The GTB-UTI Bank Merger Story

"I do not maintain one-to-one contact with Mr. Parekh-I do not even remember meeting him other than may be at a social gathering. The bank has no means of knowing who buys or sells shares as the equity of the bank is in demat form. Through investigations we understand that the holdings of the companies which the media states belong to Mr. Parekh is less than 2% today. There is no special advantage offered by GTB to Mr. Parekh or his companies."

- Ramesh Gelli, chairman and managing director, Global Trust Bank, commenting on his alleged nexus with stock broker Ketan Parekh in an interview to Businessworld, April 23, 2001.

Introduction

On January 24, 2001, employees of the Hyderabad based Global Trust Bank (GTB) received an email from Ramesh Gelli (Gelli), Chairman and Managing Director (CMD), GTB. It read, "I am taking the opportunity of sharing some important and exciting news with you. We have now considered growing large through a process of merger. I am happy to inform you that we have now worked out a scheme of amalgamation with UTI Bank and Global Trust Bank. The merged bank will be called UTI-Global Bank with a registered office at Secunderabad. With this contemplated merger, UTI-Global would become the largest bank in private sector and would derive lot of synergy and complement each other strengths... UTI Global Bank is expected to effectively combine the strengths and complementary features of the two banks. It will be strongly capitalized with a net worth likely to exceed Rs. 10 billion by the end of March 2001... I am very confident that ..we all can look to the future with greater amount of confidence and grow to be a dominant player in the financial sector." The boards of UTI Bank and GTB were to meet on January 27, 2001, to consider the scheme of amalgamation. SBI Capital Markets Limited (SBI Caps) would facilitate the merger, do the valuation, and also act as advisor to both the banks.

On January 27, 2001, the board of directors of GTB approved the amalgamation of GTB with UTI Bank. Soon after, the boards of UTI Bank and GTB approved the share-swap ratio. Said SBI Caps, "The boards agree to recommend to shareholders a swap ratio of nine shares of UTI Bank to four shares of Global Trust Bank" i.e., 2.25:1. Analysts felt that the swap ratio was in line with their expectations. Said one, "I had expected this as most of the financials of the bank pointed to the ratio being in favor of the GTB shareholder."

However, the proposed merger soon ran into problems. Before the merger was officially announced, the counters of UTI Bank and GTB at the Bombay Stock Exchange (BSE) witnessed huge volumes and a sizeable rise in prices. The sudden spurt in volumes raised eyebrows and sources watching the developments felt that this was an apparent case of informed buying and required a probe by the market regulator, Securities and Exchange Board of India (SEBI).¹

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1] The probe into the GTB scrip price was initiated by Sebi at the behest of Reserve Bank of India (RBI) after the latter detected some unusual price movement in the scrip prior to the announcement of the merger.