TCL, HLCL Swap Ratio Set At 2.5:1

Mumbai, January 24: | Updated: Jan 25 2003, 05:30am hrs
The boards of Tata Chemicals Ltd (TCL) and Hind Lever Chemicals Ltd (HLCL) on Friday approved the proposal to merge HLCL with TCL in a share swap ratio of 2.5 shares of TCL for every share of HLCL held.

With an estimated annual revenue perspective for the merged entity of TCL and HLCL at Rs 2,650 crore, the merger will lead to the creation of the largest fertiliser and chemical company in India. The merger, effective from April 1, 2003, will take nine months to be completed, with both companies expecting the process to conclude by the end of the second quarter of 2003-04.

Post-merger, the Tatas will have a 25.36 per cent stake in TCL, while HLL will retain an 8 per cent stake in the merged entity for the medium term. One of HLLs nominees is expected to come on the TCL board after the merger, while HLCL will continue to operate in its present form as a business division of TCL.

According to TCL managing director Prasad Menon, the merger would give natural operating synergies to both companies, with TCL and HLCL having complementary products and size, clients, infrastructure, profiles and branding in both, bulk chemicals and agri-nutrients.

HLL vice-chairman MK Sharma said, We want to find appropriate homes for our non-core businesses, and there is no one better suited for HLCL than TCL. We dont want to exit with just the highest profit we can make; we want to put these businesses in the hands where they will grow and prosper.

The transaction will result in an equity dilution of 19 per cent from Rs 180 crore to Rs 215 crore, and will add significantly to the revenues and earnings of the merged entity. Post-merger, revenues are expected to increase from the current TCL revenue of Rs 801 crore to Rs 1,254 crore, while profit after tax (PAT) is expected to rise from Rs 81 crore to Rs 93 crore. These estimates have been provided by the company on the basis of the first-half performance for the fiscal 2002-03.

Net worth enhancement has been estimated at Rs 1,900 crore, while total assets are expected to be at Rs 3,450 crore post-merger. There will be a marginal change in the debt levels of the company, at Rs 950 crore, lowering the debt:equity ratio to 0.5.

On The Stock Exchange, Mumbai (BSE), the HLCL stock closed down 10 per cent, or Rs 18.15, to Rs 163.85, after opening at Rs 183.70 on volume of 34,583 shares. The sharp losses on the counter was on the back of disappointment over the swap ratio for the companys merger with TCL, said analysts.

The overall weakness in the market also led to a fall in TCL stock price, with the scrip closing down Rs 1.95 at Rs 61.30 on volume of 9,03,002 shares. At Thursdays close, one stock of HLCL was worth nearly three stocks of TCL, said analysts.

Though the identity of the HLL representative on the TCL board has not yet been decided, Tata Sons Ltd executive director R Gopalakrishnan stated that one member on the board of the merged entity would be from HLL.

Mr Menon also added that all 480 employees of HLCL would be absorbed by TCL and there would be no retrenchments. There is a lot we can share and learn with employees of HLCL, he added.

Post-merger, from a ratio of 45:55 between fertilisers and chemicals, the product-mix would considerably change to a ratio of 65:35.

The exercise of determining the share-exchange ratio between the two companies was carried out jointly by NM Raiji & Co and Deloitte Haskins & Sells.

According to Mr Menon, the merger was in line with the business objectives of both companies, and TCL would rely on the distribution network of HLCL in the states in which it had a dominant presence. Mr Menon also stated TCLs intention to let all proposed HLCL expansions continue as scheduled.

TCL vice-president, sales and marketing, Kapil Mehan said, The company will be able to offer a wider range of complementary products. While TCL is the largest producer of soda ash in India, HLCL is Indias largest manufacturer of sodium tri polyphosphate (STPP), which is a detergent intermediate. This will help in increasing our customer base. Further, we are weighing the options of utilising TCLs soda ash for production of STPP. The synergetic business profile will provide the company with marketing dominance and stronger sustainability with growth in agri-inputs business.

Meanwhile, Crisil has placed TCLs four non-convertible debenture programmes under rating watch following the merger decision, but has reaffirmed the rating for HLCLs commercial paper. The agency has, however, reaffirmed the +P1+ rating assigned to TCLs commercial paper programme.