The Hindu Business Line : IOC-IBP swap ratio revised to 110:100

AFTER being tossed around for almost a year for want of a change in swap ratio, the merger proposal of IBP Co Ltd with the parent Indian Oil Corporation Ltd (IndianOil) may finally inch closer to reality.

The board of IndianOil has suggested a fresh swap ratio of 110:100 for the proposed merger of IBP with the parent. This would mean that 110 shares of IndianOil would be issued for every 100 shares of IBP.

Sources told Business Line that the board of IndianOil that met today took a decision on the issue.

Earlier, the boards of the two companies had approved a swap ratio of 125 shares of IndianOil for every 100 IBP shares. However, the Finance Ministry expressed reservations on the swap ratio, stating that IBP had been over-valued. It had also voiced concern that the proposal needed a review, as it was not favourable to the Government and that it would result in a loss in the Government's stake in IndianOil following the merger.

At a meeting of the Committee of Secretaries (CoS) on December 14, it was suggested that the two companies could modify the swap ratio of 1.25:1. IndianOil and IBP had on October 20 received in-principle nod from the Union Cabinet for the merger.

However, there were some reservations on the proposed swap ratio. Based on the recommendations of the CoS, the two companies have reworked the swap ratio.

IBP, which has taken the worst hit for selling petroleum products below cost, is optimistic about completing its merger procedure by March 2006. IBP is hopeful of closing 2005-06 with marginal net profit. Indications are that there is no change in the valuation process for arriving at the swap ratio.

The boards of the two companies approved the merger proposal in the middle of 2004 and the swap ratio was announced in December 2004. The merger proposal has suggested the creation of a trust. This merger route would help IndianOil prevent losses from getting on to its books.

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