Tomco-Hll Merger

Mumbai Tata Chemicals, a Tata group company, and hinder(prenominal)ustan Levers (HLL) Hind Lever Chemicals (HLCL) are merging together to form what would be the second-largest plant food company in India. This is the third sequence that the Tatas and HLL are coming together and this time it is in the plant foods and chemicals commercees. Previously the two came together in the Hindustan Lever-Tomco apportion in 1993 and Lakme-Lever in 1998. The Tatas shed 30 per centime and financial institutions hold 26 per cent lay on the lines in Tata Chemicals.HLL holds 50-per cent stake in HLCL and the institutional holding is at oer 9 per cent as on 31 December 2002. The boards of the two companies are meeting respectively on 24 January 2003 to ratify the merger and the share-swap ratio. Sources close to the deal kick downstairs that the valuation of Tata Chemicals is much higher than HLCLs, hence the latters shareholders exit be issued shares of the Tata group company. Analysts es timate the share-swap ratio will be in the range of 2. 5 to 31 that is, 2. 5 to three shares of Tata Chemicals for every share of HLCL held.The analysts say the merger between the two companies makes bang-up championship adept depictn its complementary qualities. The Rs 1,516-crore Tata Chemicals manufactures soda ash, flavor and fertilizer. Its fertiliser toil primarily comprises urea. The Rs 1,285-crore HLCLs fertiliser stemma covers di-ammonium phosphate (DAP) complex NPK fertilisers and oneness super phosphate (SSP). With this merger Tata Chemicals will be present in all fertiliser product categories such as urea-ammonia, NPK and DAP and will similarly assume a leadership position in soda ash, salt and fine chemicals.Post-merger, Tata Chemicals will have an estimated turnover of about Rs 2,750 crore, profits of over Rs 170 crore and reserves of over Rs 1,600 crore. Sources say HLL, which holds a 50-per cent stake in HLCL, will see its holding dip to under 10 per cent darn that of the Tatas in Tata Chemicals may go down to more or less 20 per cent from their present holding of around 30 per cent. HLL is overly likely to keep some representation on the Tata Chemicals board to chequer a continued arrangement for sourcing the chemical STTP, a key atom for its detergents short letter.HLCL produces 80 per cent of Indias STTP output, of which HLL consumes 90 per cent. At present in India there are only two players in STPP, which makes it likely that the business of manufacture of the bulk chemical can turn into a cartel. Therefore, outsourcing the section is non advisable. Moreover, the Haldia facility of HLCL is well integrated with STPP, DAP and sulphuric acid, among others. STPP also goes into DAP, fertiliser and soda ash, which will fit well into Tata Chemicals business plan.HLLs move in moving out of the chemicals and fertiliser business is in line with its corporate strategy to exit from its non-core activities, and in the prehistorical few years the company has been looking for a buyer for this business. withal HLL will move out of a non-core business at a time when its power-brand strategy is at a critical trajectory of growth. near analysts feel that its important for HLL to retain a presence in the fertiliser business as HLCLs fertiliser network provides a good backbone for its large-scale operations in the rural areas. HLL gets about 50 per cent of its revenues from the rural trades.Others say that in the long run it does not make good business sense for HLL to continue with its fertiliser business, which has achieved 100-per cent capacity expansion, and for which there is need for consolidation. In the era of size and scale, it makes sense to merge HLCL with a company that can provide the needed focalise and thrust. Financially, both HLCL and Tata Chemicals are cash-rich. However, an unclear government policy on fertilisers, over-capacity in the soda-ash market and increasing competition in the branded sa lt market has led Tata Chemicals to look at future avenues of growth.This merger will give Tata Chemicals a borrowing power of Rs 300-400 crore at a crucial time when National Fertilisers (NFL) is coming up for divestment. Tata Chemicals, understood to have put in an expression of interest for two state-owned fertiliser companies, NFL and Madras Fertilisers, was said to be in talks with a number of fertiliser companies for a suitable ally. duologue of a possible merger with Tata group company Rallis India was put despatch after the latter severed the marketing arrangement with Tata Chemicals. There were also talks of a possible tie-up with an AV Birla group company, Indo disconnect Fertiliser, to jointly bid for NFL.Reacting to the merger announcement, the Tata Chemicals scrip jumped 9. 81 per cent to close at Rs 66. 60 on the Bombay Stock Exchange on 22 January 2003, while the HLCL scrip closed at Rs 187, up Rs 17 over its previous solar days close. The Rs 1,433-crore Tata Chemi cals posted profits of Rs 126 crore last year and had reserves of Rs 1,370 crore. The debt-free HLCL, on the other hand, posted a profit of Rs 47 crore on a turnover of Rs 1,284 crore the previous year. Moreover, Tata Chemicals reported an increase of 8. 3 per cent in net profit to Rs 47 crore n the second quarter finish September 2002, and a 13-per cent increase in sales to Rs 439 crore. Urea, which contributes 45. 9 per cent to the companys total revenues, is under government curtail and a lack of clarity in the fertiliser policy has been a contributing factor to the ambiguity. HLCL reported a 47-per cent rise in net profit to Rs 7. 40 crore in the second quarter finish September 2002, mainly due to higher topline growth and a precipitous reduction in interest expenses. Total sales during the quarter lift by 11 per cent to Rs 300. 59 crore