Shares of Indian tycoon Anil Ambani's Reliance Natural Resources Ltd (RNRL) plunged by nearly 30 percent Monday, a day after it announced a merger with group firm Reliance Power.
RNRL shares fell 18.1 rupees to 45.5 on the Mumbai stock exchange in afternoon trade after the deal valued the company at around 30 percent below its Friday closing price.
"RNRL fell for parity to take place between RNRL and RPower stock prices," said Gaurav Dua, head of research at brokerage Sharekhan.
Analysts said RNRL had to be folded into its sister company to comply with government rules after it lost a crucial Supreme Court ruling in May.
The government grants gas only to power generation firms so RNRL could not make a claim for gas as it was only a gas trading firm.
Shares of Reliance Power, meanwhile, jumped 8.3 percent to a high of 189.8 rupees, but retraced on profit-taking to 179 rupees, still up 2.54 percent.
The court ordered RNRL to pay a higher government-set price rather than allowing the company to buy gas at a lower price from Reliance Industries, controlled by Anil's older brother Mukesh, under a private deal.
The pact had been worked out during the carve-up of the Reliance empire following the death of the brothers' father, Dhirubhai Ambani, in 2002.
But Mukesh afterward sought to have the deal scrapped and said Anil must pay the amount stipulated by the government -- a position upheld by the court that said the gas belonged to the nation and could not be sold for a cut-rate price.
The merger between RNRL and Reliance Power will create a company with a market value of 11 billion dollars.
"Reliance Natural's shareholders will benefit from the proposed amalgamation by participating in future growth prospects of Reliance Power's diversified generation portfolio," the two companies said Sunday.
Under the deal, RNRL shareholders will get one Reliance Power share for every four they hold.
The court ruling ended a long-running legal battle between the billionaire siblings who have since reconciled.
"The merger had to happen. After the court ruling, RNRL could not procure gas at a level lower than the government-approved rate," said Sonam Udasi, head of research at IDBI Capital.