Tata Fin, Tata Motor fix merger swap at 12.5:1

The boards of Tata Motors and Tata Finance today approved the merger of the non-banking finance company with the auto major at a swap ratio of 12.5:1.

In other words, for every 12.5 Tata Finance shares, one share of Tata Motors will be given when the two companies merge. The merger will be effective from April this year.

As per the scheme of amalgamation that would be submitted to the court, all equity shareholders of Tata Finance will be entitled to receive eight ordinary shares of Tata Motors of Rs 10 each for every 100 equity shares of Tata Finance of Rs 10 each. The valuation was done by Bansi Mehta & Co.

Going by the arrangement, apart from a debt of Rs 1,200 crore, Tata Motors will also take on 440 employees of Tata Finance.

Praveen Kadle, executive director of Tata Motors, said : "The debt will be paid off in the next 6-12 months through the combined cash flows of the companies and the securitisation route."

After the merger, the vehicle finance business will be a separate business unit under the Tata Motors Finance name. It has not yet been decided on who will head this unit.

Tata Motor Finance, which was virtual entity created by Tata Motors in August 2003, combines its division, Bureau of Hire Purchase and Credit (BHPC), with Tata Finance.

Currently, Tata Finance and BHPC finance around 17-18 per cent of Tata Motors' vehicle sales. The company aims at growing it to 35-40 per cent in three to four years.

Post-merger, the Tata group's stake in Tata Motors will increase from 32.5 per cent to 34 per cent.

In the first half of 2004-05, Tata Finance had revenues of Rs 118 crore and posted a profit before tax of Rs 15.6 crore. The auto financing division of Tata Finance is expected to disburse funds of approximately Rs 1,500 crore during the current year compared with Rs 551 crore disbursed in 2001-02.