The government has approved the merger of fuel retailer IBP Co Ltd with the Indian Oil Corporation in an amalgamation that would provide the state-run refiner improve profits and allow the new entity to compete against private firms and multinationals.
"The ministry of petroleum and natural gas last week sent a letter approving the merger of IBP with IOC in which it holds controlling stake," government sources said in New Delhi.
IOC, which holds 53.58 per cent stake in IBP, will appoint merchant bankers next week and complete the entire process in six months.
Seven to eight leading bankers had made a presentation on June 5 and one of them would be selected by the next week.
Under the merger proposed, IBP shareholders will be offered equity shares of IOC in a ratio that will be decided in 45 days to 3 months time by the merchant bankers.
IOC board had on April 28 approved the merger proposal, saying having two separate entities engaged in identical business of marketing of petroleum products may result in conflict in operations and management as both entities would have separate marketing strategies.
Apart from this, there would be duplication of infrastructure such as depots, terminals and retail outlets.
IBP is a pure marketing company while its parent IOC is an integrated entity involved in refining and marketing, among others, they said.
IOC had acquired the majority stake in IBP as part of the government's divestment programme in 2002. After the recent divestment by the government of its residual equity in IBP (26 per cent) through an offer of sale to the Public, the IBP shareholding is: IOC 53.58 per cent, institutional investors 12.21 per cent, and public 34.21 per cent.
"The beauty parade of merchant banks took place last week and managers for the merger deal would be appointed by in a week's time," sources said.
Reckoning the identity in businesses and possible synergies between IOC and IBP, IOC felt that the amalgamation would result in higher efficiency, economy of scale and improved profits.
Such an amalgamation would also facilitate the amalgamated entity to compete effectively in the market place at a time when private players and multinational companies are entering the retail segment.
Sources said the merger would help alignment of core competencies by leveraging respective strengths, optimisation and rationalisation on retail expansion/business, effective reduction in marketing costs, rationalisation of marketing and administrative infrastructure, best practices in vogue in each of the two firms would be adopted for use, combined bulk purchases and supply logistics and redeployment of surplus manpower.
The merger would result in reduction in overhead expenses by about Rs 450 million per annum. It would also lead to more effective utilisation of cash flows and increased market capitalisation.
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