RIL-RPL merger sealed...swap ratio at 1:16

Reliance Industries Ltd. (RIL) said that its Board of Directors approved a Scheme of Amalgamation of Reliance Petroleum Ltd. (RPL) with the company. The Scheme is subject to necessary approvals of shareholders and creditors and sanctions of the High Courts in Mumbai and Gujarat. The Appointed Date of the amalgamation is April 1. Upon completion of the amalgamation, shareholders of RPL will receive 1 fully paid equity share of Rs10 each of RIL for every 16 fully paid equity shares of Rs10 each of RPL held by them on the record date to be fixed later.

RIL’s equity stake in RPL will rise to 75.4% before the proposed merger as it first buys out Chevron’s 5% equity stake in RPL. After the merger, RIL’s 75.4% equity stake in RPL will be cancelled and hence should not lead to creation of any fresh treasury shares. Based on the recommended merger ratio, RIL will issue 6.92 crore new equity shares to the existing shareholders of RPL. This will result in a 4.4% increase in equity base from Rs15.74bn shares to Rs16.43bn. Consequently, the promoter holding in RIL will reduce from 49.0% to 47.0%.

The merger will unlock significant operational and financial synergies that exist between the two companies, RIL said in a statement. It creates a platform for value-enhancing growth and reinforces the company's position as an integrated global energy company, it added. The merger will enhance value for shareholders of both companies and is EPS accretive, RIL said.

Commenting on the merger, Mukesh Ambani, Chairman and MD, RIL said: "This merger follows Reliance Industries’ philosophy of creating enduring value for all our stakeholders. It is a significant step in our goal to be among the largest global corporations."

Analysts' reaction was mixed to the merger. Some say that the new refining capacity amid shrinking global oil demand will keep refinery utilization rates low and refining margins weak. "As a pure refiner with high gasoline yield, RPL faces near-term downside to its margins," says Goldman Sachs. The market too gave a lukewarm response to the merger ratio, with both the stocks actually falling slightly on the day of the announcement. Over the week, the two stocks slipped further amid a broad decline in the Indian stock market.