Acquisition Of Ipcl By Reliance

Acquisition of IPCL by Reliance

The expected had happened unexpectedly. While everyone expected Reliance to bid

for IPCL aggressively, but what an aggression!!

The results of the bid, for 26%of equity, announced on 18th May 2002, were:

Rupees/share

Reliance Industries Ltd (RIL) 231

Indian Oil Corp (IOC) 131

Nirma 110

The bid price was at a 74% premium to IPCL's last traded price.

There were wide spread speculations on why Reliance bid was so higher than the other

bidders.

One newspaper had the explanation :

"Market circles are still struggling to come to terms with the surprise of Reliance bidding so

aggressively for IPCL. The bid - more than twice the reserve price when the rivals were under it -

is certainly not characteristic of RIL, which has established a reputation as a conservative bidder,

whether in privatisation deals or in telecom licenses. So what explains the exception? The RIL

grapevine has it that after the consultants had submitted their valuation of IPCL, the two brothers

decided to add on a premium to play safe. The patriarch then intervened to add on a further

premium. This one, he apparently observed, was as a mark of gratitude to the Disinvestment

Minister for not putting a spanner in the works despite a history of hostility between Shourie and

RIL dating back to the eighties."

Mr. Arun Shourie, Minister of Divestment, had something interesting to say :

"During the privatisation of IPCL my ministry came under a lot of pressure to prevent Reliance

from bidding for it. There were attempts to disqualify the group from the bidding process, to the

extent that the entire disinvestment process came to halt. But I went by the Government policy

which clearly specifies that if the bidder fulfils all the norms, he will be eligible," the minister said.

"During the entire bidding process, Mr. Dhirubhai did not telephone me even once. But he knew

what was happening as he had sources in all the right places, which mere journalists like me did

not even know existed. Soon after Reliance acquired IPCL, Dhirubhai called me up and in

emotional tone said he knew what I had been through and that he and his family would be

grateful for my effort. But I had just done my duty of following the laid down norms."1

Another story justifying high bid price was that since Reliance had earlier lost bids for IBP (Petro

products retailer perceived as an ideal fit for Reliance which had refinery, but no retail outlets),

and VSNL (telecom giant, thought as a great fit for Reliance's forays into telecom), it wanted to

acquire IPCL at any cost.

Dr. Hikaf, chief of financial research of PSD Investments, decided to unravel the mystery and

put together all the information available on the subject.

Prof. S. M. Fakih (smfakih@gmail.com) prepared this case as the basis for class discussion

rather than to illustrate either effective or ineffective management.

S. M. Fakih 29th December 2006

Acquisition of IPCL by Reliance

Acquisition of IPCL by Reliance

IPCL - Govt. foray into petrochemicals

Indian petrochemicals Corporation Ltd (IPCL) were established in March 1969 as a Government

of India undertaking, with the objective of establishing a petrochemicals company and

developing the petrochemicals market in India. The construction of first petrochemicals complex

began in 1970 at Vadodara in the state of Gujarat and commercial production at this complex

commenced in 1973. Second petrochemicals complex was commissioned in 1992 at Nagothane

in the state of Maharashtra and the third complex was commissioned in 1997 at Gandhar in the

state of Gujarat.

IPCL is the second largest petrochemicals company in India, next only to Reliance Industries

Limited. It is ranked as one of the top 50 companies in India in terms of sales, with net sales in

fiscal 2002 of Rs.47, 400 million. While the sales-mix varied from year to year, about 75% of net

sales were from polymers, balance more or less equally divided between fibre and fibre

intermediates and chemicals. More than 90% of net sales were from the sale of products in the

Indian market.

IPCL operate three integrated petrochemicals complexes in India: a naphtha based cracker

complex at Vadodara; a gas based cracker complex at Nagothane; and a gas based cracker

complex, at Gandhar. Vadodara complex includes a naphtha cracker with an installed capacity

of 130,000 tonnes of ethylene per year as well 15 other downstream plants currently in operation

for the manufacture of various products. These products include Low Density Polyethylene

(LDPE), Poly Vinyl Chloride (PVC), Polypropylene (PP), Polybutadiene Rubber (PBR), Acrylic

Fibre (AF), Dry-spun