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RIL-RPL are merging. Who will benefit?

Who will benefit? definitely not Chevron. Chevron has a 5% stake in Reliance Petroleum Limited (RPL). It bought the stake 3 years ago for 60 rupees per share. If it doesn’t raise the stake now to 29%, it will get the same amount of money it invested. Not bad, given the wipe out every other stock has seen. RIL_logo

Reliance Industries holds 70% of RPL. LIC holds 2.06% and Fidelity Shares own 1.67%. There are lot of speculations about the proposed merger between Reliance Industries (RIL) and RPL. There are a bunch of theories go on and you can pick yours from below:

  1. RPL’s Jamnagar refinery enjoys a SEZ tax break, which will go to the parent company also after merger
  2. The merger is designed to facilitate Chevron’s exit.
  3. This move is more of a cost cutting move and other companies would follow. After the merger the cash flow would improve as both RIL and RPL are facing challenges.
  4. After this move, Reliance will have the biggest refinery in the world which will give a huge monopoly.
  5. This is the first in a series of several re-structuring in the Reliance group.

That’s not all :

This merger of RPL is expected to transform RIL to be among world’s 50 most profitable companies; top ten non-state owned refining company globally; top 15 independent upstream companies; and five largest producers of poly propylene in the world. (Hindu)

My choice is tax break and cost cutting. RIL only needs to buy less than 20% of the stake. It already holds 70% stake. RPL shareholders will get RIL shares but the ratio will be more like 1:20 because of the current market price of RPL. Unlike, Maytas-Satyam deal, this deal actually makes sense.

The reason RPL stakeholders are not gaining much is the timing. The stock price is close to its IPO price. RIL and its shareholders are better off than RPL’s stakeholders.

We just have one less Reliance stock to track.


About Sriram Vadlamani

Sriram Vadlamani is the Editor and co-founder of The Gadget Fan and a columnist at Asian Correspondent. You can follow him on twitter @6sv

6 comments

  1. hi can ne one tell me if its a general process for a company to relist after the merger? Will reliance relist to discover a combined value of the merged entity for reliance inds and rp? pls let me know thanks

  2. I knw,catchin up becomes difficult at time:-) Anxiously awaiting the markets reaction to this!!

  3. Sriram Vadlamani

    lol Ankit. This was supposed to come up yesterday.

  4. Darn!!!I dont why i miss out on some of the posts and y do they elude my mailbox.Thinking this was not covered here, i thought of doing a smart ass post on the same at my blog.But then,twitter tells me that it is there.Too late but yes,gotta know some more.Information overload aint bad.. Tax Break is something that is a huge benefit of the deal.A swap ratio of 1:11 should give some juice to RPL stock holders too.I hope cos m one:-)

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