RIL, IPCL to merge; swap at 1:5

In line with market expectations, the Board of Mukesh Ambani-led Reliance Industries' on Saturday cleared the merger of IPCL with itself at a share swap ratio of 1:5.

The appointed date of merger of IPCL with RIL is April 1, 2006, an RIL release said. The Reliance Industries Board also approved an interim dividend of Rs 11 per share totalling Rs 1,748 crore (Rs 17.48 billion) including dividend tax.

Likewise, the IPCL Board approved the interim dividend of Rs 6 per share amounting to Rs 206 crore (Rs 2.06 billion) including dividend tax.

Following the merger, the share capital of RIL would increase from Rs 1,393.5 crore (Rs 13.93 billion) to Rs 1,453.6 crore (Rs 14.53 billion).

RIL is the country's largest private sector company with a leadership position in the petrochemicals industry, while IPCL is India's second largest company in that sector.

As part of the divestment programme of the government, RIL had acquired 26 per cent equity in IPCL in 2002 and thereafter increased its holding to 46 per cent through an open offer.

RIL's associate companies hold 47.3 per cent of IPCL's equity share capital, the release said, adding these shares would be exchanged for equity share of RIL having current market value of over Rs 3,700 crore (Rs 37 billion).

This will constitute two per cent of their enhanced equity share capital of RIL and associates would hold the share for the benefit of all shareholders of RIL and monetise the economic value at an appropriate time in future.

These shares could be offered to financial or strategic investors in domestic or international markets.

The proposed merger is in line with the industry trend, which would help in achieving scale, size, integration and enhanced financial strength along with the flexibility to pursue future growth opportunities, both organic and inorganic and within and outside India.

Commenting on the merger, RIL Chairman and Managing Director Mukesh Ambani said: "With this merger, I am happy to welcome all IPCL shareholders to RIL family." This merger will create a value to synergise and scale that shall enhance the sustainable competitive advantages of RIL.

"This merger will be earnings accretive for the shareholders of RIL and shall provide shareholders of IPCL an opprotunity to participate in RIL's diversified business portfolio," Ambani said. Under the terms of proposed merger, IPCL shareholders will receive one share of RIL for every five shares of IPCL held by them.

The exchange ratio has been determined on the basis of a valuation report by PricewaterhouseCoopers and Ernst & Young.

JM Morgan Stanley and DSP Merrill Lynch were the financial advisors to the merger. Amarchand and Mangaldas & Suresh A Shroff & Company were the legal advisors.

Over the last five years of IPCL's operations, several initiatives were introduced to increase the company's capacity utilisation, reduce operating costs and improve financial management.

"This has resulted in ongoing improvement in financial and operating performance at IPCL with revenue increasing from Rs 5,527 crore in FY 2001-02 to Rs 12,362 crore in FY 2005-06, a CAGR of 22 per cent and net profit increasing from Rs 107 crore in FY 2001-02 to Rs 1,164 crore in FY 2005-06, a CAGR of 82 per cent," it said.