Assignment

on

BANK OF RAJASTHAN
ACQUISITION
BY ICICI BANK
Under the subject

MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING

TABLE OF CONTENT

Introduction
- About ICICI Bank……………………………………………………………… 3
- About Bank of Rajasthan ……………………………………………………… 3

Why Bank of Rajasthan………………………………………………….. 4

Negative………………………………………………………………….. 4

Deal Structure/ Valuation……………………………………………….…5

- Swap ratio……………………………………………………………………...... 6

Type of Acquisition…………………………………………………….… 6

Process of Acquisition………………………………………………….… 6

Legal Issues……………………………………………………………..… 7
- EGM- Kolkata Civil Court........................................................................................ 7
- EGM And Company Law…………… ………………………………………........ 8
- Union Strike…………….………………………………………………..……….. 8

Post Merger Legal Issues………………………………………….....…… 9

- Rajasthan High Court……………………………………………………….…….. 9
- Share Movement…………………………….……………..…………..….………
9

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ICICI BANK

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$
81 billion) at March 31 , 2010 and profit after tax Rs. 40.25 billion (US$ 896 million)
for the year ended March 31, 2010.

The Bank has a network of 2,035 branches and about 5,518 ATMs in India and presence
in 18 countries. ICICI Bank offers a wide range of banking products and financial
services to corporate and retail customers through a variety of delivery channels and
through its specialized subsidiaries in the areas of investment banking, life and non-life
insurance, venture capital and asset management. The Bank currently has subsidiaries in
the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain,

Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative
offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia
and Indonesia. Their UK subsidiary has established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the
National Stock Exchange of India Limited and its American Depositary Receipts (ADRs)
are listed on the New York Stock Exchange (NYSE).

BANK OF RAJASTHAN

Bank of Rajasthan, with its stronghold in the state of Rajasthan, has a nationwide
presence, serving its customers with a mission of “together we prosper " engaging
actively in Commercial Banking, Merchant Banking, Auxiliary services, Consumer
Banking, Deposit & Money Placement services, Trust & Custodial services,
International Banking, Priority Sector Banking, Depositary.

Bank of Rajasthan, a leading Private Sector Bank, having branches all over India with
prominent presence in Rajasthan having specialized forex and Industrial finance
branches. The Bank is committed to the highest level of customer satisfaction through
personalized and efficient services. Bank of Rajasthan is a listed old Indian private sector
bank with its corporate office at Mumbai in Maharashtra and registered office at Udaipur
in Rajasthan. At March 31, 2009, Bank of Rajasthan had 463 branches and 111 ATMs,
total assets of Rs. 172.24 billion, deposits of Rs. 151.87 billion and advances of Rs. 77.81
billion. It made a net profit of Rs. 1.18 billion in the year ended March 31, 2009 and a net
loss of Rs. 0.10 billion in the nine months ended December 31, 2009.

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WHY BANK OF RAJASTHAN

• ICICI Bank Ltd, India’s largest private sector bank, said it agreed to acquire
smaller rival Bank of Rajasthan Ltd to strengthen its presence in northern and
western India.

• Deal would substantially enhance its branch network and it would combine Bank
of Rajasthan branch franchise with its strong capital base.

• This acquisition would be ICICI Bank’s third one after Bank of Madura in 2000-
01 and Sangli Bank in 2006-07.

• In February, RBI imposed 25 lakh Indian rupees penalty on Bank of Rajasthan for
various violations. It also ordered a special audit of the books of the bank, after it
found lapses in corporate governance and disclosure norms.

• The deal, which will give ICICI a sizeable presence in the northwestern desert
state of Rajasthan, values the small bank at about 2.9 times its book value,
compared with an Indian banking sector average of 1.84.

• ICICI Bank may be killing two birds with one stone through its proposed merger
of the Bank of Rajasthan. Besides getting 468 branches, India's largest private
sector bank will also get control of 58 branches of a regional rural bank sponsored
by BoR.

• The board approved the merger after considering the results of the due diligence
covering advances, investments, deposits, properties and branches and employee-
related liabilities, and the valuation report of Haribhakti and Co, Chartered
Accountants.

• Post-merger, ICICI Bank's branch network would go up to 2,463.This is the third

merger for the bank, after it took over Bank of Madura and Sangli Bank.

NEGATIVE

• The negatives for ICICI Bank are the potential risks arising from BoR's non-
performing loans and that BoR is trading at expensive valuations.

• As on FY-10 the net worth of BoR was approximately Rs 760 crore and that of
ICICI Bank Rs 5,17,000 crore, he added. For the December 2009 quarter, BoR
reported a loss of Rs 44 crore on an income of Rs 373 crore.

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DEAL STRUCTURE OR VALUATION

Merger Dynamics
SWAP Ratio
ICICI Bank Bank of Rajasthan •25 share of ICICI
Latest Market 1471 Bank for 118 share of
99,125
Capital (Rs Crore) Bank of Rajasthan
Branches 2, 009 458* •Branch network of
ATM 5,219 111* ICICI Bank to cross
No. of Employees 34,596* 4075 2,440 post-merger
Gross NPA (%) 5.06 2.8# •BOR’s market cap is
Capital Adequacy 19.41 11.3# currently 1.5% of that
(%) of ICICI Bank’s
Loan book (Rs 1,81,200 81,00# •Third acquisition for
crore ) ICICI Bank after
Low cost deposits 41.7 27.4* Sangli Bank, Bank of
(%) Madura
Business/employee 1,154* 532*
(Rs crore)

* As of March 2009
# As of December 2009
All the other figures are as of March 31, 2010

The Board will consider the due diligence report and valuation report at a subsequent
meeting. The proposal if approved by the Boards of both ICICI Bank and Bank of
Rajasthan would then be placed before the shareholders of both banks for approval and
would be submitted to Reserve Bank of India (RBI) for its consideration.

Under the terms of the deal, ICICI Bank will offer 25 shares for every 118 shares of Bank
of Rajasthan

The valuation implied by the share exchange ratio is in line with the market capitalization
per branch of old private sector banks in India, The final determination of the share
exchange ratio is subject to due diligence, independent valuation and approvals.

According to the Securities and Exchange Board of India (SEBI), Tayals, the promoters
of Bank of Rajasthan hold nearly 55 percent stake in the bank. At the end of 2009, the
promoters held a 28.6 per cent stake in the bank, according to stock exchange data.

ICICI is offering to pay 188.42 rupees per share, in an all-share deal, for Bank of
Rajasthan, a premium of 89 percent to the small lender, valuing the business at $668

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million. The Bank of Rajasthan approved the deal, which will be subject to regulatory
agreement.

Swap Ratio

The bank said the swap ratio is based on an internal analysis of the strategic value of the
amalgamation, average market capitalization per branch of old private sector banks and
relevant precedent transactions. According to analysts, the swap ratio works out to a
premium of 89.4 per cent over BoR's current market price. The merger is not likely to
have any material impact on ICICI Bank's capital and the only advantage is a readymade
branch network. With a Tier-I capital of above 13 per cent, the impact on ICICI Bank's
capital would be less than 3 per cent.

TYPE OF ACQUISITION

This is a horizontal Acquisition in related functional area in same industry (banking) in

order to acquire assets of a non- performing company and turn it around by better
management; achieving inorganic growth for self by access to 3 million customers of BoR
and 463 branches

ACQUISITION MOTIVE
Inorganic growth

- Since 1997, ICICI Bank has acquired smaller banks to increase its reach.
-1997 - Acquired ITC Classic Finance
-1998 - Acquired Anagram Finance
-2000 - Acquired with the Bank of Madura.
-2005 - Acquired Russia's IvestitsionnoKreditny Bank.
-2007 - Acquired Sangli Bank

PROCESS OF ACQUISITION

• Haribhakti & Co was appointed jointly by both the banks to assess the valuation

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 • Swap ratio of 25: 118 (25 shares of ICICI for 118 shares of Bank of Rajasthan) i.e.
one ICICI Bank share for 4.72 BoR shares

• Post-Acquisition, ICICI Bank's branch network would go up to 2,463 from 2000.

• The NPAs record for Bank Of Rajasthan is better than ICICI Bank. For the
quarter ended Dec 09, Bank Of Rajasthan recorded 1.05 percent of advances as
NPA's, which is far better than 2.1 percent recorded by ICICI Bank.

• The deal, entered into after the due diligence by Deloitte, was found satisfactory
in maintenance of accounts and no carry on of bad loans.

LEGAL ISSUES

EGM- Kolkata Civil Court

The extraordinary general meeting of Bank of Rajasthan convened to seek shareholders'

approval for its merger with ICICI Bank witnessed high drama with a Kolkata court
staying the meeting that was subsequently overruled by the High Court.

Extraordinary general meeting that was called to approve the merger was first cancelled
after a Kolkata civil court restrained the management from holding the EGM. This was
based on a complaint filed by a shareholder who was against the merger. The bank then
went ahead and informed the exchanges that the EGM has been cancelled following a
court order.

The Managing Director of the bank then decided not to hold the meeting and he, along
with other officers of the bank, left the venue.

The bank also informed stock exchanges that the EGM has been cancelled following a
court order. However, some of the directors and shareholders, including dominant
shareholder Mr. P.K. Tayal went ahead and held the meeting, chaired by Mr. Dinesh
Lakhani, a shareholder.

However, Bank of Rajasthan moved the Calcutta High Court contending that the city
court did not have the jurisdiction to hear the matter. The High Court vacated the stay.
“The BoR EGM happened. A lower court in Kolkata had issued an injunction against
holding of the EGM. The Calcutta High Court has stayed the lower court order,”

According to legal experts, it was the bank which requisitioned the meeting and later
cancelled it following the court order. Therefore, the meeting held by the shareholders
after that is illegal and the outcome of the ballot will not be legally binding on the bank.
The extraordinary general meeting of Bank of Rajasthan convened to seek shareholders'

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approval for its merger with ICICI Bank witnessed high drama with a Kolkata court
staying the meeting that was subsequently overruled by the High Court. Out of the total
15 directors on the BoR board, 12 attended the board meeting held on May 18, said an
association representative. While seven directors voted in favour of the amalgamation,
five abstained from voting.

The stay was lifted after an order of the Kolkata High Court moved by ICICI Bank. The
boards of both the banks had approved the merger at a swap ratio of 1:4.72, – 4.72 shares
of Bank of Rajasthan for one share of ICICI Bank.

EGM and Company Law

They had all the shareholders who had gathered there and they decided that they could
appoint their own Chairman and continue with the meeting. There is no real process for
something like this.

What the Companies Act provides is that 10% of the shareholders of a company could
requisition a meeting and make a request to the Board of the company to hold a meeting,
and then the Board would be mandated to hold such a meeting within a period of three
weeks of such a requisition again by following all the procedures.

Although you may have had the 10% who could have requisitioned the meeting but the
onus eventually was on the Board to then to take it forward. So if you look at it from a
very technical perspective, whether that shareholders’ meeting is a validly held meeting
or not is very questionable. From a company law point of view it could easily be a 50-50
case. Maybe that meeting was not valid in its own right.

Union Strike
Three major employee unions of BoR -All India Bank of Rajasthan Employees
Federation, All India Bank of Rajasthan Officers' Association and Akhil Bhartiya Bank
of Rajasthan Karmchari Sangh, have called the strike demanding the immediate
termination of the ICICI-BoR merger proposal.

The United Forum of Bank of Rajasthan Unions has opposed the merger of Bank of
Rajasthan with ICICI Bank, citing cultural compatibility issues. According to it, if a
merger is essential it should be with a public sector bank.
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Employees fear that the merger would result in job losses as the work cultures of both
banks are 'extremely' different. This would also destroy the identity of one of the oldest
private sector banks in the country. More than 4,300 employees of BoR began a two-day
all-India strike to protest against the merger.

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POST MERGER LEGAL ISSUES

Rajasthan High Court

The Rajasthan High Court issued notices to the Reserve Bank of India, Bank of Rajasthan
(BoR), ICICI Bank and others on a petition filed by an employees union of the Udaipur-
based BoR against its proposed merger with ICICI Bank, the country's largest private
sector lender.

The petition claims that the BoR board decision on 18 May 2010 to merge with ICICI
Bank was illegal as the Securities and Exchange Board of India had found out that the
Tayals had acquired 55.1 per cent equity in the bank in violation of its regulations.

Share movement

Shares of BoR jumped close to 20 per cent to a 52-week high on the back of reports of
the merger. The shares were locked in at the upper circuit at Rs 99.5. Close to three crore
shares of BoR were traded on BSE and NSE, making for a total turnover of Rs 27,431
lakh. ICICI Bank was down more than one per cent on both the exchanges.

On the BSE, the scrip was down 1.45 per cent at Rs 889.35. The ICICI Bank ADR was
trading at $38.61 down $0.86 or 2.18 per cent on the NYSE