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Axis Bank acquisition of Enam runs into RBI. Sell the stock
This stand of the regulator has been quoted by media. This clause will place make the acquisition difficult considering that the deal had been structured as an all-stock transaction.
The deal between Axis and Enam was made in November 2010 is worth Rs 2,067-crore deal. It was announced by Axis and Enam jointly.
According to the deal structure that was submitted to the RBI, Axis would have issued stock to Enam's promoters and one of the banks subsidiary would take over the businesses. The central bank objected to the deal on the ground that the entity issuing the shares was different from the one that would own the new businesses.
To allay the apprehension of the banking regulator, Axis changed the structure of the deal, under the new proposal, Axis will acquire the Enam's business against shares and hold them for sometime, aafter which it would transfer the same to its subsidiary.
According to exports the Regulator is still not happy because it does not wants to set precedent under which banks trying to buy businesses like brokerage in return for shares.
The Axis official also said "there is no truth in the speculation that the bank has been advised to carry out an all-cash transaction," to a leading newspaper in the country.
The deal in all cash form will make it expensive for Axis bank considering the bearish market and the cash deal will have tax issues for Enam which will not be the case in stock deal.
Acquiring a company through stock does happen but the banking regulator does not want the same to take place i the banking space as brokerage is a high risk business meanwhile banks need to be stable.
VIEW: It would be good to reduce position in this bank. The bank's stock is showing a major bearish trendline over the one year period. So for momentum investors should get out of the stock.
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