Friday, 21 July 2017

ONGC-HPCL deal: A Marriage of Convenience

The government is moving ahead with its proposal to create an integrated public sector ‘oil major’ but in the process, is also filling its own coffers. It is, however, denying minority shareholders that opportunity.

A merger of Hindustan Petroleum Corp. Ltd (HPCL) with Oil and Natural Gas Corp. Ltd (ONGC) would have been a neat structure, combining both businesses with the full benefits of integration available to claim. There would be no cash to be paid or debt to be raised. Instead, ONGC plans to acquire the government’s 51% stake in HPCL.

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Whether this will be followed by a merger is not known, but is not on the cards yet.

The Street is rather unimpressed, with HPCL’s shares falling by 4.3% while ONGC’s share rose by 1.8% on Thursday. ONGC’s shareholders would have preferred a merger.

HPCL’s shareholders would be disappointed that the acquisition is unlikely to be accompanied by an open offer. That would be unfair as they too should get a chance to exit at the same price as the government.

A BloombergQuint article dated 20 July cites a precedent of Indian Oil Corp. Ltd (IOC) acquiring public sector IBP Co. Ltd, and then making an open offer. There have been instances where promoters have made an inter-se transfer and also sought exemption from making an open offer.

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