Acquisition of Ipcl by Reliance

Topics: 1998, Reliance Industries, Balance sheet Pages: 21 (5493 words) Published: November 3, 2007
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 ( 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...
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