Shareholders' interests to drive decisions in IDFC-Shriram merger, says Ajay Piramal

Ajay Piramal, Chairman, Piramal Enterprises

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One of the biggest financial merger deals in the country, IDFC with Shriram Group, has hit a hurdle after it faced opposition from some of its shareholders.

Ajay Piramal, Chairman of Shriram Capital, holding company for the financial services and insurance entities of the Shriram Group, said, "It is all about the opposition of shareholders. We are the largest shareholders and we will not do anything which is not in the interest of the shareholders."

On the sidelines of event which saw the launch of Piramal Finance's housing finance arm, Piramal talking about the status of the IDFC-Shriram merger, said that they "will explore ways to see if a merger works out on the basis of what RBI approves, on the basis of what valuations are there. So, we are still looking at it".

Piramal, who is also the Chairman of Piramal Enterprises, has 10 percent stake in Shriram Transport Finance, Shriram Group’s truck financing arm, 10 percent in Shriram City Union Finance, the group’s consumer finance arm and 20 percent in Shriram Capital.

According to market experts, shareholders are not happy with the deal they would be getting post the merger.

There are fears of a sharp dilution in IDFC Ltd and IDFC Bank and shareholders of Shriram Transport Finance (STFC) are opposed to the prospect of suffering 'holding company discount', said an Economic Times report on Wednesday. The report quoted a source saying, "IDFC was concerned with the valuation and higher dilution of stake in the merger, while shareholders of STFC were opposed to a merger with IDFC for fear of holding company discount."

On July 9, Shriram Group and IDFC Group had entered into an exclusivity arrangement for a period of 90 days to explore a merger between the two entities to create about Rs 65,700 crore or USD 10 billion-plus financial powerhouse.

Once merged, Shriram City Union Finance was to be absorbed into IDFC Bank while Shriram Transport Finance would remain a standalone entity under the group. Shriram Asset Management Company, Shriram Life Insurance and Shriram General Insurance will be a part of IDFC.

IDFC-Shriram merger: What it means for various stakeholders?

Though both the entities have given a timeline of 90 days to evaluate the merger and decide on the swap ratio, Piramal had said that they could extend this deadline if required.