How HDFC group stitched together a mega merger
MUMBAI: The mega-merger of mortgage lender Housing Development Finance Corp. Ltd and HDFC Bank Ltd did not just take investors by surprise; it came as an even bigger shock for most of the 105,500 employees of the two companies despite being in the works for eight weeks, people aware of the details said.
For instance, HDFC Bank’s veteran treasury head Ashish Parthasarathy’s Monday morning schedule was interrupted by an unusual message from the bank’s communication team. His scheduled interview on a business television channel was cancelled. A brief alert about the impending announcement followed at about 9 am, along with a message to rush to the office.
It was a hush-hush affair; barely a handful of people knew what was being planned for almost two months.
“The merger talks started two months ago, but most investment bankers were hired on Sunday night between 8-9pm. Only Morgan Stanley and Bank of America were working on the deal before that. Legal and consulting firms, including AZB Partners, Wadia Ghandy, Bansi Mehta and Deloitte, were also roped in for a fairness opinion, even though these law firms knew about the possibility of the merger 3-4 weeks ago. Everyone else was caught off-guard,” a person close to HDFC Ltd said on condition of anonymity. “Everything was done by an internal team. We sounded the board three-four weeks ago. We had a couple of calls with directors on how the progress was,” the first person cited above said.
HDFC managing director Renu Sud Karnad talked to senior management at 9.30 am after the press statement was sent, and chairman Deepak Parekh addressed 3,000 staff at 10am in the morning, he added further.
The group’s top brass knew about the challenges that such a merger could bring, said a second person aware of the workings of the merger of the two lending behemoths, and hence to get a greater comfort on the merger decision, Keki Mistry (the group’s vice-chairman) and Parekh himself called some of the 28 bankers over the past few days. “As advisers, the investment bankers have the ability to quickly gather opinion of top shareholders, who happen to be clients,” he said.
Even though the news of the merger sent HDFC and HDFC Bank stocks soaring on the bourses, the transaction startled many on the deal street as well. Not all the investment bankers favoured the merger, a third person aware of the talks said.
This is like “pushing an elephant through a mousehole”, the third person close to the HDFC group said.
“It is rare to see so many investment bankers getting involved in a single merger deal. But the challenges are so unusual and huge. And it may take well beyond five years to complete the integration if the merger is approved,” he added.
Another investment banker that Mint spoke to said that ‘liquidity’ will be the biggest challenge in getting this merger through.