RIL-RPL Merger – What’s the rationale? Is 2+2=5?
On 2nd March, 2009, Boards of Directors of RIL and RPL approved to merge RPL into RIL, subject to necessary approvals. This article intends to study the rationale for the same.
Summary of merger:
- RPL Shareholders to get 1 Reliance Industries share for every 16 held in RPL
- RIL’s holding in RPL to be cancelled, no issue of fresh treasury stock
- Merger to be EPS accretive; AAA rating by CRISIL re-affirmed
- Chevron will sell its 5% stake in RPL to RIL at Rs 60/share
- Combined entity to be world’s largest single-location refinery improving Economies of Scale
- RIL to have 3.7 million shareholders, largest shareholder family in the world
Benefits of the merger:
- RPL is a State of the Art refinery with superior product slate (higher margins) and cyclical business
- RIL is a diversified business – Oil & Gas, refining, petrochem, retail and SEZ development.
- United we stand – Amalgamated entity will make RPL diversified with less risk from cyclicality. RIL to benefit from having a state of the art refinery, no execution risks as it is same promoter group. RPL is likely to generate operating cash flows in excess of $4bn over next 3 years and hence further strengthens RIL balance sheet.
- Integrated company valuations are always higher than standalone refiners
- Combined entity will be among 50 most profitable companies in the world
- RIL to be world’s largest producer of Ultra Clean Fuels from a single location
- RIL to become among top 10 private sector refining companies globally
- Among 5 largest producers of PP - Polypropylene (What’s PP?)
- To own world’s 2 of the 3 largest, most complex modern refineries
- Combined entity to have CDU (Crude Distillation Unit) Capacity of 1240 KBPSD (thousand barrels per stream day) – it will own 25% of World’s most complex refining capacity.
Reliance Industries has always been about Thinking Big and Being Big! Time and again, the group has created value through Mergers/IPOs/Dividends and many surprises. First Reliance Industries merged Rel Polypropylene with itself in June 94, then Rel Polyethelyene in Sep 94, older Rel Petro in Apr 2001, IPCL in Apr 2006 and now again RPL in 2009. They surely know 2+2=5!
Presentation on the Merger - http://www.4shared.com/file/
Reports from various brokerage houses http://www.4shared.com/file/