Cabinet gives in-principle approval for ONGC-HPCL merger
What's the story
The Cabinet has given an in-principle nod to the merger of state-owned Oil and Natural Gas Corporation (ONGC) and Hindustan Petroleum Corporation Ltd (HPCL). ONGC has sent a proposal to acquire HPCL, said Oil Minister Dharmendra Pradhan in the Parliament today. The government owns a 51.1% share in HPCL, and the deal could be worth over Rs. 28,000 crore.
Information
Stock prices are up following announcement
Following the announcement, ONGC stock prices saw a spurt of almost 1%, ending at Rs. 163, while HPCL stock prices surged over 4% to settle at Rs. 384.
Merger plans
ONGC will merge with MRPL ahead of HPCL merger
The merger is expected to be completed within this financial year. Post-merger, HPCL will retain its brand but will be listed as a subsidiary under ONGC, India's largest oil producer. Before the HPCL merger, ONGC will merge with Mangalore Refinery and Petrochemicals Limited (MRPL) in which it holds a 71.63% stake, staying true to Finance Minister Arun Jaitley's vision of an integrated oil company.
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Win-win situation for companies and shareholders
"The synergy benefits for the companies would be huge," said DK Sarraf, the Chairman of ONGC, highlighting that value to shareholders would be strengthened through the mergers.
Analysis
Government stands to gain, says foreign brokerage firm CLSA
Foreign brokerage firm CLSA noted that government stood to gain from the merger of ONGC and HPCL. The government, which owns both ONGC and HPCL, would be able to effectively control HPCL through ONGC, thereby reducing decision-making levels. It said that minority shareholders in HPCL might not see an open offer, while those in ONGC might see a 8-11% leakage in ONGC stock prices.