The GTB-UTI Bank Merger Story

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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. 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. In March, UTI Bank went for revaluation of the share swap ratio. UTI Bank appointed the Mumbai-based consultancy firm, Deloitte Haskins & Sells, to suggest a share exchange ratio. GTB said it was likely to reconsider merger with UTI Bank if the new valuation report of Deloitte, Haskins & Sells suggested a share swap ratio lower than 2.25:1 decided earlier. UTI Bank had earlier threatened to pull out of the proposed merger over sharp differences on the issue of going in for a fresh valuation, to review the share swap ratio decided for the merger. 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 gave a free hand to Deloitte, Haskins & Sells to decide on the methodology for arriving at the ratio. A UTI Bank official said, "It checked every account, looked into every asset and adopted a multi-dimensional approach to give a fair valuation report. The emphasis was on qualitative aspects and not only on the numbers alone." Since the new valuer was asked to keep the October-November 2000, GTB scrip movement out of the calculations, the market price valuation came down slightly. In late March 2001, Deloitte, Haskins and Sells submitted a copy of its valuation report to UTI Bank, which in turn submitted the same to the RBI. Deloitte, Haskins and Sells suggested a swap ratio of 2:1⁵, which was slightly lower than 2.25:1 proposed earlier by SBI Caps. Before taking any decision, RBI waited for the SEBI report on the alleged price manipulation in the GTB scrip.

The report was due before March 31, 2001. A delay in the merger appeared inevitable. Said a top UTI source, "The RBI has conveyed to us that no decision on approving the merger would be possible before six to eight months". The UTI source further added, "The RBI has said that it will take a decision on the merger based on SEBI's fundings on price manipulation. The SEBI report may lead to parties involved in insider trading ahead of the merger being penalised". GTB did not make any noises about the second valuation and wanted for the RBI to take a decision. The bank was weighing its options on the merger based on SEBI's report and RBI's response to the second valuation. But at the same time GTB resisted moves to significantly alter the share swap ratio suggested by SBI Caps. The share swap ratio was likely to remain unchanged at 2.25:1 even though Deloitte, Haskins and Sells had recommended a marginal reduction in the ratio in favor of UTI Bank. According to a source, "We have decided to keep the ratio unchanged despite the new valuation report which says that there is a marginal erosion in the adjusted book value."

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5] The second valuation was conducted on the same parameters as carried out by SBI Caps. These parameters were share price, book value, weighted price earnings per share and maintainable profits of both the bank.