Reliance Natural Resources Ltd. and Reliance Power Ltd. agreed to merge in a share-swap deal as billionaire Anil Ambani moved to consolidate his businesses after scrapping a non-compete accord with his brother, Asia’s richest man.

The merger will be carried out through the exchange of one Reliance Power share for every four Reliance Natural shares, according to an e-mailed Reliance Anil Dhirubhai Ambani Group statement today. The transaction is valued at as much as 500 billion rupees ($11 billion) based on valuations done by KPMG, according to the statement, which didn’t say when investor approval would be sought.
The “merger may not be very positive because Reliance Natural doesn’t bring much to Reliance Power and it may only lead to a dilution of value,” Madanagopal Ramu, a Mumbai-based analyst with Centrum Broking Pvt. who recommends investors hold the shares, said on July 2.
Anil and his billionaire brother Mukesh, who controls Reliance Industries Ltd., India’s largest natural gas producer, agreed in May to drop a non-compete accord that helped fuel a feud after they split the family business. India’s Supreme Court earlier that month ordered Reliance Natural, which gets fuel for Reliance Anil Dhirubhai Ambani Group’s power projects, to buy natural gas from Reliance Industries in accordance with the federal government’s policy.
Reliance Power gained 3.4 percent, the most since June 15, to 175.30 rupees in Mumbai trading. Reliance Natural shares fell 1.5 percent to 63.95 rupees, while the benchmark Sensitive Index fell 0.3 percent. The two companies on July 2 said they would consider a merger.
India’s top court’s order meant Reliance Natural would buy gas from India’s largest field, operated by Reliance Industries, on approval from the federal government and at a higher price than stated in the family agreement. Reliance Natural and Reliance Industries said last month they signed a revised gas contract to comply with the court order. By merging the companies, Reliance Power may be able to get gas through Reliance Natural’s supply agreements without having to pay potential extra marketing margins, Deven Choksey, chief executive officer of Mumbai-based KR Choksey Shares & Securities, said on July 2.
“Reliance Natural’s shareholders will benefit from the proposed amalgamation by participating in future growth prospects of Reliance Power’s diversified generation portfolio of 37,000 megawatt, and its substantial coal reserves in India and abroad,” according to the statement.
Reliance Power has power generation assets of 1,000 megawatts, according to its website. It plans to build a total of 33,780 megawatts of capacity, Chief Executive Officer Jayarama Chalasani said on Dec 29.
(Source: Bloomberg)