Henkel Spic plans reverse merger with Henkel India

Henkel Spic India Ltd's proposal to merge with Henkel India Ltd, formerly known as The Calcutta Chemical Company Ltd, is proposed to be considered at a board meeting on November 9. The meeting was originally convened on October 30, 2004.

Henkel Spic had indicated earlier that it might set off its accumulated Rs 50 crore losses against the over Rs 170 crore that it possesses in the share premium account. The move to set off accumulated losses against the share premium account would be evaluated along with the reverse merger proposal.

The reverse merger of Henkel SPIC with Henkel India Ltd will help it in reducing its large equity base, in line with the net worth of the company, as Henkel India is a small company with an equity base of less than a crore.

Henkel Spic's equity is a little lower than that of Hindustan Lever despite being much smaller in size in terms of revenues. In this context, a swap ratio of offering lower number of new shares in the merged entity for the existing shares held in Henkel SPIC, would decrease the equity base of the merged entity considerably.

A lower equity base would help if the promoters are interested in a fresh infusion of funds to increase the capital at a later date. The reverse merger would ensure that accumulated losses are now taken off the books helping Henkel Spic start with a clean slate.