Description
IPCL Acquisition by RIL
Acquisition of IPCL by RIL
IPCL Background
? Established on March 22, 1969,.
? Its business consists of polymers, synthetic fibre,
fibre intermediaries, solvents, surfactants, industrial chemicals, catalysts, adsorbents, and polyesters. ? Three petrochemical complexes, a naphtha based complex at Vadodara and gas based complex each at Nagothane near Mumbai and at Dahej on Narmada estuary in bay of Khambhat
RIL Background
? World's largest grassroots refinery and 7th largest
refinery in the world at one site
? Capacity of 27 million tonnes per annum
? Capital outlay of 3.4 billion USD
? 3RD largest producer of paraxylene, 4th largest
producer of PTA
Overview
? IPCL, one of the India’s leading petrochemical
products company has been classified as operating in ‘non-core’ sector. ? The total paid up equity of the company is Rs. 248.22 crore, out of which Government holds shares of Rs.148.80 crore. The equity sold to the strategic partner would be of face value Rs.64.54 crore (26.6%). ? The Government on 16.12.1998 had decided ‘in principle’ to the disinvestment in IPCL through strategic sale. ? The Government had invited Expressions of Interest from interested investors through a Press
Objectives
? Market Share and Market Power
? Through the acquisition of IPCL, Reliance tried to
consolidate its leadership position. ? With the acquisition, Reliance could control at lea st two-third of the total Indian petrochemicals market for all kinds of products put together ? Whereas in case of specific products like HDPE, LDPE, PVC, PP, MEG etc. its market share went up to 80 to 90%
Petrochemical Consumption
Background
? The Advisor (UBS Warburg) had in their report
computed the valuation of shares in IPCL by adopting four methods, namely, Discounted Cash Flow, Adjusted Balance Sheet, Comparable Companies and Adjusted Asset Valuation. ? The Evaluation Committee considered the valuation of IPCL done by the Advisor and recommended a reserve price:
Reserve Price for 26% equity (Rs. in crore) Approx. equivalent value of 100% equity (Rs. in crore) Approx. value per share (Rs.)
845
3252
131
Background
Bidder Bid value for Approx. Approx. value 26% equity equivalent value per share (Rs. in of 100% equity (Rs.) crore) (Rs.in crore) 1491 5735 231
Reliance Petroinvestments Limited Indian Oil Corporation Limited Nirma Chemical Works Limited
826 711
3177 2735
128 110
Background
? Government of India (GOI) approved induction of
Reliance Petroinvestments Limited (Reliance Group) as strategic partner in IPCL, a leading petrochemical PSU , through sale of 26% equity shares at a consideration of Rs.1491 crore. ? The highest bid of Reliance Petroinvestments Limited for a price of Rs.1491 crore translates into a P/E of 23 based on EPS of Rs.10 for the year 2000-2001, which is much higher than the P/E multiple of peer group companies, such as Reliance Industries Ltd. (10.5) and GAIL (5.36).
Background
? Doubts were being cast over RIL’s ability to win
? After losing out in the race to acquire IBP and
VSNL in the disinvestment process ? Reliance had to get it right this time.
After Acquisition
? After acquiring government’s 26% stake in IPCL.
? ? ? ?
Reliance had made an open offer to IPCL’s shareholders for acquiring 4.96 crore shares (20% stake). The offer opened on 24th July 2002 and closed on 22nd August 2002. The offer price was Rs. 231 per share. Against offer of 4.96 crore shares, Reliance’s open offer was oversubscribed by 74percent. Reliance invested Rs. 1,147 crore for acquiring the 20% stake through open offer.
Synergies
? Operations Synergy
? Manpower Costs ? IPCL had 13,740 employees. ? On per ton basis, it was believed that IPCL’s manpower cost was around 210% higher than Reliance’s cost. ? Thus after acquisition IPCL’s cost per ton will reduce to a great extent. ? Overheads ? IPCL’s overheads per ton were Rs. 1532 which were 2.5 times reliance’s overheads. ? Within this cost pool over 35% goes towards repairs and maintenance – a reflection on the age of IPCL’s plants. ? Cutting repairs & maintenance overheads would involve refurbishment of existing operations, which would require upfront capital investments
Synergies
? Marketing Synergies
? The polymer market in India is fragmented – buyers
are small and spread out across the country. ? As a result, IPCL and RIL will have a significant ove rlap on sales and distribution costs. ? External analysts think IPCL spends around Rs 519/ton of product; RIL, on the other hand, spends Rs 532/ton of external sales. ? The duplication of channel infrastructure can be reduced.
Valuation
? Discounted Cash Flow
? Assumed Data as given in case study
? Sales Growth - 8% ? WACC – 10% ? Other Data for projected cash flow as mentioned
is case study
Valuation
? Calculation showed 287 per share
? Comparatively RIL paid more amount. Even
though strategy was in place, the amount paid
was much more
Post the acquisition
? The swap ration was calculated at 5:1
? 2006 saw merger of RIL and IPCL
? The share capital of RIL post merger shall
increase from Rs 1,393.5 crore to Rs 1,453.6 crore. ? The IPCL board, on the other hand, approved an interim dividend of Rs 6 per share amounting to Rs 206 crore , including dividend tax. ? The RIL board also approved an interim dividend of Rs 11 per share amounting to Rs 1748 crore , including dividend tax.
THANK YOU
doc_153019312.pptx
IPCL Acquisition by RIL
Acquisition of IPCL by RIL
IPCL Background
? Established on March 22, 1969,.
? Its business consists of polymers, synthetic fibre,
fibre intermediaries, solvents, surfactants, industrial chemicals, catalysts, adsorbents, and polyesters. ? Three petrochemical complexes, a naphtha based complex at Vadodara and gas based complex each at Nagothane near Mumbai and at Dahej on Narmada estuary in bay of Khambhat
RIL Background
? World's largest grassroots refinery and 7th largest
refinery in the world at one site
? Capacity of 27 million tonnes per annum
? Capital outlay of 3.4 billion USD
? 3RD largest producer of paraxylene, 4th largest
producer of PTA
Overview
? IPCL, one of the India’s leading petrochemical
products company has been classified as operating in ‘non-core’ sector. ? The total paid up equity of the company is Rs. 248.22 crore, out of which Government holds shares of Rs.148.80 crore. The equity sold to the strategic partner would be of face value Rs.64.54 crore (26.6%). ? The Government on 16.12.1998 had decided ‘in principle’ to the disinvestment in IPCL through strategic sale. ? The Government had invited Expressions of Interest from interested investors through a Press
Objectives
? Market Share and Market Power
? Through the acquisition of IPCL, Reliance tried to
consolidate its leadership position. ? With the acquisition, Reliance could control at lea st two-third of the total Indian petrochemicals market for all kinds of products put together ? Whereas in case of specific products like HDPE, LDPE, PVC, PP, MEG etc. its market share went up to 80 to 90%
Petrochemical Consumption
Background
? The Advisor (UBS Warburg) had in their report
computed the valuation of shares in IPCL by adopting four methods, namely, Discounted Cash Flow, Adjusted Balance Sheet, Comparable Companies and Adjusted Asset Valuation. ? The Evaluation Committee considered the valuation of IPCL done by the Advisor and recommended a reserve price:
Reserve Price for 26% equity (Rs. in crore) Approx. equivalent value of 100% equity (Rs. in crore) Approx. value per share (Rs.)
845
3252
131
Background
Bidder Bid value for Approx. Approx. value 26% equity equivalent value per share (Rs. in of 100% equity (Rs.) crore) (Rs.in crore) 1491 5735 231
Reliance Petroinvestments Limited Indian Oil Corporation Limited Nirma Chemical Works Limited
826 711
3177 2735
128 110
Background
? Government of India (GOI) approved induction of
Reliance Petroinvestments Limited (Reliance Group) as strategic partner in IPCL, a leading petrochemical PSU , through sale of 26% equity shares at a consideration of Rs.1491 crore. ? The highest bid of Reliance Petroinvestments Limited for a price of Rs.1491 crore translates into a P/E of 23 based on EPS of Rs.10 for the year 2000-2001, which is much higher than the P/E multiple of peer group companies, such as Reliance Industries Ltd. (10.5) and GAIL (5.36).
Background
? Doubts were being cast over RIL’s ability to win
? After losing out in the race to acquire IBP and
VSNL in the disinvestment process ? Reliance had to get it right this time.
After Acquisition
? After acquiring government’s 26% stake in IPCL.
? ? ? ?
Reliance had made an open offer to IPCL’s shareholders for acquiring 4.96 crore shares (20% stake). The offer opened on 24th July 2002 and closed on 22nd August 2002. The offer price was Rs. 231 per share. Against offer of 4.96 crore shares, Reliance’s open offer was oversubscribed by 74percent. Reliance invested Rs. 1,147 crore for acquiring the 20% stake through open offer.
Synergies
? Operations Synergy
? Manpower Costs ? IPCL had 13,740 employees. ? On per ton basis, it was believed that IPCL’s manpower cost was around 210% higher than Reliance’s cost. ? Thus after acquisition IPCL’s cost per ton will reduce to a great extent. ? Overheads ? IPCL’s overheads per ton were Rs. 1532 which were 2.5 times reliance’s overheads. ? Within this cost pool over 35% goes towards repairs and maintenance – a reflection on the age of IPCL’s plants. ? Cutting repairs & maintenance overheads would involve refurbishment of existing operations, which would require upfront capital investments
Synergies
? Marketing Synergies
? The polymer market in India is fragmented – buyers
are small and spread out across the country. ? As a result, IPCL and RIL will have a significant ove rlap on sales and distribution costs. ? External analysts think IPCL spends around Rs 519/ton of product; RIL, on the other hand, spends Rs 532/ton of external sales. ? The duplication of channel infrastructure can be reduced.
Valuation
? Discounted Cash Flow
? Assumed Data as given in case study
? Sales Growth - 8% ? WACC – 10% ? Other Data for projected cash flow as mentioned
is case study
Valuation
? Calculation showed 287 per share
? Comparatively RIL paid more amount. Even
though strategy was in place, the amount paid
was much more
Post the acquisition
? The swap ration was calculated at 5:1
? 2006 saw merger of RIL and IPCL
? The share capital of RIL post merger shall
increase from Rs 1,393.5 crore to Rs 1,453.6 crore. ? The IPCL board, on the other hand, approved an interim dividend of Rs 6 per share amounting to Rs 206 crore , including dividend tax. ? The RIL board also approved an interim dividend of Rs 11 per share amounting to Rs 1748 crore , including dividend tax.
THANK YOU
doc_153019312.pptx