Working in synergy

New Delhi, Aug. 22: Gestetner India Ltd’s board will be meeting here on Monday to agree to a merger with Ricoh India Ltd. The combined entity could turn out to be a major challenge to other office automation giants like Canon, Godrej and HCL in the hotly contested market.

K. Swethanarayn, managing director of Gestetner India, said, “The meeting will work out valuation of assets and equity of both Gestetner and Ricoh as well as the merged share-swap ratio, besides the new administrative structure.”

The board of Ricoh India is expected to put its stamp of approval on the merger after the Gestetner board meet. Swethanarayn, however, refused to divulge more details of the merger plans as “these were market sensitive and the law demands we do not divulge them before the stock exchanges and regulators are informed.”

The new entity will be headed either by Swethanarayn or Ricoh India chief N. Mitra. The merger plan was mooted in a study conducted by consultancy firm Ernst & Young, which found there were “huge synergies between the two firms and it would bring about economies of scale if the two were merged”.

Ricoh Japan took a controlling 63.5 per cent stake in Gestetner India, a former US office automation major, through an open offer last February.

DSP Merrill Lynch Ltd, which managed the issue on behalf of Ricoh Co Ltd and NRG Group Plc of the UK, helped the two to pick up 8.59 lakh shares — 24 per cent of Gestetner India’s equity — at Rs 32 apiece.

Gestetner used to be a big name in the Indian office automation market till the 1970s. It started losing market share with the advent of new technologies and went through a bad patch in the 1990s.

However, now the 77-year old company is in a better financial position than Ricoh India. Sources said Ricoh India, which is 76 per cent owned by Ricoh Co of Japan, has an accumulated loss of about Rs 30 crore. While Gestetner has a positive cash flow in spite of a net loss of Rs 1.8 crore in 2003-04.

Though both the firms sell the same mix of copiers, faxes and printers, Gestetner is best known for its duplicators manufactured at its Calcutta plant. The plant, set up at Entally in 1955 was later shifted to the Salt Lake Electornic Complex in 1995. Gestetner’s marketing presence is also bigger with about 30 branches compared to Ricoh’s 11.

Market analysts feel the merger will help Ricoh push its products through Gestetner’s marketing infrastructure.

Gestetner enjoys an 80 per cent share of the government duplicator purchase market. It can be leveraged by Ricoh to push its products into the burgeoning government office automation business.