The strategic alliance between Kotak Mahindra Bank and Goldman Sachs has ended after 14 years. Kotak Mahindra Bank has decided to buy the entire 25 per cent stake held by Goldman Sachs (Mauritius) in two of its subsidiaries - Kotak Mahindra Capital Company and Kotak Securities.
With these purchases, to be made through subsidiaries, subject to regulatory approvals, the Kotak group will wholly own both the companies.
Kotak paid Rs 333 crore (Rs 3.33 billion) for the deal - Rs 210 crore (Rs 2.1 billion) for KMCC and Rs 123 crore (Rs 1.23 billion) for KS. The two entities have entered into a business cooperation agreement for a period of up to one year.
Kotak Mahindra Bank's executive vice-chairman and managing director Uday Kotak told Business Standard that the move to buy out Goldman Sachs was a part of his group's aspiration to be a global financial institution on its own.
The transaction would add to Kotak Mahindra's earnings, and was "accretive"' for shareholders, Kotak said, adding that the deals were done around the book value. The point to note was that the group would now be able to get 100 per cent of the earnings from two of its biggest business - retail brokerage and initial public offers - he said.
Kotak said there was no plan to list Kotak Securities or Kotak Mahindra Capital at this point of time. "We think the future is customer acquisition and that is where our big focus is," he added.
Analysts said the Rs 330-crore (Rs 3.3 billion) deal was more than fair for Kotak's shareholders as the actual valuation of Goldman Sachs' stakes would be around Rs 1,400 crore (Rs 14 billion). Kotak's post-tax profit for the nine months this financial year was Rs 183 crore (Rs 1.83 billion) compared with Rs 169 crore (Rs 1.69 billion) of DSP Merrill Lynch for the full year.
"If DSP Merrill was valued at $1 billion, Kotak's valuation should be around one-and-a-half times of that," they said.
Describing the deal with Goldman Sachs as a change of an era, Kotak said the split was "about institutions having aspirations and us all having to work for what we think is our destiny".
The group had taken a significant step towards further integrating financial product offerings for customers.
"We at Kotak have always aspired to create an Indian financial institution with world-class and capabilities. This is a reinforcement of that vision," he said.
"At this point, we want to chart our own destiny, but financial services being what they are, we will continue to look at opportunities," he said when asked whether he might consider having another foreign partner.
Kotak Mahindra Capital, which topped both the IPO and M&A league tables for 2005, has presence in the US, the UK, Mauritius and in West Asia, while Kotak Securities has more than 600 outlets covering 203 cities and towns across India.
Kotak said the percentage of Kotak's overseas operations in the total turnover was in single digit now and the plan was to increase it to 25-30 per cent in the next five years.
The Kotak group has a net worth of around Rs 2,000 crore (Rs 20 billion), employs around 6,000 people in its various businesses and has a distribution network of 851 branches, franchisees, representative offices and satellite offices across 216 cities and towns in India and has offices in New York, London, Dubai and Mauritius.
Amarchand & Mangaldas & Suresh A Shroff & Co acted as legal advisers for Kotak Mahindra for the transaction.Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group
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