Microfinance player CreditAccess Grameen (CAGL) on Wednesday announced that it has signed a definitive agreement to acquire a controlling majority stake in Madura Micro Finance Ltd (MMFL) for ₹876 crore. This will subsequently lead to the merger of MMFL into CAGL.

The CAGL and MMFL boards, at their respective meetings on Wednesday, approved the transaction, CAGL said in a statement.


Two-step process

CAGL will acquire a 100 per cent stake in MMFL in a two-step process. In the first leg, it will acquire a stake of up to 76.2 per cent from existing MMFL shareholders for ₹666.4 crore in cash, or ₹1,216.16 per share. In the second phase, MMFL will be merged into CAGL through a scheme of arrangement.

According to a regulatory filing by CAGL, the acquisition is expected to be completed by March 31, 2020.

If the deal is not closed by April 30, the acquisition price may be increased by an amount that will be calculated at an interest rate of 9 per cent annually for the period from May 1, 2020, until the completion of the acquisition.

“As part of the merger, the residual shareholders of MMFL will receive shares of CAGL at the share swap ratio proposed in the scheme,” CAGL said, adding that the transaction is subject to the approval of the RBI, SEBI, stock exchanges, the National Company Law Tribunal (NCLT) and other regulatory bodies.

The business acquired from MMFL will continue to operate as a separate division until the integration of business and processes is complete. All employees of MMFL will become employees of CAGL.

MMFL’s promoter Tara Thiagarajan will act as an adviser to the CAGL board after the merger.

Focus on Tamil Nadu

“The amalgamation will provide the company with access to MMFL’s large and unique client base, specifically in Tamil Nadu,” CAGL said, adding that it will result in the geographical diversification of its portfolio and strengthen its leadership position in the microfinance market.

The combined portfolio will be ₹9,958 crore, with about 37 lakh borrowers and more than 1,300 branches spread across 13 States and one Union Territory (as on September 30, 2019).

“The acquisition strengthens our microfinance franchise, which can be leveraged to provide innovative financial services and products matching the evolving needs of under-served and unbanked households,” said Paolo Brichetti, Chairman, CAGL. “We are also excited about building on MMFL’s industry leading technology and data analytics capabilities in the microfinance sector.”

Shares of CAGL gained 4.03 per cent on the BSE on Wednesday to close at ₹779.15 apiece.