The merger of Dena Bank and Vijaya Bank with Bank of Baroda (BoB) was seen as a rescue mission for Dena Bank. Now, the share swap ratios confirm that the mission will leave everyone a loser. Even Dena Bank’s shareholders have ended up as losers, in contrast to the earlier expectation that they will gain from a favourable share swap ratio.
Recent prices suggest that traders were anticipating a swap ratio of not less than 150 shares of BoB in return for 1,000 Dena Bank shares. The announced ratio of 110:1,000 comes as a huge let down. Assuming BoB shares stay where they are when trading resumes on Thursday, Dena Bank’s shares need to correct by about 28% to align with reality.
Not that this is a massive relief for BoB. While the dilution in its equity will be lower than anticipated, and may cause a relief rally, the drag from the bank merger is a far bigger worry. It’s little wonder that BoB shares have underperformed the Nifty PSU Bank index by about 12% since the merger was announced in mid-September.