Uday Kotak (left) with CEO designate of ING Vysya Uday Sareen in Mumbai on Thursday. (PTI)

Mumbai, Nov. 20: Uday Kotak — the astute financial services wizard — today sealed the country’s largest banking takeover after the board of his 11-year-old Kotak Mahindra Bank cleared the acquisition of the 84-year-old Bangalore-based ING Vysya Bank in an all-stock deal.

Kotak and his family will be the promoters of the merged entity with a formidable stake of 34 per cent.

ING of the Netherlands, which had a 42.7 per cent stake in ING Vysya Bank, will get a board berth and a 6.5 per cent stake in the merged bank.

The swap ratio for the deal was set at 725 shares of Kotak Mahindra Bank for every 1,000 shares in ING Vysya.

Kotak Mahindra Bank will have to offer about 13.8 crore new shares to the shareholders of ING Vysya, valuing the takeover at roughly Rs 16,000 crore based on the closing price of Rs 1,157.05 on the BSE.

The proposed merger would result in the issue of approximately 15.2 per cent of the equity share capital of the merged Kotak Bank.

ING Groep of the Netherlands will get about 5.9 crore shares in Kotak Bank, which will be subject to a one-year lock-in from the close of transaction.

The deal is subject to approval from shareholders, courts and regulators such as the RBI and the Competition Commission of India.

Kotak told reporters at a press meet in the evening that he expected all the approvals to come in by April 1 next year.

He said the swap ratio reflected a 16 per cent premium over the 30-day average stock price of ING Vysya.

Uday Sareen, ING Vysya’s CEO designate, will be inducted into the top management of Kotak, reporting directly to Uday Kotak.

The merger comes at a time competition in the domestic banking space is set to hasten with the entry of two new entities over the next few months even as the domestic economy is showing signs of a turnaround. Later this month, the RBI is expected to invite proposals for setting up payment and small banks.

The merged entity will have a network of 1,214 bank branches and 1,794 ATMs in the country, assets of over Rs 1 lakh crore and a strong capital adequacy ratio of 16.5 per cent. It will also have 39,811 employees.

The merger of the two entities will yield several benefits.

Kotak Mahindra Bank, which has a network of 641 branches at present, will get a much wider footprint with a strong presence in the south.

ING Vysya is the only Indian lender controlled by an overseas company. It has a large presence in the southern parts of the country, particularly in Andhra Pradesh, Telengana and Karnataka. Kotak Mahindra Bank is strong in the western region.

The Bangalore-based bank will bring to the table a strong franchise among small and medium enterprises (SMEs) and a rich client base of corporate houses and high net worth individuals.

ING Groep and Kotak have also outlined a framework for future co-operation in areas such as trade finance, treasury operations, remittances, cross-border credit lines, microfinance and mergers and acquisitions.

Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank, said the complementarities between the two banks were the key factor behind the deal. “This is a perfect match,” he said, adding that Kotak Bank would now have a balanced presence in the country.

Kotak, who currently has a 40.07 per cent stake in Kotak Mahindra Bank, said the deal would also help him to comply with the RBI’s directive that he and his family should bring down their stake in the bank to 30 per cent by December 2016.

He said he wasn’t looking to dump a 4 per cent stake in the merged entity in a hurry and would consider the best value-accretive strategy to comply with the RBI directive.

Kotak said the merger would also present a good investment opportunity to foreign investors. The current foreign holding in ING Vysya Bank is 71 per cent and very close to the 74 per cent threshold set by the government.

ING expects the transaction to result in a 150 million-euro ($188 million) gain upon closing, based on Vysya’s book value at the end of September.

“The merger of Vysya with Kotak will give ING a stake in a stronger bank with an excellent long-term potential for sustainable profitable growth,” ING said. It will have a stake of about 7 per cent in the merged company, it said.

The foreign holding in the merged entity will go down to around 46.9 per cent. The foreign holding can rise to 49 per cent under the automatic route. Above that level and up to 74 per cent, foreign investors will have to seek approval from the government.

Analysts were gung-ho about the deal as Kotak Bank would get 366 branches in the south in one go and embrace close to 2.5 million new clients. It will also be able to leverage ING’s presence overseas.

Kotak was advised by Ernst & Young, Amarchand & Mangaldas and Suresh A. Shroff & Co, S.R Batliboi and Avendus Capital Private Ltd.

ING was helped by PricewaterhouseCoopers, AZB & Partners and Edelweiss Financial Services Ltd.

The merger announcement, which came after market hours, did not come as a surprise. The market was abuzz with talk of the deal as soon as it opened, sending the stocks of both banks surging.

While the Kotak scrip finished 7.28 per cent or Rs 78.55 higher at Rs 1,157.05, the ING Vysya share leapt 7.15 per cent, or Rs 54.35, to Rs 814.20.