Asset management company, Quantum Mutual Fund, has voted against the proposed merger of ICICI Bank and ICICI Securities (ISEC) saying that the move would be detrimental to the interests of the fund house’s unitholders.
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Quantum Long Term Equity Value Fund and Quantum ELSS Tax Saver Fund owns shares in ICICI Bank and ICICI Securities. The fund house estimates that the merger will result in a net loss of at least Rs 6.08 crore to its unitholders.
“It is our opinion that the recent proposal by ICICI Bank to merge with ISEC (ICICI Bank owns a 75 percent equity stake in ISEC) is detrimental to the interests of our unitholders as we believe it undervalues ISEC and gives ICICI Bank access to the full business of ISEC at a less than the fair market price,” the fund house said in a note dated March 22 to unitholders.
In its rationale, Quantum Mutual Fund said that ICICI Bank wants to merge its 75 percent subsidiary ISEC with itself, offering investors 0.67 shares of ICICI Bank for every one share in ISEC.
ISEC listed on April 4, 2018, at Rs 432, which was a 17 percent discount to its Initial Public Offer (IPO) price of Rs 520.
As per the fund house, had a reverse merger swap ratio set on the day of its listing, the ratio would have been set at 1.65 ICICI Bank shares for every 1 share of ICICI securities (a 146 percent premium to the current offer) based on the closing price for both the companies.
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Further, had the ISEC IPO price been used as a benchmark, then the share swap ratio would have been 1.9 shares of ICICI Bank for every 1 share of ICICI securities (a 183 percent premium to the current offer) on the day of its listing.
Quantum Mutual Fund estimates that the current swap ratio values ICICI securities at a 30-77 percent discount to its other listed peers based on consensus earnings forecast for the fiscal year ending March 2024.
“Even if the company was valued at the lowest PE (Price to Earnings) multiple reflected in its peer set (20.4 times for Angel One) the merger offer would have been at least 30 percent higher. The current proposed merger ratio transfers at a minimum Rs 1,780 crore to ICICI Bank shareholders from ISEC minority shareholders,” the fund house said.
Based on the above to protect the interests of its unitholders, Quantum Mutual Fund has decided to vote against the resolution.
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Shareholders of ICICI Bank and ICICI Securities are slated to meet on March 27, 2024, separately to transact the proposed scheme.
