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Tuesday, Apr 02, 2002

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Corporate - Mergers & Acquisitions

Gulf Oil may replace Leyland as Hindujas' investment vehicle

M. Ramesh

CHENNAI, April 1

ONE of the main reasons for the merger of Gulf Oil India Ltd and IDL Industries Ltd is to create one company with a strong balance sheet, capable of bidding for the many disinvestments coming up next year.

The merger has been announced with an exchange ratio of one share of IDL Industries for every two of Gulf Oil.

Not that there are no synergies to justify the merger. Both (Hinduja group) companies would benefit by the possible rationalisation of overheads.

Besides, Gulf Oil produces some chemicals that IDL Industries needs in the manufacture of explosives. But the main reason for the merger is to create a company that would be capable of bidding for some PSUs, and even for looking at taking over some non-PSU companies, sources in the Hinduja group, said. Hitherto, Ashok Leyland had been used by the Hinduja group as a vehicle for bidding for PSUs under disinvestments.

However, the PSUs that are coming up for sale now may not need a large company like Ashok Leyland bidding for them and it would make sense if the Gulf Oil-IDL Industries combine makes the bidding.

Tide Water Oil and the explosives division of IBP Ltd are expected to be sold-off by the Government.

Gulf Oil is also in a mood to consider buying some private sector lubricants companies. Sources in the Hinduja group point out that the lubricants industry is at present not doing well, what with overcapacities and poor demand.

Gulf Oil itself reported a lower turnover and a net loss of Rs 1.96 crore in the third quarter of 2001-02.

While the larger companies such as BP or Shell would hold out, there are many smaller blenders, which may have to close shop.

Recently, when the Chennai-based Chemoleums came up for sale, Gulf Oil expressed interest in buying it, but its Rs 11-crore offer was out-bid by Caltex's Rs 16-crore.

Further, Gulf Oil is examining the prospect of putting up a lube base stock separation plant adjacent to a coast-based refinery, which would produce lube oils for Gulf Oil's global requirements. (At present, there are only two possibilities, viz., the Essar refinery and the Nagarjuna refinery, both of which are only `under construction'.)

So, be it for bidding for PSU under sale, or taking over private sector lubricant units or putting up a large lube oil plant, it is considered a bigger company would make sense. Hence, the merger of Gulf Oil and IDL Industries, sources say.

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