IDFC Bank and Shriram Capital have reportedly called off their merger negotiations, over a difference in agreement on the valuation of share swap agreement. According to a recent news report, after nearly four months, the deal fell through as Shriram Capital, the bigger business did not agree to a share swap ratio proposed by IDFC Bank.

The development has effectively ended the merger plan, which would have resulted in a $ 12 billion combined entity. The eight-day of November was the deadline for the conclusion of exclusive talks between the two businesses, which was announced in July of this year. In a notification to stock exchanges, IDFC said, “This is to inform you that despite best efforts, IDFC Group and Shriram Group have not been able to reach common ground on a mutually acceptable swap ratio for the merger... both parties have agreed to call off discussions on a potential merger and the exclusivity period pursuant to the CES (confidentiality, exclusivity, and standstill) agreement entered into between the concerned parties stands terminated with immediate effect,” the notification said.

IDFC Bank CEO, Rajiv Lall has been quoted in an interview saying that both the sides ‘could not arrive at an agreement of relative value.' He explained, “... The valuation that we proposed to our counterparts was discount to sum of the parts value greater than we believe they would be getting in the merged entity... The other thing is we never got a formal counter offer from them that our board would evaluate to assess whether we could bridge the gap. We came to the conclusion because they were not able to give us a counter offer. It means that our valuation ask is so unreasonably high that there cannot be any meeting of minds...”

Earlier in July, when the announcement of ‘exclusive’ merger talks came through, Lall had described the same as a ‘marriage made in heaven’; the plan was to merge the retail consumer-centric business of Shriram Capital – Shriram City Union Finance – into IDFC Bank. The deal, had it worked out, would have given IDFC Bank exposure to a network of 10 million customers, and would have benefitted Shriram Group by providing lower cost of funds, newer revenue streams and a backdoor entry into banking, according to a Mint report. Recently, speculation was also rife that minority IDFC stakeholders were unhappy with the amount of dilution that would follow the merger, but Lall rejected these claims in the same interview he explained the complexities of the deal and negotiations, and IDFC Bank’s ultimate decision to pull out of the deal just days before the deadline of reaching a conclusion.

The failure of the merger is expected to hit IDFC Bank more significantly, as was visible in the intra-day stock exchange performance; IDFC shares fell nearly 2% whereas Shriram shares rose by nearly the same value.