3:2 Stock Swap For Mcleod Russel-Eveready Merger

The swap ratio for the merger has been decided at two Eveready Industries shares for every three McLeod Russel shares. Faith Investments, a wholly-owned subsidiary of McLeod Russel, will also be amalgamated with the new company, to be christened Eveready Industries. The Securities & Exchange Board of India and stock exchanges have been duly informed.

The key reason given by the Khaitans for the merger is optimum utilisation of the extensive distribution network of Eveready Industries to market tea.

The company has said there will be no redundancies. Industry growth is virtually stagnant in bulk tea, and limited to 15 per cent in batteries.

 

The current borrowing limit of McLeod Russel is Rs 350 crore and that of Eveready Industries is Rs 300 crore.

The merger will be effective from April 1 this year. The board of directors of McLeod Russel (India) Ltd, Faith Investments Limited and Eveready Industry yesterday approved the amalgamation of these companies. The stock market barely reacted.

The current equity capital is Rs 32.5 crore, which will go up by Rs 2 crore after the merger.

The B M Khaitan group will have a stake of 46 per cent in the merged entity, against above 62 per cent in McLeod Russel, and 64 per cent in Eveready Industries. The promoters' stake will fall due to cancellation of cross holdings.

Financial institutions will now increase their stake from 17 per cent in Eveready and 15 per cent in McLeod Russel to 23 per cent in the merged entity.

The overseas holding will dip marginally from nine per cent to around seven per cent. Floating stock is expected to rise as a result.

"The valuation was carried out by Price Waterhouse and S B Billimoria to determine the relative values of McLeod Russel and Eveready for the proposed amalgamation," said group director Aditya Khaitan at a press conference yesterday. He said the group had approached two leading consultancy firms McKinsey and J P Morgan to suggest measures on carrying out a detailed restructuring of the group.

Both the firms had advocated that merger of the two companies was the only way to access international markets and foreign institutions.

They had apparently endorsed three core areas of business: tea, battery and processed foods. The third is only a long-term option, said Khaitan.

Eveready has an almost 60 per cent market share in the dry cell batteries segment. "Eveready currently has a widespread distribution network reaching over 4,000 stockists which enables the company to access half a million retail outlets, which would result in greater economies and higher profitability," said C P Raman, managing director of Eveready India. The new company may also market foils made by associate India Foils in future.

The merger will enable the company to take on competition against industry leaders Hindustan Lever and Tata Tea. "The merger of the two companies will ensure a turnover of over Rs 600 crore. The strength of the merged entity would give better access to the capital market than either of the merged companies individually", said Khaitan.