ICICI Securities delisting: Proxy advisory firms IiAS and ISS positive on ICICI Securities delisting proposal

ICICI Securities delisting: Two more proxy advisory firms, including Mumbai-based Institutional Investor Advisory Services (IiAS) and an international proxy advisory firm, ISS, have supported the delisting of ICICI Securities. With this, the total number of proxy advisors is now four.
 
This comes just three days after Indian proxy advisory firms such as Mumbai-based Stakeholder Empowerment Services (SES) and Bengaluru-based InGovern Research Services recommended institutional investors vote in favour of delisting ICICI Securities.
 
Meanwhile, the shareholders of ICICI Securities will discuss the resolution about the delisting of the company at a virtual meeting on March 27, 2024.
 
On June 25, 2023, ICICI Securities announced the delisting plan through a scheme of arrangement. As per the scheme, shareholders of ICICI Securities will receive 67 shares of ICICI Bank for every 100 shares they hold. If the plan goes through, ICICI Securities will become a wholly owned subsidiary of ICICI Bank. 

Shares of ICICI Securities closed at Rs 722.70 apiece, down 0.58 per cent on BSE today, March 18, 2024.

What do IiAS and ISS say?

IiAS supported the resolution because ICICI Securities' indicated value was 2 per cent higher than the closing price the day before the notification of delisting and 23 per cent higher than the closing price four days before. 
 
According to IiAS, banks in India mostly conduct brokerage operations through privately held subsidiaries. To this end, delisting ICICI Securities and retaining it as a separate legal company inside the ICICI Bank fold will bring it into line with market norms, it noted.
 
On the other side, the international advisory firm ISS said that given the cyclical nature of ICICI Securities' business, it believes that joining ICICI Bank, which has a broader client ecosystem, might help the stock brokerage company's financial performance. 
 
The foreign proxy advisory firm ISS determined that the share exchange ratio conforms with the relevant requirements and is at a 15 per cent premium over the price on June 23, 2023, one day before the delisting notification. “The value assigned to the company for the purpose of the scheme is based on independent valuation reports and is broadly in line with the market peers,” the ISS report added.
 
Given the sound strategic rationale, the resolution warrants shareholders’ support, concluded the ISS report.
 
Meanwhile, PwC Business Consulting Services and Ernst & Young Merchant Banking Services prepared the independent valuation reports.

A look at InGovern and SES' views 

Last week, InGovern and SES issued papers in favour of the resolution. InGovern discovered that the average ratio of VWAP (Volume-Weighted Average Price) of ICICI Securities stock price to VWAP of ICICI Bank stock in the six months preceding the announcement of the agreement was 0.54, which was 24 per cent higher than the intended swap ratio.
 
According to SES, the average ratio of ICICI Securities' market share prices to ICICI Bank for the previous year, before the announcement of the transaction, was 0.56 times, but the planned share exchange ratio is 0.67:1. "Hence, it appears that shareholders of ICICI Securities are paid a slight premium vis-à-vis the market price differential," according to SES.