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If one would need to name the mother of all mergers in Indian corporate, then it would be this one. Sample this -

Post merger, RIL-RPL behemoth would constitute 20% of the Sensex topline, 17% of the total profitability, 17% of the combined net worth.

The Refining and Petrochemical giant would be 6th biggest private refiner in the world with a total capacity of 1.2 million barrels a day.

There are many stakeholders in this merger which would be keenly looking at the swap ratio which is expected to be announced on 2nd march meeting. Let’s have a look at each stakeholder and what this merger holds out for them.

RIL & RPL: Reliance Petroleum is a kind of SPV which was instituted by RIL for Jamnagar refinery. By taking the project finance route, it shielded its balance sheet for any potential ill effects. Now when the refinery is up and running, it makes no sense to keep it separate and hence the merger. The merger would help RIL save on income tax and dividend dsitribution tax. Also now given the huge size of the balance sheet, it would empower RIL to raise funds at more suitable rates.

But one may always pose the question Why Now???

Well the speculation which is doing the rounds is that RPL is sitting on inventory losses and need backing up of RIL huge balance sheet.

Though one issue which is still hanging in the air is that of treasury stock. Treasury stock is the amount of shares which RIL has in RPL. Post merger RPL shares would be converted to RIL shares and hence RIL would technically be holding shares in itself which is not possible. So it would be interesting how this issue will be resolved.

Retail Investors: Retail investors would be closely looking at this deal and more specifically the swap ratio. Analysts are speculating that the swap ratio is expected to be in the region of 20:1 to 24:1. They are also of the view that this merger will be more beneficial to RIL investors as compared to RPL investors since RIL ahs more number of minority investors. Also the current market prices would enable RIL to have a swap ratio in above mentioned region. If the market would have been buoyant, the swap ratio would have been more likey around 10:1 to 14:1.

Chevron: In 2006 Chevron bought a 5% stake in RPL for $300 million i.e. 60 Rs. a share with an option to raise the stake to 29% by July 2009. Now with this merger happening, Chevron is most likely to sell off its stake back to RIL for the same amount. Otherwise it would have to content for smaller share in the merged entity.

Sensex and other retail investors: Although the merger has witnessed euphoria all around what remains to be seen is if it would be beneficial to the market and retail investors in general. With a chunk of the profitability and topline coming from one company, Sensex is heavily dependent on the vagaries of one single company which makes me scary atleast.

There is a lot which RIL-RPL merger has to offer. Let’s wait and watch and enjoy the fun.