The Board of Mukesh Ambani group's Reliance Industries on Saturday approved the merger of subsidiary IPCL with itself is a move that will help push the corporate giant's turnover to about Rs 1,00,000 crore and give it a competitive edge.
The Boards of the two companies have approved a swap ratio of 1:5, which means IPCL shareholders would receive one share of RIL for every five shares held by them.
Through the merger RIL would issue six crore shares to IPCL shareholders, which would expand its equity shares share capital to Rs 145.3 crore resulting in an equity dilution of 4.12 per cent, a company statment said.
Analysts believe that the merger could dilute the stake of RIL's promoters by 1.7 per cent from 43.1 per cent to 41.4 per cent post merger.
RIL's turnover stood at Rs 83,487 crore for the nine months ended December 30, 2006, while IPCL had posted a Rs 10,307 crore turnover in the same period.
Analysts expect the merger to bring additional benefits like reduced management costs for the group, besides marketing synergies already being reaped by the company ever since RIL acquired control of IPCL in 2002.
"We believe that the merger brings benefits like reduced management costs and increased management bandwidth, other benefits like product grade optimisation (and) marketing synergies, had been incorporated earlier after RIL took over the management control in 2002," analysts at domestic brokerage firm Edelweiss Capital said in a report.
"The merger will be earnings accretive for shareholders of RIL and shall provide shareholders of IPCL an opportunity to participate in RIL's diversified business portfolio," RIL Chairman and Managing Director Mukesh Ambani said in a statement.
RIL's board also approved an interim dividend of Rs 11 per share, while IPCL board approved interim dividend of Rs six per share for the shareholders.
The appointed date of merger of IPCL with RIL is April 1, 2006.
The merger would also enhance RIL's profits as it derives 35 per cent of profit after tax from petrochemicals. Net profits of RIL stood at Rs 8,055 crore for the nine months ended December 31, 2006 whereas IPCL had reported a net profit of Rs 1,014 crore in the same period.
The proposed merger is expected to facilitate the integration of management resources with economic interest, while providing for free flow of products and intellectual capital between the two companies.
At present, promoters' stake in IPCL stands at about 47 per cent, FIIs hold 12.5 per cent, insurance companies hold close to nine per cent and the government has a marginal stake.
In June 2002, the Centre as part of its disinvestment programme divested 26 per cent of its equity shares in favour of Reliance Petro Investments Limited (RPIL), a Reliance group company. Subsequently, RIL increased its holding to 46 per cent through an open offer.