KPTL decides to consolidate. To merge JMC, a subsidiary.

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.

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