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$10 billion financial ‘marriage’ in the making via Shriram-IDFC merger deal
Over four decades ago, the Chennai-based Shriram Group, the progeny of the city-based mathematician and insurance professional R Thyagarajan, began in an ultra-small way as a chit fund company. Today, it has metamorphosed into a big business with interests in housing, finance, insurance, manufacturing, to just name a few.
Three years ago, the big daddy of the group, the man they fondly call RT, surprised everyone when the promoters and he sold their stake to the Piramal Group. With that, his stake apparently fell to about 1 per cent. Some 20 per cent was with employees, an idea that was intended to ensure the feeling of ownership and bonding. And now, the Shriram group is readying itself to merge with IDFC in a plan that will create a financial supermarket, which would be a $10 billion conglomerate. For sure, that is some size.
Reports suggest that under this arrangement, all businesses of Shriram City Union Finance will merge with IDFC Bank. The Insurance companies will become subsidiaries of IDFC Limited. Transport Finance will be a standalone NBFC. And all operating businesses will be part of IDFC. The underpinning: for all intent and purpose, Shriram will become IDFC.
While on the merger people will talk of ‘the bigger, the better,’ and there would be catch phrases like ‘operational synergies’ etc., bandied, the short point is that a high profile company this side of the Vindhyas is now for all intents and purpose going to disappear. While we await the valuation, the swap ratio, the cash sweeteners, etc, very fundamental questions arise. These are not intended to hurt anyone’s sentiments, but to wonder on a few basics.
One, at just about the time Shriram got to be known nationally (remember once people knew better the more well-known Shriram Group of the North) why should the company first sell to the Piramals and now to IDFC? While growth is an important lyric, aren’t there far more deep-rooted sentiments?
After all, Shriram’s growth has been a master story. While the world lent to corporates, Shriram gave to individuals. To that extent, they were more inclusive. The group finances almost every other truck.
In one way to sell and move on at the right time is the hallmark of a good businessman. All said: the promoters of Tata and Birla too have sold some of their companies, though not the house jewel. It is interesting that the business is not getting handed over to the next of kin in the family. In that sense, it has picked up the model pioneered in India by Infosys.
We think exciting days are ahead. But the times when the south could proudly claim Shriram as its own is now gone. And that’s a tad sad. But I am sure people will outgrow it. After all, one-day Infosys too could be bought out by Microsoft or by Google if the time, price and business are right.
THE BIG 4 SAID
Great idea and vision. This will be useful to the community that too neglected sector… we are enthusiastic about the possibilities of this association. In the last few decades, we have grown through collaborative partnerships- R Thyagarajan, Founder, Shriram Group.
This is a great transaction. I wish this marriage happens. It is good that they are coming together. I used to wonder how RT grew so big as unlike banks, which finance fleet operators, he funded single operator -Deepak Parekh, Founder-Chairman, IDFC.
It is really a chance to create a financial conglomerate with a universal bank at the centre that we believe will become the country's largest mass retail universal bank Ajay Piramal, Chairman, Shriram Capital and Piramal Group.
Any merger has to have fundamentally an alignment of purpose. It is philosophical and vital for any such merger. It is a marriage in heaven because of the complementarity of businesses
Rajiv Lall, MD-CEO, IDFC Bank
Win-win for everyone
S Ramabadran, Founder-Chairman, Mango Capital, says the chit fund business has taken a beating and due to low margins, this is a good move from a promoter perspective. Shriram founder had done an exemplary job by generating employment without resorting to political funding and aligning with the Piramal group would enable better access to funds. Since the way of doing business had changed in the last five years, it is obvious for promoters to either encash or sit quiet or even look at new-generation businesses instead of staying stuck with antiquated businesses, he says.
Chennai can be ideal base
The mega merger proposal will lead to the creation of a super mega financial supermarket. I see a scope for the metro emerging as a strong base for housing such a powerhouse. This stems from IDFC having its registered office here though its corporate office is in Mumbai. If the merged entity has Chennai as base and operates with significant scale of operations of the merged entities, it will have tremendous spin-off benefits through financial transactions, direct and indirect employment opportunities. V Balasubramanian, Secretary, Mylapore Institute for Policy Research.