesale Banking, Retail Banking, and Other Banking Operations. At the end of FY14, ING Vysya had generated revenue of Rs. 60.72 billion with a net profit of Rs. 6.58 billion ..

The Merger Deal

On November 20, 2014, Kotak announced the merger with ING Vysya in an all-stock deal worth of Rs. 148.51 billion or US$2.4 billion. On regulatory approval, all of ING Vysya’s branches and businesses would merge with Kotak. ING Vysya’s shareholders would get 0.725 share of Kotak stock for every one stock of ING Vysya they held i.e., 725 shares of Kotak for every 1,000 shares of ING Vysya. This exchange ratio indicated that the implied price of each stock of ING Vysya was Rs. 790 which was based on the average stock price of Kotak and ING Vysya for one month – from October 20, 2014, to November 19, 2014 – which came to Rs. 1089.50 and Rs. 682 respectively..

Synergies Out Of The Merger

The merger increased the geographical presence and further deepened Kotak’s network, thanks to the complementary network of ING Vysya. The merger increased Kotak’s number of branches and its ATMs network by 47% and 35% to 1,214 and 1,794 respectively. Before the merger, 80% of the Kotak’s branches were in the western and northern parts of the country and only 15% were in the southern part of India. On the other hand, ING Vysya had a greater presence in the southern part of the country with 64% of its branches located there and only 32% its branches in the western and northern parts of the country. After the merger, Kotak had a balanced presence in different parts of the country..

Challenges Of This Deal

The major challenge was related to human resource management. The salary structure of both banks was also quite different. Around one-third employees of the 10,591 employees of ING Vysya were unionized and their pay structure came under the Indian Banks Association . The employees of ING Vysya were worried whether their pay structure would continue or not. Some of the employees of ING Vysya had other concerns too. Employees in positions like regional manager, sales head, zonal manager, etc., were apprehensive that duplication of positions could lead to transfers or even to their losing their jobs..

Looking Forward

According to experts, completing the deal under the nose of the employees’ union was the big challenge for Kotak as the employees had already threatened to go on strike on the issue. In 2009, a merger deal between Federal Bank and Catholic Syrian Bank Ltd. did not go through due to the employees union. The troubles for Kotak were compounded when the Securities and Exchange Board of India (SEBI) started an investigation into unusual trading in the shares of Kotak and ING Vysya before the merger was announced in November 2014..


Exhibit I: Indian Banking Structure
Exhibit II: ATMs in India as on March 31, 2013
Exhibit III: Bank Group-wise Number of branches as on 31.03.2013
Exhibit IV: Structure of Banking Industries across Selected Economies
Exhibit V: Selected Financial Numbers of Kotak
Exhibit VI: Selected Financial Numbers of ING Vysya
Exhibit VII: Combined and Separate Branches and ATMs Network of Both Banks
Exhibit VIII: Branch Density Complementary in Key Cities
Exhibit IX: Share Holding Pattern as on September, 2014
Exhibit X: Key Ratios of Both Banks after and Before Merger
Exhibit XI:Stock Price Movement of ING Vysya and Kotak Mahindra Bank

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