The GTB - UTI Bank Merger
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Case Details:
Case Code : FINC004
Case Length : 7 Pages
Period : 2001
Pub. Date : 2002
Teaching Note : Available
Organization : GTB
Industry : Banking
Countries : India
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FINC004) click on the button below, and select the case from the list of available cases:
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts
Questioning the Swap Ratio
Since the GTB scrip was suspected to have been manipulated prior to the deal, several questions had assumed importance.
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Some of the issues raised were: Was the merger scheme of GTB and UTI Bank-at 2.25 shares of UTI Bank for every one share of GTB worked out after conducting a 'fair valuation' of these banks? Was it really a 'fair swap ratio' for the merger?
What weightage was given to the market prices of UTI Bank and GTB scrips for the purpose of arriving at the 2.25:1 swap ratio? A study of certain key components of the Valuation Report prepared by SBI Caps revealed that SBI Caps used four methods to determine the value of the banks-maintainable profits method, book value method, price earnings multiple method and market price method...
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The Second Valuation
In March 2001, P S Subramanyam, chairman, Unit Trust of India (UTI), (the chief promoter of UTI Bank) said UTI was willing to appoint another valuer to examine the share swap ratio of the proposed merger if the Reserve Bank of India wanted a fresh valuation.
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He said, "SBI Caps has looked into all relevant issues and the swap ratio was arrived at following four parameters. Even then if the regulator wants us to seek an independent opinion on this, we are willing to do so".
The RBI was believed to have asked UTI Bank to go in for a fresh valuation. The RBI decided to consider every possible aspect before clearing the proposal including the issues of alleged market rigging and insider trading.
It sought fresh valuation keeping in mind the sudden spurt in the prices and volumes of GTB shares prior to the merger announcement. |
Excerpts Contd... >>
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