Share price of Equitas SFB, Equitas Holdings zoom on new merger plan

The share price of Equitas Small Finance Bank (ESFB) jumped 8.58 percent and that of Equitas Holdings Ltd  10 percent intraday on March 22 after a new proposal for the merger improved the share-swap ratio for Equitas Holdings shareholders.

Under the new plan, Equitas Holdings’ shareholders will get 231 units of the small finance bank for every 100 shares held, higher than 226 proposed in an earlier plan. The new plan is subject to regulatory and court approvals. After the amalgamation, the holding company will cease to exist and ESFB will have a 100 percent public shareholding.

According to Emkay Research report, based on the swap ratio (231:100), the holding company shareholders would get 79 crore shares, or a 71 percent stake, in Equitas SFB valued at Rs 41.8 billion (assuming ESFB's CMP of Rs 53) against the current valuation of Rs 36.9 billion (at an implied discount of 25 percent).

Thus, given the 14 percent premium on valuations, the scheme should be acceptable to the shareholders of the holding company. That said, there would be ownership loss for holding company shareholders in ESFB to the extent of 3.3 percent (direct take at 71 percent vs indirect stake at 74.6 percent).