IOC board approves IBP merger

Public sector Indian Oil Corporation has decided to merge its over 53 per cent subsidiary IBP with itself. The board of directors of IOC, wh...

Public sector Indian Oil Corporation has decided to merge its over 53 per cent subsidiary IBP with itself. The board of directors of IOC, which met on Wednesday, has given the in principle clearence to the merger plan subject to the approval of the government.

The board of directors of IBP will take up the issue on Thursday.

Talking to The Indian Express, chairman and managing director of IOC M S Ramachandran said that the IOC board, at its meeting on Wednesday, has given an in-principle clearence to the merger proposal, subject

to government approval.

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‘‘We are going to go ahead with the merger by offering the existing shareholders of IBP shares of IOC in a ratio that would be decided after government’s approval of the proposal,’’ Ramachandran said.

Government approval is required because the government’s equity in IOC would be marginally diluted due to the share-swap. ‘‘As per our calculations, offering 46.42 per cent of IBP shareholders IOC’s shares would dilute government equity very marginally by about one to two per cent,’’ he said. The implication is that the merger would need cabinet approval.

Subsequent to the IBP board clearing the merger proposal, and the government giving its approval, IOC would go about the process of appointing financial advisors and deciding on the swap ratio. The merger is expected to take 6 to 12 months, sources said. Oil ministry sources indicated that the government per se would not have much of an objection to this merger, as it makes sense for IOC.

Ramachandran said that IBP was being merged with IOC as both market identical products in similar markets and it would be much better to have both companies under one umberella instead of running them separately. However, IBP brands have a niche in the market and IOC would also look to encash this. Ramachandran indicated that even after the merger, IBP would be retained as a separate brand as it had definite advantages. Even, in the case of retail chains, IOC is likely to continue with the IBP brand as would be the case in the products.

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IOC already owns a 53.58 pc share in IBP. IOC had taken over 33.58 per cent equity of IBP in 2002 when the government went in for strategic disinvestment of the firm. Subsequently, IOC made an open offer for additional 20 pc. Post merger, IOC’s market share in diesel sales would jump to 50 per cent from the current 40 pc and that of petrol to 40 pc from 35 pc. IOC, which owns about 8,200 petrol stations in the country, would get 2,500 pumps of IBP under its fold after the merger. Its market share in petro product sales would jump from under 55 pc to 60 pc after the merger, giving it a clear edge over its competitors both in public and private sector.