The Chennai-based Shriram Group and IDFC are in discussions to potentially merge the group’s various businesses to create a financial services behemoth with combined revenue over $4 billion three people directly aware of the talks said on condition of anonymity.
A spokesperson for Shriram Capital said the company had no comment to offer. An IDFC spokesperson said the company evaluates opportunities from time to time and would inform stock exchanges at the appropriate time “should anything concrete fructify”.
The three people said that the entire lending business of the holding company Shriram Capital, which includes listed entities such as Shriram Transport Finance and Shriram City Union Finance, will be merged with IDFC Bank, and the unlisted entities under Shriram Capital, which includes the life and general insurance companies, with IDFC.
According to the three people, a formal announcement on merger talks and exclusivity can be expected in the next few weeks, maybe even days. “ The two parties have just entered talks. The details of the share swap will have to be worked out” one of the three said. “The deal still has to cross many hurdles,” a second added.
Founded in 1974 by Ramamurthy Thyagarajan, AVS Raja and T. Jayaraman, the Shriram group has 24 operating companies with more than 60,000 employees and Assets Under Management (AUM) in excess of Rs.90,000 crore. It is now controlled by billionaire Ajay Piramal. A spokesperson for the Piramal Group said the conglomerate wouldn’t comment on “speculation”.
IDFC was founded in 1997 by a group of public and private sector financial institutions and began as a lender for infrastructure projects later diversifying into merchant banking, asset management and private equity among others. The company went public in 2005 and in 2014 received approval from Reserve Bank of India (RBI) to set up a new private sector bank, IDFC Bank.
According to the people cited above, the merger talks mark a deviation from Piramal’s earlier strategy of merging Shriram Capital with Piramal Enterprises. Piramal bought a close to 20% stake in Shriram Capital in 2014 for approximately Rs 2,000 crore .
“However, the plans to merge the two companies were found to be unfeasible owing to mismatches in valuation and market capitalization of the two companies which would have potentially resulted in a large stake dilution in the merged entity for Piramal group” said the first person cited above. “ The potential merger of Shriram with IDFC will also pave way for Piramal group to exit Shriram Capital at a later stage if it so wants.”
The Shriram Ownership Trust, an employee trust, holds 45% stake in Shriram Capital. The latter has, in the past, held merger talks with other banks in order to cash out, the people cited above said.
Some of the shareholders of IDFC Bank which includes HDFC are keen to exit their holding in the bank and see the merger as a way of doing that, the second person said.
A merger could give IDFC Bank an edge in the retail business by giving it access to Shriram Transport Union finance “which has a fantastic retail book,” the third person said.