The managements of Federal Bank and LKBL have decided to call off the on going discussions for merger of the two banks, it informed the Bombay Stock Exchange.
Federal Bank Officers' union general secretary P V Mathew welcomed the decision to call off the merger move.
Federal Bank employees and officers' unions were not happy with the merger move and had threatened to strike work if the management decided to go ahead with the same.
Federal Bank unions had alleged that the Puri group, the largest stakeholder in the LKB, was demanding a huge amount apart from a seat on the board of directors of the Federal Bank. However, the LKB trade unions had favoured the merger.
While the process of due diligence for the purpose had gone amicably and with full cooperation between the banks, despite best efforts from both sides, the two sides could not reach a mutually agreeable valuation for the purpose, it said.
Federal Bank was willing to pay a maximum of close to Rs 300 crore (Rs 3 billion) for acquiring LKB, about two-thirds of what was sought by LKB. The asking price is nearly thrice the book value of Rs 16.95 per share of LKB.
The boards of the two banks formally announced the proposal last month as otherwise no due diligence exercise could have been made by Federal Bank for LKB.
The boards of Federal Bank and LKB gave in-principle approvals in early October for considering the merger of the two banks if the outcome of the due diligence, valuation and other related studies are found acceptable to both the banks and subject to other necessary approvals.
The acquisition was proposed to be a stock-cum-cash deal. This would have kept Mohan Puri and related entities' stake in the merged entity below the permissible maximum of 10 per cent. Mohan Puri and related entities together hold about 63 per cent stake in LKB.
LKB posted a net loss of Rs 21.76 crore (Rs 217.6 million) in 2004-05. Federal Bank's net profit last year was Rs 90.08 crore (Rs 900. 8 million).
Federal Bank's capital adequacy ratio in March 2005 was 11.27 per cent, while LKB's CAR was 11.74 per cent. LKB's net non-performing asset last year was 4.22 and that of Federal Bank was 2.21 per cent.
Federal Bank has a network of 456 branches covering almost all the important cities in the country with a dominant presence in Kerala with 339 branches. It has a strong franchise in retail banking, NRI business segment and SME segment.
Lord Krishna Bank has a branch network of 112 spread across 11 States and the Union territory of Chandigarh. The seeds of its expansion were sown in the 1960s when three commercial banks were merged with it.
Today, Lord Krishna Bank has a nation-wide network of 112 branches. With a core value of providing personalised customer services, it has transformed itself into a modern, completely computerised, bank.
A couple of years ago, Lord Krishna Bank was faced with a crisis when its main shareholder Ashwini Puri, who once controlled a 65 per cent stake in the bank, was murdered in a luxury hotel in Luanda, the capital of Angola.
He went there to set up a factory in collaboration with the Angolan government to manufacture leather shoes for the country's armed forces under the banner of his business group - Mohan Exports.
Additional Inputs: Business Standard
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