In a bid to consolidate its chemical manufacturing, the Board of Reliance Industries Ltd. has approved a plan to buy all the shares not held it in Indian Petrochemicals Corp. (IPCL).
As per the exchange ratio recommended by PricewaterhouseCoopers LLP and Ernst & Young LLP, shareholders of IPCL will get one share in the parent for every five shares held. The merger will help shareholders of IPCL to mitigate risk of being in a single commodity business, giving investors shares in Reliance which has businesses in oil and gas exploration, refining, chemicals and retailing. The merger will create value through synergies and scale that will enhance the sustainable competitive advantages of Reliance. From the current Rs 13.94 billion, Reliance's share capital will increase to Rs 14.54 billion (US$329 million) after absorbing IPCL.
Absorbing the unit could help in increasing Reliance's earnings from chemicals. Reliance will also save on tax it pays for supplying naphtha to IPCL.
Reliance will be able to spread operating costs across a wider revenue base and improve profitability and help Reliance to better manage risks or downside in business.
Reliance acquired control of IPCL from the government in 2002, paying Rs 15 billion (US$337 million) for a 26% stake. Reliance then bought an additional 20% in a subsequent offer to the public. IPCL owns three plants : The plant at Nagothane in Maharashtra state, has a capacity of 400,000 metric tpa. The plant in Vadodara has a capacity of 175,000 tpa and Gandhar has a capacity of 300,000 tons.
12-Mar-07 
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