Fairfax Agrees To All-Cash Deal To Acquire IDBI Bank, Promises Identity Preservation

Highly reliable sources reveal that Fairfax has consented to an all-cash compensation structure for the acquisition of IDBI Bank. Moreover, Prem Watsa, the key figure behind Fairfax, has reportedly pledged to maintain the identity of IDBI Bank post-divestment.

The revised proposal from Fairfax was communicated to government officials approximately two weeks ago. A senior executive familiar with the matter stated, "Until now, bidders, including Fairfax, were hesitant to propose cash compensation, which was a contentious issue due to the government's reluctance to entertain share swap arrangements. If this concern is addressed, the deal could sway in favor of Fairfax."

The improved offer comes amidst political tensions between India and Canada and Fairfax's sweetened deal could once again position it as a leading contender for IDBI Bank.

Revised Terms:

According to the revised terms, Fairfax India Holding, the Indian arm of the private equity major, would submit a bid for IDBI Bank. Given that Fairfax is also the promoter of CSB Bank, it is likely that Fairfax may merge CSB Bank into IDBI Bank following the acquisition. Indian banking regulations prohibit an investor from being the promoter of two banks simultaneously. With IDBI Bank's market capitalisation significantly higher than CSB Bank's, sources suggest that the revised structure would be advantageous for IDBI Bank.

This marks a departure from previous proposals, where Fairfax intended to retain IDBI Bank as a separate entity for a few years post-acquisition before merging it with CSB Bank. Another senior executive familiar with the transaction stated, "The Reserve Bank is not inclined to permit parallel structures for a common promoter, and with IDBI Bank being a well-established entity, the government was uncomfortable with the prospect of the bank losing its identity." Fairfax India Holding's bid is anticipated to address concerns raised by both the RBI and the government.

With IDBI Bank's stock price witnessing a surge from Rs 60 a share at the commencement of divestment talks to over Rs 84 per share currently, it remains to be seen if Kotak Mahindra Bank, reportedly also interested in IDBI Bank, will match or surpass Watsa's offer.

The divestment of IDBI Bank commenced in October 2022, with Life Insurance Corporation of India (LIC) and the government divesting 30.24 per cent and 30.48 per cent stakes, respectively, in the bank. An email sent to Fairfax and the finance ministry remained unanswered at the time of publication.