ICICI Bank 2003 Annual Report Download - page 131

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F67
notes to the consolidated financial statements
Continued
2. Dilution of ownership interest in the acquiree
Until March 2000, the Company held a 74.2% controlling interest in the acquiree. In March2000, the acquiree issued
15.9 million American Depository Shares (ADS) to third parties. As a result of the issuance, the proportionate
ownership interest of the Company in the acquiree reduced from 74.2% to 62.2%.
The offering price per share exceeded the Company’s carrying amount per share in the acquiree, resulting in an
increase in the carrying value of the Company’s investment in the acquiree by Rs. 4,114million. This change in the
carrying value was recognized in the statement of stockholders’ equity as a capital transaction.
In March2001, the acquiree acquired Bank of Madura Limited, a banking company, through issuance of stock. The
acquisition was recorded by the purchase method. As a result of the issuance, the ownership interest of the
Company in the acquiree was reduced from 62.2% to 55.6%. The issuance price exceeded the Company’s carrying
amount per share in the acquiree resulting in an increase in the carrying value of the Company’s investment in the
acquiree by Rs. 1,242million. This change in the carrying value, net of the related tax effect of Rs. 140million, has
been recognized in the statement of stockholders’ equity as a capital transaction.
Subsequently, during March2001, the Company sold a 9.2% interest in the acquiree to institutional investors for a
consideration of Rs. 3,499 million. The gain on sale of Rs. 1,996million is included in the statement of income. This
reduced the Company’s interest in the acquiree to 46.4%.
In view of the Company’s ownership interest in the acquiree having been reduced to below majority level, the
Company determined that consolidation of the acquiree was not appropriate and accounted for its ownership interest
under the equity method beginning April 1, 2000, the beginning of the fiscal year in which the ownership interest was
less than majority.
During the year ended March 31, 2002, the Company further reduced its ownership interest to 46%. This resulted
in a gain of Rs. 57 million, which is included in the statement of income.
3. Acquisitions
Reverse acquisition
Effective April 1, 2002, the acquiree and the Company consummated a transaction whereby shareholders of the
Company were issued shares of the acquiree in the ratio of 1:2. The transaction has been treated as a reverse
acquisition, with the acquiree as the surviving legal entity but the Company as the accounting acquirer.
On the acquisition date, the Company held a 46% ownership interest in the acquiree. Accordingly, the acquisition
of the balance 54% ownership interest has been accounted for as a step-acquisition. The operations of the acquiree
have been consolidated in the Company’s financial statements effective April 1, 2002.
As a result of the acquisition, the Company became a universal banking company offering the entire spectrum of
financial services. The acquisition is expected to reduce the cost of funds for the Company through access to the
extensive branch network and deposit base of the acquiree. Further, the acquisition is expected to benefit the
Company through greater opportunities to generate fee-based income, participation in the payment networks and
ability to provide transaction banking services. Subsequent to the acquisition, the operations of the Company will
be governed by the Banking Regulation Act, 1949.
The components of the purchase price and allocation are as follows:
(Rs. in millions)
Fair value of common stock issued on reverse acquisition 12,028
Direct acquisition costs 1,627
Fair value of stock options assumed on reverse acquisition 409
Total 14,064
The fair value of common stock issued on reverse acquisition was based on the average prices of the equity shares
for the two trading days before and after October 25, 2002, the date, the terms of the acquisition were agreed to
and announced.
The total purchase price has been allocated to the acquired assets and assumed liabilities as of the date of
acquisition based on management’s estimates and independent appraisals as follows: