The move comes after the group's aborted attempt to merge Arvind Intex into Arvind Mills owing to stiff resistance from foreign institutional investors. The boards of the three companies are meeting separately on January 24 to consider the merger proposal. The three firms have a combined sales of Rs 309 crore for 1997-98.

"Since Arvind Mills is fairly underpriced, we have decided to merge the companies into a small group company called Arvind Products with an equity capital of Rs 15 lakh. The merger is primarily to attain synergies and eliminate cross-holdings," Arvind Mills chief financial officer Jayesh Shah said. The merger rumours pushed up Arvind Mills scrip by 8 per cent to Rs 49.60 at the close of trading on the Bombay Stock Exchange on Friday. The stock has beenwitnessing considerable appreciation on the BSE over the last few days.

Chartered accountants, Bansi Mehta & Co, and CC Choksey & Co have been will work out the valuation and determine the share-exchange ratio, said a press release from the Lalbhai group.

Arvind Products, which is yet to carry out any business, will primarily make gabardine and cotton yarn, the existing product lines of the merging companies, said the release. The Lalbhais have been thinking of merging the three companies for a long time owing to considerable synergies among them and with Arvind Mills. Hence, the initial proposal was to merge one of the firms, Arvind Intex, with Arvind Mills itself which received considerable opposition from foreign institutional investors. They went on a selling spree forcing the Lalbhais to make a quick about-turn. Cotton yarn produced by Arvind Intex is primarily sold to Arvind Mills and Arvind Polytex. Arvind Polycot, which is shortly expected to produce gabardine, will purchase cotton yarn from Intexand grey cloth from Arvind Mills.

While Arvind Intex and Arvind Polycot are listed on the exchange, Arvind Cotspin is a 100 per cent export-oriented unit based in Kolhapur. Arvind Polycot, with an equity capital of Rs 24.1 crore, has reported sales of Rs 62.10 crore and a net profit of Rs 4.23 crore for 1997-98.