22nd December 2004: The board of Indian Oil Corporation (IOC) will meet today to consider merger of its subsidiary IBP Co with itself. The board meeting is also likely to consider the rate of interim dividend for the 2004-05 fiscal, a company official said. The IOC Board is likely to decide on the swap ratio – number of IOC shares to be offered to every shareholder of IBP – at today's meeting. The merger is to be completed by the year-end.
IOC bought the government's 33.58% equity in IBP in 2002. It further acquired another 20% through an open offer to make the standalone marketing company its subsidiary. The government sold its residual 26% in IBP through a public offer in March this year. IBP, with about 10% share in diesel and a little over eight per cent share in petrol sales in the total sales in the country, is the smallest company in the retail business. IOC with 40% and 35.5% share in diesel and petrol sales, respectively, is the largest company in the retail business. IOC would retain the IBP brand post merger. The IBP was likely to function as a division of IOC, the official said.
The 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 company IOC is an integrated entity involved in refining and marketing, among others, the official said. IOC had acquired a majority stake in IBP as part of the government's disinvestment programme in 2002. After the recent divestment by government of its residual equity in IBP (26%) through an offer of sale to the public, the IBP shareholding is: IOC 53.58%, institutional investors 12.21%, and public 34.21%.
Reckoning identical 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 in 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 45 crore per annum. It would also lead to more effective utilisation of cash flows and increased market capitalisation.