Mumbai, Jan. 22: In what will well be the third alliance between the two corporate giants, Hindustan Lever and the Tatas, Hind Lever Chemicals (HLCL) plans to merge with Tata Chemicals.
The boards of both the companies will meet on January 24 to consider the merger proposal and fix the share swap ratio, HLCL said in a notice to the Bombay Stock exchange.
Analysts lauded the move as a win-win alliance for both parties. The merger would buy Tata Chemicals an easy entry into the eastern markets where it has little presence and more importantly into the manufacture of phosphatic chemicals where it has no presence.
“Geographically it is contiguous for both the companies and the products are also complimentary to each other,” industry circles said.
The news of the merger drove up share prices of both the companies as investors realised the synergies flowing out of the proposed merger.
The HLCL share price vaulted by Rs 17 to Rs 187, while Tata Chem shares surged by an equally impressive sum of Rs 5.95 to Rs 66.60. There was hectic activity reported in both counters.
Incidentally, the relationship between the Tata group and Hindustan Lever dates back a long way. The Tatas sold Tomco— the oil, detergents and soap company — to the Levers a decade ago, and later hived of its cosmetics business — Lakme — to HLL.
However, this time the roles have been reversed since a Tata group company will be acquiring a Lever company through a merger.
“For Tata Chemicals it is a great way forward to diversify into phosphatic and potassium fertilisers,” said Nikhil Desai of ASK Raymond James, a leading FII brokerage firm.
Hindustan Lever has lately been stressing on core competencies and certainly fertiliser is not part of its gameplan, a senior official affiliated to a rival fertiliser company said.
HLL has been revving up its power brands and is also concentrating on improving profits from its foods business. This would entail a lot of time, effort and funds for the consumer goods major, analysts say.
Hindustan Lever currently holds 50 per cent stake in HLCL, while the Tata group has 30 per cent in Tata Chemicals.
HLCL produces phosphatic and potassium-based fertilisers in Haldia in addition to STPP, which is a key raw material for detergents.
Tata Chemicals makes nitrogen-based fertilisers like Urea in its fertiliser plants at Babrala in Uttar Pradesh and Mithapur in Gujarat.
In addition to urea-based fertilisers, Tata Chem also makes Soda Ash, a key ingredient in the manufacture of detergents.
Analysts point out that in 1995-96 when HLCL was restructured, it was with a clear indication that the parent company will look at a joint venture with a strategic partner. Analysts feel HLL could get a high single digit stake in Tata Chemicals for its 50 per cent stake in HLCL.