M A Chidambaram group companies South India Corpo-ration (Agencies) Ltd (Sical) and Mac Agro Industries Ltd are to be merged to form a diversified company with a turnover of about Rs 2,000 crore.
The board of directors of both the companies which cleared the merger proposal yesterday also approved a merger ratio of three shares of Mac Agro for every share of Sical. The merger ratio was arrived at after an independent valuation done by Fraser and Ross. The merger will be with effect from April 1, 1998 subject to high court approval.
"In a scenario where the economy is in a downturn, a diversified entity will reduce the risk to shareholders. One business can hedge the risks in another business," MAC group deputy chairman Ashwin Muthiah told reporters.
The entire exercise will, however, bring down the promoters' stake in the merged entity to be called Sical. "Our holding in the merged entity will come down but that's a sacrifice we are willing to make. I will not be able to say how much our holding will fall right now," he said.
"Mac Agro is still to get over the losses we had incurred in the aquaculture and marine export activities. Standing alone Mac Agro may not be in a position to continue dividends in the same quantum," he added, while explaining the rationale behind the merger.
"Looking from Sical's perspective, the merger will provide Sical with a lot of tax shelters. Sical is a service-oriented company with a small asset-base. The assets that MAC Agro will bring through the merger will help the merged outfit raise more borrowings," he added.
The merged entity will go in for a re-rating exercise before it finalises in borrowing programme. Sical, as it exists now, has a `AA-' rating.
"We are confident that the merged entity will get an improved rating," Muthiah said. Sical is also going in for a refinancing exercise to bring down its high-cost debt. "A pre-payment of some loans to financial institutions and banks is also not ruled out," he added.
Prominent among the expansions that the merged outfit will consider is an
over Rs 100-crore sugar mill with 20 mw co-generation plant in the south Arcot district. The merged outfit is expected to record a turnover of Rs 2,000 crore during the current financial year. The revenues will come from five divisions: logistics, marketing, manufacturing, agro and engineering.
When asked about the possibilities of MAC Agro selling some of its coffee estates, Muthiah said that it will be considered if a right offer comes across. "Right now we will push all our divisions to the maximum. But if we feel that any division can grow faster as a joint venture or in a strategic alliance with a third party, we will not hesitate to hive it off," Muthiah said.
