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.

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.