The agreement between AU Small Finance Bank and Fincare Small Finance Bank presupposes a merger in a $530 mln all-stock deal.
India’s AU Small Finance Bank has announced an acquisition of its peer Fincare Small Finance Bank in an all-stock deal worth 44.11 billion rupees (almost $530 million).
The boards of both banks have already approved the merger, which is now subject to regulatory approval by relevant industry bodies, shareholders and the Competition Commission of India. Upon the merger, shareholders of Fincare will receive 579 AU SFB shares for each 2,000 Fincare shares they hold. As a result, Fincare shareholders will aggregately possess about 10% of total AU SFB stock.
According to the exchange filing, the merged entity will come into effect on February 1, 2024, although the date may be fixed mutually by both companies and approved by RBI. The merged entity is expected to serve approximately 98 lakh customers and employ around 43,000 people by the end of September 2023, having a combined balance sheet of more than ₹1,1 lakh crores, per the filing.
As AU SFB stated within the announcement, “this strategic merger expands the reach and diversifies offerings, reinforcing our commitment to financial inclusion.” The major impact of the deal will be extending the bank’s footprint in southern India, where Fincare has a strong presence. Another predicted change is expanding AU SFB services with financial inclusion-focused microfinance offerings.
At the same time, investors are not particularly happy about the upcoming deal. Upon the announcement, the AU SFB stock fell by over 8%, to its lowest level in the last six months. The shareholders’ main concern is a heightened focus on unsecured lending that is expected from the merged entity.
The chosen strategy of the bank presents significant growth opportunities. However, they also come with inherent risks. Thus, less risk-tolerant investors may prefer to sell their assets before AU SFB has enhanced its unsecured lending offering.