Reverse Merger In Lloyds Group

In a case of reverse merger, the Rs 2,000 crore Lloyds group has decided to merge group flagship Lloyds Steel Industries into Lloyds Metals & Engineering Ltd.

The group has appointed two chartered accountant firms to evaluate the two companies and suggest a swap ratio for the merger, FI sources told Business Standard. The valuation report is expected to be submitted in six weeks, after which the boards of the two companies will meet to approve the merger.

The merger is expected to result in a cost advantage of Rs 50 crore to the new company, the sources said. Lloyds Steel posted a net loss of Rs 66.1 crore in the first half of the current fiscal, while Lloyds Metals posted a half year net profit of Rs 30 lakh.

In the full year 1996-97, Lloyds Metals posted a profit of Rs 2.44 crore while Lloyds Steel made a meagre profit of Rs 64 lakh. Lloyds Steels turnover in 1996-97 was Rs 1,261.18 crore, while Lloyds Metals turnover stood at Rs 340.66 crore.

The operations of both companies will be combined and consolidated. This will create a fully integrated company, with operations ranging from sponge iron to galvanised sheets and pipes.

The promoters hold 23 per cent in both companies, while the institutional holding in both is around 20 per cent. The balance equity is with the public.

Lloyds Metals has a 25,000-strong shareholder base, while Lloyds Steel has 1.5 lakh shareholders. Lloyds Steel is quoting at around Rs 5 a share on the Bombay Stock Exchange and the Lloyds Metal scrip is quoted at Rs 13 on the exchange.

Lloyds Steel is involved in the manufacture of hot rolled coils, cold rolled coils/sheets and galvanised plates and sheets. The company had produced 82,239 mt of cold rolled and galvanised coils and sheets and 31,9150 mt of hot rolled coils in 1996-97. The companys steel division had reported a 42 per cent increase in turnover during 1996-97 to Rs 946.64 crore, against Rs 667.75 crore in the preceding year.

The companys profitability has been under continued pressure despite increased production due to sluggish demand and increased capacities in the domestic markets.

Lloyds Metals had a turnover of Rs 340.66 crore in 1996-97, up from Rs 238.78 crore in the previous year.

The company has a CRCA division, a pipes division and a sponge iron division. The sponge iron division meets the raw material requirements of Lloyds Steel. The division reported its first full year of operation during 1996-97.

Lloyds Metals has taken up work on the second phase of the sponge iron plant. The company is setting up a captive power plant at its Ghughus plant. Lloyds Steel too is setting up a captive power plant, which is expected to cut costs drastically after being commissioned. Lloyds Steel is also working on the module-11 expansion of the CR plant.

With the integration of operations of the two companies, and the resultant cut in production costs, the group hopes to become one of the lowest-cost steel producers in the world. This would help it to tackle increased competition and sluggish domestic demand.