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R IL:RPL=1:16 – MERGER MANIA
Ghalla Bhansali Stock Brokers Pvt. Ltd.
Mahesh Babaria
maheshb@ghallabhansali.com
Mittal Dharod
mittald@ghallabhansali.com
1 www.ghallabhansali.com
2nd March, 2009
Historically every company that Reliance Industries Ltd has floated has
been folded into the mothership at some stage. This way, the promoters have
always been able to increase their stake in the mothership.
Reliance Industries Ltd (RIL) and Reliance Petroleum Ltd. (RPL)
informed the Bombay Stock Exchange (BSE) separately that a meeting of the
respective board of directors of the companies was held on today, inter alia, to
consider and recommend the amalgamation of RPL with RIL.
It was announced at the time when RPL was going to start its refinery
in full capacity. Also this news came when the option for Chevron to acquire
another 24% in RPL was going to get expired. Looking at the uncertain
economy and low crude price which can hit the earnings of RIL, the parent
company; it was a good move to merge RPL such that volatility in earnings of
RIL can be countred.
Such practice will shields RIL shareholders from the risk that any new
project faces till it reaches completion. In fact it will add more value to RIL
than RPL. RPL is currently a 71 per cent subsidiary of RIL; it was created in
2005 as a 100 per cent export oriented petroleum refinery and polypropylene
plant in the SEZ at Jamnagar in Gujarat. When fully functional it will be the
sixth largest refinery unit in the world.
In April 2006, RIL’s stake fell to 75 per cent following both the sale of a
5 per cent stake to US oil major Chevron for Rs. 1,320 crore and its jumbo IPO
which was subscribed more than 50 times for Rs 1,43,500 crore, a record
broken only in January 2008 by the Reliance Power IPO of the rival Ambani
group. RIL’s stake fell further to 71 per cent after the controversial open
market sale of its own shares worth 4.01 per cent equity stake in RPL in late
2007.
The timing of the move to merge RPL into RIL is close to the expiry of
the option that Chevron has – to pick up an additional 24 per cent stake in RPL
or to exit from the company altogether. This deadline is July 2009.
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Ghalla Bhansali Stock Brokers Pvt. Ltd. 2nd March, 2009

Combined Market Cap

RIL 199093.56
RPL 34290.00
233383.56

This outscripts the No.2 company in the sensex by market cap by over
Rs.80000 crore.

Total No. of
Shareholders
RIL 2222947
RPL 2147699

Refining Capacity(Barrels/day)
RIL 660000
RPL 580000
1240000

Combined, the Reliance refineries would be the world`s largest at a singe site.

Higher Financial Strength & Flexibility

• The deal is expected to enhance the position of RIL as an integrated
global energy major. Markets ascribe higher valuation for integrated
energy companies vis-a-vis standalone refiners due to better
competitive position and reduced earnings volatility.
• This merger of RPL is expected to transform RIL to be among world’s
50 most profitable companies; top ten non-state owned refining
company globally; top 15 independent upstream companies; and five
largest producers of poly propylene in the world.
• RIL will have enhanced weight ages in domestic indices, it will also
gain significantly from higher financial strength and flexibility. The
merger is likely to be earnings accretive for RIL from the first year itself.
• It will have operational synergies from combined business in areas such
as crude sourcing, product placement, process optimization and
logistics, besides consolidation of a world-class operating refinery asset.
• The combined capacity of the two companies expected to be 1.24
million barrels of oil a day. At present RIL produces 6.60 lakh barrels
and RPL produces 5.80 lakh barrels a day.
• The merger would help the combined entity save on income tax and
dividend distribution tax.

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Ghalla Bhansali Stock Brokers Pvt. Ltd. 2nd March, 2009

• It would also create a much bigger balance sheet that would help
Reliance Industries raise money for working capital and expansion.
• The merger of Reliance Industries and Reliance Petroleum is also a
move towards integration of group businesses and will create huge
market value of a whopping Rs 2,33,000 cr.

Shareholders and the market is excited over the prospects of this

merger so think of the buzz and the market value that would be generated if
the two brothers decide to bury their differences!

Statement filed to BSE by RIL says

• Merger is India`s largest ever
• RPL shareholders to receive 1 (one) share of RIL for every 16 (sixteen)
shares of RPL. RIL will issue 6.92 crore new shares, theryby increasing
its equity capital to Rs. 1643 crore
• RIL`s holding in RPL to be cancelled. No fresh treasury stock created
• RIL to be a top 10 private sector refining company globally
• RIL to become the world`s largest producer of Ultra Clean Fuels at
single location
• Merger to unlock greater efficiency from scale and synergies
• Merger to be EPS accretive
• RIL to have 3.7 million shareholders

Commenting on the merger, Mukesh Ambani, Chairman and Managing

Director, RIL said: “This merger follows Rilance Industries’ philosophy of creating
enduring value for all our stakeholders. It is a significant step in our goal to be among
the largest global corporations.”

Merger Benefits and Synergies:

The merger will unlock significant operational and financial synergies
that exist between RIL and RPL. It creates a platform for value enhancing
growth and reinforces RIL’s position as an integrated global energy company.

The merger will enhance value for shareholders of both companies. The
merger is EPS accretive for RIL. Through this merger, RIL consolidates a
world class, complex refinery with minimal residual project risk, while
comlementing RIL’s product range. There will be further gains from reduced
opearting costs arising from synergies of a combined operations

The merger is expected to reduce the earnings volatility for RPL

shareholders and allows them to participate in the full energy value chaine of
RPL.

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Ghalla Bhansali Stock Brokers Pvt. Ltd. 2nd March, 2009

The Merger will result in RIL:

• Opearating two of the world’s largest, most complex refineries
• Owning 1.24 million barrels per day (MBPD) of crude processing
capacity, the largest refining capacity at any single location in the
world.
• Emerging as the world`s 5th largest producer of Polypropylene

Merger Details
Under the terms of the proposed merger RPL shareholders will receive
1 share of RIL for every 16 RPL shares held by them.

The appointed date of merger of RPL with RIL is 1st April 2009.

RIL will cancel its holding in RPL>

Based on the recommended merger ratio, RIL will issue 6.92 crore new
equity shares to the existing shareholders of RPL. This will result in a 4.4%
increase in equity base from Rs.1574 crore to Rs.1643 crore. Consequently, the
promoter holding in RIL will reduce from 49% to 47%.

Reliance Industries Limited

RIL is India`s largest private sector company on all major financial
parameters with a turnover of Rs.139269 crore (US$ 34.7 billion), cash profit of
Rs.25205 crore (US$ 3.8 billion) and net worth of Rs.81449 crore (US$ 20.3
billion) as of March 31, 2008.

RIL is the first private sector company from India to feature in the
Fortune Global 500 list of ‘World’s Largest Corporations’ and ranks 103rd
amongst the world’s Top 200 companies in terms of profits. RIL is amongst the
30 fastest climbers ranked by Fortune. RIL features in the Forbes Global list of
the world’s 400 big companies and in the FT Global 500 list of the world’s
largest companies. RIL ranks amongst the ‘Worlds 25 Most Innovative
Companies’ as per a list compiled by the US financial publication – Business
Week in collaboration with the Boston Consulting Group.

Reliance Petroleum Limited

RPL is a subsidairy of RIL. RPL is setting up a greenfield petroleum
refinery and polypropylene plant in a Special Economin Zone at Jamnagar in
Gujarat. With an annual crude processing capacity of 580000 barrels per
stream day (BPSD), RPL will be the sixth largest refinery in the world.

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Ghalla Bhansali Stock Brokers Pvt. Ltd. 2nd March, 2009

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