Jaypee Group Embarks on Subsidiary Merger with Jaiprakash Associates
Enhancing Economies of Scale and Synergy
Diversified infrastructural industrial conglomerate Jaypee Group is undergoing a significant restructuring process. The group has announced the merger of its hotel, cement, real estate, and construction subsidiaries with its flagship public-listed company, Jaiprakash Associates (JAL).
Subsidiaries Involved in the Merger:
- Jaypee Hotels (JHL): Owns three hotels in Delhi and Agra, with a 72% stake held by JAL.
- Jaypee Cement (JCL): A 100% subsidiary of JAL, setting up a cement plant in Andhra Pradesh.
- Gujarat Anjan Cement (GACL): A 95% subsidiary of JCL, building a cement plant in Gujarat.
- Jaiprakash Enterprises (JEL): A listed firm involved in civil engineering, construction, and real estate.
Objectives of the Merger:
- Bring all cement companies under one roof, enhancing economies of scale and effectively addressing demand-supply mismatch in different regions.
- Avoid outgo on account of dividend distribution tax (DDT).
- Create synergy in businesses by consolidating real estate, hotels, and other construction subsidiaries under one umbrella.
Transaction Details:
- The merger will be cashless.
- Promoters’ stake in JAL will decrease from 45.28% to 37.65%.
- Cross holding of company shares will be transferred to trusts being created by the respective companies, with benefits accruing to JAL.
- Share swap ratio:
- GACL: 1:11 (one share of JAL for 11 shares of GACL)
- JCL: 1:10
- JHL: 1:1
- JEL: 3:1
Effective Date of Merger: April 1, 2008
Market Reaction:
- Jaypee Hotels' shares closed up 4.56% at Rs 84.85 on the Bombay Stock Exchange.
- Jaiprakash Associates' shares fell 2% to Rs 87.40.