How experts view Reliance Power-RNRL merger?
In a mega Rs 500 billion deal, Anil Ambani group Sunday announced merger of RNRL with another group firm Reliance Power, which would now become a direct beneficiary of the gas deal signed with Mukesh Ambani-led Reliance Industries.
As part of the all-stock deal, Reliance Power will give one of its shares for every four held in RNRL.
RNRL shareholders, including the promoters, would get Reliance Power shares worth about Rs 71.50 billion, as per the current market prices. Out of these, promoters would get shares worth over Rs 36 billion. 
Myiris.com discussed with its panel of experts viz Nayan Mehta – head of research, 21st Century Shares and Stocks and Alex Mathews, head of research, Research head, Geojit BNP Paribas Financial Services, the impact of the merger and its relative effect on the market and the ADAG group of stocks.
How do you view the merger announcement?
Nayan Mehta: The merger announcement doesn`t come as a surprise as it was expected as it is the only resort for RNRL and is a move towards consolation for the ADAG group. The merger, possibly through a share swap deal, would be considered done on stock price or book value basis. Market worth of the combined entity at today`s price would be Rs 500 billion. For Reliance Industries, it does not make difference what happens to RNRL as a standalone or a merged entity since the gas agreement was with R-Power. Also R-Power`s gas based plants will require supplies when they become operational may be in the next 2-3 years. Moreover, the new contract does not mention the volume, tenure or price of gas, but only lists the requirement of gas at ADAG`s proposed units, including the 7,800-MW Dadri plant near here and the Shahapur plant in Maharashtra.
Alex Mathews: The move is good positive for both the companies, especially for Reliance Power .
How will the news impact the markets and the stocks on Monday?
Nayan Mehta: The reaction on individual stock prices would be limited till the details of the swap/merger ratio are unfolded. The stocks of RNRL, R-Power already had a significant run over the past one month and it may not have a meaningful impact when the markets open on Monday.
Alex Mathews: The news is positive for Reliance Power. It witnessed huge buying momentum and a lot of buying on Friday. The stock is currently trading around Rs 175 and is likely to shoot up to Rs 185, an upside of nearly 5.71%.
On Friday, the 30 share index, Sensex lost 113.58 points, or 0.65%, to 17,460.95 in the week ended July.02, 2010. On the other hand, the broad based NSE Nifty dropped 31.95 points, or 0.61%, to 5,237.10 in the same period. Shares of Reliance Power gained Rs 5.65, or 3.33%, to end at Rs 175.15. The total volume of shares traded was 5,261,908 at the BSE. Meanwhile, that of Reliance Natural Resources declined Rs 1.25, or 1.93%, to end at Rs 63.65. The total volume of shares traded was 17,529,413 at the BSE.
Source : my Irish
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Category: Stock-News
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