Mumbai, Jan. 24: In a deal valued at over Rs 200 crore, Hind Lever Chemicals (HLCL) will merge with Tata Chemicals (TCL) with a swap ratio of 2:5 — every two shares of the Hindustan Lever-owned company for five shares of the Tata company.
The merger will be effective from April 1, 2002 and all 480 HLCL employees would be absorbed by TCL.
The news of the merger ratio disappointed market men and HLCL shares plunged to the day's low of Rs 163.85, surrendering 10 percent (Rs 18.15) from its previous close of Rs 182.
The merger will result in the FMCG giant Hindustan Lever holding a little over 8 per cent stake in Tata Chemicals by virtue of its holding 50 per cent in HLCL.
Asked whether Lever will retain its stake in Tata Chemicals, M. K. Sharma, vice-chairman of HLL, said the company would retain its stake in Tata Chemicals for at least three years.
The board of Tata Chemicals will eventually have one representative of HLL in keeping with its stake in Tata Chemicals.
“In fullness of time, we will take a call,” Sharma added.
“We are on record to say that we are an FMCG company,” Sharma said and quoted HLL chairman M. S. Banga's earlier statement to find appropriate homes for non-core businesses as an indication that the merger was not a surprise.
“We have put it (HLCL) in the proper hands where it will grow and prosper. We couldn’t have looked for a better suitor than Tata Chemicals,” he said.
However, it is apparent that HLL will eventually exit the boards of Tata Chemicals Limited (TCL) and HLCL.
As per the proposed scheme of merger, HLCL shareholders will be issued new TCL shares in the ratio of 2.5:1 (2.5 shares of TCL for every 1 share of HLCL held).
The transaction is subject to statutory, regulatory and shareholder approvals of both companies.
“This transaction provides us with an opportunity to make a decisive and progressive move in line with our strategy of growing our leading position. The natural synergies that exist between both companies provide us with a compelling argument to combine our operations for the benefit of all our stakeholders,” Prasad Menon, managing director of Tata Chemicals, said.
Independent financial advisors to the transaction conducted the valuation of both companies including the defining of the merger ratio. Delloite touche Tohmatsu advised and represented TCL and N M raiji & Co. advised and represented HLCL.
Meanwhile, Tata Chemicals continued to make steady progress in its businesses, as income from operations for the quarter ended December 31, 2002 increased by 19 per cent to Rs 461 crore from Rs 388 crore.