Tata Steel rallies 4%, shares of subsidiaries fall up to 9% on merger plan

Shares of Tata Steel rallied 4 per cent to Rs 107.90 on the BSE in Friday’s intra-day trade after the company's board approved amalgamation of seven group companies with itself. The companies include Tata Steel Long Products, Tinplate Company of India, Tata Metaliks, TRF, Indian Steel and Wire Products, Tata Steel Mining and S&T Mining. Each amalgamation is subject to approvals from relevant authorities.

Under the new proposed amalgamation scheme, Tata Steel to allot 67 shares for every 10 shares of Tata Steel Long Products. For Tata Metaliks, Tata Steel will give 79 shares for every 10 shares of Tata Metaliks. And in case of Tinplate and TRF, the share swap rataio stands at 33:10 and 17:10, respectively.

Following which, Tata Steel Long Products dipped 9 per cent to Rs 680, followed by Tinplate Company of India down 6 per cent at Rs 317, TRF (down 5 per cent at Rs 335.65) and Tata Metaliks (down 2 per cent at Rs 777). In comparison, the S&P BSE Sensex was down 0.44 per cent at 58,861 at 09:28 am.

The amalgamation will consolidate the business of group companies and the company which will result in focused growth, operational efficiencies, and business synergies. In addition, resulting corporate holding structure will bring enhanced agility to business ecosystem of the merged entity, Tata Steel said in exchange filing. These companies believe that the resources of the merged entity can be pooled to unlock the opportunity for creating shareholder value.

The proposed scheme of amalgamation has been undertaken to realise better synergies of business of the entities involved in the scheme. The proposed scheme would lead to operational integration and better facility utilisation, rationalisation of logistics costs, operationalised efficiency, simplified structure and management efficiency, etc.

The merger will result in utilisation of each other’s facilities in a more efficient manner. There can be collaboration on marketing and distribution networks of entities. The earlier merger scheme of Tata Metaliks and Tata Steel Long Products has also been withdrawn.

Overall, with the proposed amalgamation, the resources of the merged entities can be pooled to unlock the opportunity for creating shareholder value, ICICI Securities said in a note.