Clearly, the Centurion Bank-BoP merger has been an unqualified success.
Will the CBoP management repeat that feat with LKB? Analysts say that with a swap ratio of seven shares of CBoP for every five shares held in LKB, the deal values LKB at 1.7 times book value or 3.0-3.5 times adjusted book value after taking LKB’s NPAs and other likely write-offs. Recall that the BoP merger was at around 1.9 times reported book value. Enam Securities points out that the deal is attractive because it adds about 20 per cent to CBoP’s assets, while the acquisition cost is about 9 per cent of the current equity shares of CBoP.
...The big question is: will CBoP be able to integrate the LKB employees, who are a very different breed from the young, gung-ho employees of BoP? In fact, at the time of writing, LKB employees were on indefinite strike protesting the merger and demanding instead a merger with a public sector bank. The bank is plagued with four major unions, which have come together under the banner of the United Forum of LKB Unions (UFLU). It’s a very different world from CBoP’s. Even if CBoP persuades the unions to come on board and successfully manages the political opposition, integration will be difficult.
Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.