The boards of Reliance Industries and IPCL today approved the merger between the two companies at a swap ratio of 1:5. This means IPCL shareholders will get one share of RIL for every five held by them. | |
| Reliance and IPCL also approved an interim dividend of Rs 11 and Rs 6 per share respectively. "This merger will create value through synergies and scale that would enhance the sustainable competitive advantages of RIL," said RIL Chairman and Managing Director Mukesh Ambani. |
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| "This merger will be earnings accretive for RIL shareholders and provide IPCL shareholders an opportunity to participate in RIL's diversified business portfolio," Ambani added. |
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| Earnings accretive means that the merger will improve earnings per share for Reliance as and when it comes into effect. The appointed date of merger of IPCL with RIL is April 1, 2007, subject to approvals from the courts and other regulatory authorities. |
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| A Reliance statement said the merger will facilitate the integration of management resources with economic interest and provide free flow of products and intellectual capital between the two companies. |
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| The combined entity would save Rs 200 crore in taxes, including sales tax and income tax as IPCL buys many key inputs like naphtha and gas from Reliance. |
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| "The proposed merger is in line with industry trends, which will help achieving scale, size, integration, and enhanced financial strength along with the flexibility to pursue future growth opportunities, both organic and inorganic, within and outside India," the statement added. |
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| The exchange ratio was based on a joint valuation report by Ernst & Young and PricewaterhouseCoopers. Sanjiv Agarwal, partner of E&Y said, "We gave 40 per cent weightage to the market price method and took into account the last three months stock prices of both scrips. The price to earnings method gave a slightly higher swap ratio. Finally, we took into account the net asset value of all the investments of RIL and IPCL." |
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| Giving the rationale for merger, RIL said it has plans to make significant capital investments in all its core businesses to pursue growth opportunities. |
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| "On the other hand, IPCL's business portfolio predominantly consists of commodity polymers, which makes it prone to earnings volatility and cyclical risk. The merger provides IPCL shareholders an opportunity to de-risk their investment," the statement added. |
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| Post-merger, the share capital of RIL would increase from Rs 1,393.5 crore to Rs 1,453.6 crore.The Union government had disinvested 26 per cent of IPCL shares in 2002 in favour of Reliance and thereafter the Ambanis increased their holding to 46 per cent through an open offer. |
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| In the last five years, IPCL took several steps to increase capacity utilisation, reduce operating costs and improve financial management. |
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| This led to revenue increasing from Rs 5,527 crore in FY01-02 to Rs 12,362 crore in FY05-06, and net profit increasing from Rs 107 crore to Rs 1,164 crore, a growth of 82 per cent. |
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