Kalpataru Power Transmission (KPTL) has announced to merge it’s subsidiary, JMC Projects with itself.
Key points to note –
- KPTL currently owns 67.75% of JMC.
- It’s an equity merger and the swap ratio is determined as 1 share of KTPL for every 4 shares of JMC. Their respective last closing prices were Rs 389 and Rs 92.6 respectively. Swap ratio is broadly in line and doesn’t offer any significant arbitrage.
- Appointed date of the merger is April 1, 2022 and the merger formalities are expected to be completed by March 31, 2023.
Rationale given for the merger –
- Single listed entity with bigger size – synergies, economies, diversified portfolio of businesses and larger bidding capabilities
Above rationale is what one would have expected for any merger.
For me – any merger or demerger is mostly driven out of the underlying financial performance and position of the business that is getting merged or demerged.
- Strong businesses are normally demerged to unlock value.
- Weak businesses are mostly merged with the stronger businesses to make the former less accountable.
Given that JMC was already a significant subsidiary of KPTL, I would not read much into the announcement. Neither would I be excited nor get concerned.