New Delhi, April 28: The board of Indian Oil Corporation (IOC) has cleared a proposal to merge its marketing subsidiary IBP with the parent company.
A senior IOC official told The Telegraph that the board has given its ‘in-principle approval’ and the merger will formally take place after the government clears the proposal.
He said, “A swap offer for shares will be made to IBP shareholders and there will be no open offer for shares.”
The financial analysts will work out the swap ratio and other details after the government gives the formal go-ahead, he added.
He said the merger move has been initiated to ensure greater operational efficiency and synergy between the two companies. Since both the companies are investing in the retailing of petroleum products now, the investments can be worked out together.
A decision to set up a new petrol pump, for instance, would be taken after taking into account the existing outlets of both the companies. This would ensure that the two companies do not fight against each other but jointly take on their competitors.
However, IOC is likely to continue with the strong IBP brand as it is very popular among consumers.
IOC had outbid Reliance Industries and global giant Shell in the divestment sweepstakes to take over management control of IBP. The marketing thrust of IBP was maintained with over 500 new petrol pumps being added to its chain of retail outlets during 2002-03.
The company has been performing well despite the fact that it has to foot the subsidy bill of LPG and kerosene sold to household consumers. Its net profit for the year ended March 31, 2003, was Rs 85 crore.
IBP does not have any refinery of its own and is solely a marketing company. It, therefore, does not have the advantage of other oil companies such as Bharat Petroleum and Hindustan Petroleum that cover up the drain due to LPG and kerosene subsidy through higher refining margins.
After the merger, the balance sheets of IOC and IBP will also be consolidated.