HDFC and HDFC Bank

On 4 April 2022 HDFC traded at about ₹2,676 and HDFC Bank at about ₹1,654 (reported intraday). The exchange ratio was 42 HDFC Bank shares for every 25 HDFC shares, and the merger became effective on 1 July 2023. (a) Compute the deal value per HDFC share, the spread in ₹ and as a percentage. (b) Compute the annualised return if the deal closed on 1 July 2023 (Actual/365), compound and simple. (c) With a fallback of ₹2,400 (illustrative), compute the implied completion probability with zero financing cost and with a 4% financing cost. Interpret a value above 1. (d) Find the financing rate above which the implied probability exceeds 1 for every fallback below the target price. Compare with the path of the RBI repo rate in 2022–23.