RIL-RPL merger valuation a challenge M V Ramsurya, ET Bureau Mar 2, 2009, 05.

12pm IST MUMBAI: The valuation of the merger between Reliance Petroleum and Reliance Industries that created the world's largest refining capacity at a single location, went through the scrutiny of about seven professional firms, say people who advised the transaction. "The valuation is fair and reasonable, we have assigned due weightage to relevant factors such as the market price of the shares, the earnings performance and the asset base of the company.," said Rajiv Memani, country managing partner of Ernst & Young which advised Reliance Industries on the valuation of the merger, along with Morgan Stanley. "The valuation considered all factors including the net asset value and the market price," he added. On Monday, the RIL board approved the swap ratio of one share of RIL for every 16 shares held in RPL, which also created the world's fifth largest polypropylene manufacturing facility. The valuation of the merger between RPL and RIL was a challenge because RPL had just started operating over a month back, while RIL had a more established manufacturing facility. The two major factors that were considered included the financial performance of the companies and the future potential. There wasn't much information about forecasts. So for valuation, the current year-end figures were taken to arrive at the operating EBIDTA for both companies. The three month weighted average stock price was also considered. Typically valuations of such mergers use the HLL-Tomco as a benchmark, which was duly ratified by the Supreme Court in 1994. In all such cases, the weightage ratio is 40:40:20, where 40% weightage is for market price and earnings multiples each, while the remaining 20% is from the net asset value. Other advisors to the merger say that the cancellation of the treasury stock that resulted in a fall in the promoter holding, from 49% to 47%, and an increase in the public float, is also a positive move for investors. The retail shareholding will now go up to 19% from 16.1%. "Ever since the announcement (of the merger) came on Friday, there was lot of anticipation among investors and shareholders that the swap ratio would be biased in favour of RIL. But the announced ratio is a welcome relief for RPL shareholders as they will get the benefit of RIL which is an integrated entity. RIL will benefit on the huge scale of operations that it now enjoys," said one advisor. RIL CFO Alok Agarwal, in his interaction with reporters on Monday, said that the earnings multiple of an integrated energy company were far greater than that of a single energy company. The tax advisors to the merger were PriceWaterhouseCoopers, while transaction advisors were JM Financial and Kotak Mahindra Capital. The fairness opinion for RIL came from Merrill Lynch and for RPL it was Citigroup Global. The legal advisors for the deal were Amarchand & Mangaldas & Suresh A Shroff & Co.

The large number of firms who worked on the deal also ensured Reliance Industries' view to run the merger transaction through every possible scrutiny, said the advisors. The timing of the merger was to strengthen the combined entity's balance sheet so that RIL could raise funds for its future plans. The cash flows are likely to increase once the oil flow starts, said an analyst with a Mumbai-based brokerage, adding that the current debt of about Rs 7,000 crore is low compared to the future strengths. However the tax benefits that the two companies enjoy will continue independently, he added. How investors can benefit from RIL, RPL merger Ramkrishna Kashelkar, ET Bureau Mar 2, 2009, 07.02am IST

(Why RIL wants to merge RPL with itself) The boards of Reliance Industries (RIL) and Reliance Petroleum (RPL) will be meeting on March 2 to consider amalgamation of both the companies. This will be yet another instance when RIL, the biggest private refiner in the country, would merge its refining subsidiary with itself. There are several alternatives of carrying out the merger, the clarity on which will emerge only later. If it's an all cash deal, and RIL comes out with an open offer for RPL, it will have to pay out over Rs 10,000 crore for the outstanding RPL shares. Board approves RIL-RPL merger; swap-ratio at 1:16 ET Bureau & Agencies Mar 2, 2009, 09.51am IST

MUMBAI: The Board of Directors of Reliance Industries has approved a scheme of amalgamation of its subsidiary Reliance Petroleum with the parent company under the provisions of Sections 391 to 394 of the Companies Act, 1956. The scheme will be subject to necessary approvals of shareholders and creditors and sanctions of the High Court of Judicature at Bombay and the High Court of Gujarat at Ahmedabad. The Board of Directors amalgamation is effective from April 01, 2008. Upon completion of the amalgamation, shareholders of RPL will receive 1 fully paid equity share of Rs 10 each of the company for every 16 fully paid equity shares of Rs 10 each of RPL held by them on the record date to be fixed by the transferee company. On Friday, shares of Reliance Industries closed at Rs 1,265.05, down 1.97 per cent on the BSE and RPL settled at Rs 76.20, 1.23 per cent in the red. Key Points

? RIL-RPL Merger: Swap ratio at 1:16 ? Mukesh Ambani: Merger follows enduring philosophy of creating shareholder value. ? Equity capacity of RIL to go up to Rs 1643 cr ? Merger will result in the world's largest refining capacity at any single location ? RIL will become world's 5th largest polypropelyne manufacturer ? Promoter holding in RIL will come down to 47% from 49% ? RPL shareholders to get 1 RIL share for every 16 held ? RIL to extinguish Treasury Stock, merger to be effective from April 1 2008 ? RIL to issue 6.92 cr shares to RPL shareholders ? Merger to give no tax relief for RIL ? Merger to be EPS positive. ? Valuation advisor to merger were Ernst & Young and Morgan Stanley and tax advisor for merger is PwC ? RIL to issue 6.92 cr shares to RPL shareholder