RIL, IPCL boards clear merger, 1:5 swap ratio

3,700 crore and will constitute 2 per cent of the enhanced equity share capital of RIL. “The associates will hold the shares for the benefit of all the shareholders of RIL and can monetise the economic value at an appropriate time in the future. These shares can be offered to financial or strategic investors in the domestic or international markets,” the company informed the stock exchanges after the board meeting.

The exchange ratio for the RIL-IPCL merger, which will be effective from April 1, 2006, has been determined on the basis of a valuation report prepared jointly by PricewaterhouseCoopers and Ernst & Young. After the merger, RIL’s share capital will increase from Rs 1,393.5 crore to Rs 1,453.6 crore.

The RIL board also approved an interim dividend of Rs 11 per share, amounting to Rs 1,748 crore including dividend tax, while IPCL approved an interim dividend of Rs 6 per share, amounting to Rs 206 crore including dividend tax. As the promoters Mukesh Ambani and associates hold around a 50 per cent stake in RIL, over Rs 870 crore will be accruing to them as dividend.

“The merger will facilitate the integration of management resources with economic interest and provide for free flow of products and intellectual capital between the two companies,” RIL said. It added that the proposed merger is in line with industry trends and will help achieve scale, size, integration, and enhanced financial strength, along with the flexibility to pursue future growth opportunities, organic and inorganic both within and outside India.

Commenting on the merger, RIL chairman and managing director (CMD) Mukesh D Ambani said, “I am happy to welcome all IPCL shareholders to the RIL family. This merger will create value through synergies and scale, which shall enhance the sustainable competitive advantages of RIL. This merger will be earnings accretive for the shareholders of RIL and shall provide IPCL shareholders an opportunity to participate in RIL’s diversified business portfolio.”

Explaining the rationale for the merger, RIL said, “IPCL’s business portfolio consists predominantly of commodity polymers, which makes it prone to earnings volatility and cyclical risks. The merger provides IPCL shareholders an opportunity to de-risk their investment by participating in the growth opportunities of RIL.

IPCL operates three integrated petrochemicals complexes in India — a naphtha based cracker complex at Vadodara and one gas based cracker complex each at Gandhar and Nagothane.