The merger of Mukesh Ambani group firms Reliance Petroleum (RPL) with Reliance Industries (RIL) would take about five months to be completed, Ernst & Young, the deal's valuation advisor, has said.
"The procedure for approvals of these mergers involve getting approval in EGM, approvals from lenders and High Court. Considering that summer vacations for High Courts would be starting in some time, Ernst & Young estimates that the whole process should take about 4-5 months," E&Y's Transaction Advisory Services Partner Sanjiv Agrawal told PTI.
Boards of RIL and RPL has approved a proposal to merge the two entities in an all-share deal, where one RIL share would be issued for every 16 RPL shares.
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Asked about the timing of the deal, Agrawal said in an e-mailed response that "RIL and RPL being two separate firms would restrict utilisation of this cash by RIL. The two companies are merging to take advantage of the RPL refinery being operationalised and generating significant cash."
"RPL refinery has been commissioned and is currently undergoing trial runs. It is expected to reach optimum capacity utilisation shortly and generate significant amount of cash through its operations," he added.
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E&Y said it used "various valuation methods which take into account recent-period stock market prices, current state of operations and financial performance of RIL and RPL, and their respective asset bases" for deciding the 1:16 share- swap ratio.
The ratio would be fair to the shareholders of both companies, Agrawal said, adding, benefits of the deal include better cash flow utilisation of the fund generated by RPL, elimination of holding company discount, flexibility in operational planning and better sourcing of raw materials.
Besides generally, integrated energy companies command higher valuation than standalone refiners, he added.
"In Ernst & Young's broad opinion, this transaction is tax neutral as both RIL and RPL's current refinery will continue to get the tax benefits they are enjoying at present."