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Reliance open offer for IPCL on May 24

Gaurav Raghuvanshi

Having bagged the 26 per cent government equity in Indian Petrochemicals Corporation Ltd for Rs 14.91 billion, Reliance Industries would make the mandatory public offer for another 20 per cent equity within four days of signing the share purchase agreement. Reliance will sign the deal with the government on Tuesday.

"Reliance would announce the public offer on May 24. It takes about two months to complete the public offer. The company would hand over the cheque for Rs 14.91 billion tentatively on June 4 and sign the shareholders' agreement following which the management control would pass on to Reliance," divestment secretary Pradip Baijal told Business Standard.

As per the Securities and Exchange Board of India regulations, a company acquiring management control has to make an open offer to the other investors at the acquisition price or the six month average of the stock price. In the case of IPCL, since the scrip has been ruling at Rs 110-130 in the last six months, the public offer would have to be made at the acquisition price of Rs 231 per share.

Reliance had outbid downstream petroleum major Indian Oil Corporation and detergent maker Nirma by nearly 80 per cent to acquire 67.4 million shares of IPCL.

While Reliance had bid Rs 231 per share, IOC had put the price at Rs 128 per share, which was close to the government's reserve price of Rs 131. Nirma's bid was the lowest at Rs 110 per share. The price earnings ratio of the deal for the government works out to 26.

The total cost of acquisition for Reliance is expected to be about 26.38 billion, according to a company statement. The acquisition would deliver the benefits of scale, integration, operational synergies and greater flexibility in feedstock procurement to Reliance.

The company's petrochemical production of 11.5 million tonnes per annum would rise by 1.33 million and the company's turnover would go up by Rs 52 billion per annum with the acquisition, the statement said.

The IPCL scrip rose sharply by Rs 13.25 to close on Monday at Rs 145.95 at the Bombay Stock Exchange. The Reliance scrip, however, was down Rs 4.5 at Rs 275. With a strong buy recommendation, analysts predicted that the IPCL scrip would continue rising in the next few trading sessions.

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