The GTB-UTI Bank Merger Story

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The Merger is Called Off

In mid March 2001, it became clear that the proposed merger of UTI Bank with GTB might not come through, as the SEBI preliminary investigation report found manipulation and rigging in the share price of GTB prior to the merger announcement. L. K. Singhvi, senior executive director, SEBI, said, "The investigation, prima facie, indicates that there was manipulation in GTB shares during October-December 2000. Since the merger proposal was pending with the Reserve Bank of India, we have sent our report to the RBI." "he final report will be submitted shortly", he added. Another SEBI official hinted that the investigation revealed that the manipulation in the GTB scrip "was motivated and done with the help of the bank's senior management team". SEBI's findings had not only questioned the merger proposal but also opened a Pandora's box that may put the management in a major jam. Sources added that the final investigation was also looking at the shareholding pattern of GTB and the major beneficiaries from the swap ratio. In April first week, the GTB board decided against the proposed merger because of the ongoing controversy. A board meeting was convened and GTB decided to opt out of the merger on the grounds that it would be uncomfortable working with UTI Bank in the light of allegations of price manipulation.

Commenting on this development, BusinessWorld⁶ wrote, "That was a clever move as it prompted the RBI to call off its investigations in the matter. It might also take the wind out of some of the inquiries being conducted by the Sebi against GTB and Gelli on charges of insider trading and rigging of GTB's scrip price." However, Sebi said that it would continue to probe the charges against Gelli, GTB and Parekh. The entire episode was summed up by a leading business daily⁷, "The UTI could not have been unaware of the sharp spurt in GTB stock. Perhaps, the prospect of becoming the largest player prompted it to go for the merger. But once the possibility of price manipulation came to the fore, the merger was sure to be called off--either by the banks themselves or by the RBI. GTB had tried to make the best of what was becoming a messy situation. There were indications from the Finance Ministry that the merger was low on the priority list. But it did clear Gelli as chairman for three more years. Perhaps, there was a subtle understanding that the bank would back off on its own".

PS: In mid April 2001, as a damage control exercise, Gelli stepped down as the CMD of GTB.

Questions for Discussion

1. Through the merger, UTI-GTB were expected to derive a lot of synergy and complement each other's strengths. Comment.
2. Compare and contrast the methodology adopted by SBI Caps and Deloitte, Haskins and Sells to arrive at a swap ratio for the UTIB-GTB merger.
3. It was alleged that there was a nexus between Gelli and Parekh to rig the GTB scrip prices to get a favorable swap ratio for the proposed merger. Do you believe there was such a nexus? Justify your stand.
4. Mergers and acquisitions are not new to the banking industry. It all started with the HDFC-Times Bank merger followed by ICICI Bank-Bank of Madura. Some other banks planning a merger are the IndusInd Bank, Centurion Bank and the Bank of Punjab. Keeping in view the failure of the UTIB-GTB merger, outline the steps to be taken by these banks for a successful merger.

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6] April 16, 2001.
7] HinduBusinessline, April 8, 2001.