IDFC First Bank Limited

In my view, we should note that when the reverse merger happens there is bound to be a holdco discount that will be applied.

For example, in the case of Equitas SFB and Equitas Holdings, there was a 16% holdco discount applied while deciding the merger ratio. Shareholders of the holding company were allotted 226 shares(later increased to 231) for 100 shares instead of 273 shares that they indrectly held in the bank via the holdco. We should also note that in the case of the equitas, the boards of the 2 companies were related whereas in the case of IDFC, the boards are independent which favours the bank.

After factoring in the dividend, the market seems to be factoring in a merger ratio of 132:100(ex-dividend price of IDFC of 77.6 vs IDFC First bank price of 58.8) and not 165:100 which is held by IDFC shareholders indirectly, indicating a 20% holdco discount for merger. In my view, the holdco discount could range anywhere between 16-22% depending on negotiations.