ONGC board gives in principle nod for HPCL acquisition

SHARES of Oil and Natural Gas Corp (ONGC) and Hindustan Petroleum Corp Limited (HPCL) shot up on August 22 after the giant exploration company’s board approved the acquisition of 51 percent equity stake in the refining and marketing firm from the government. ONGC shares rose as much as 1.6 percent to Rs 160.1 on BSE, while HPCL shares were...
trading up over 3.6 percent at Rs 450.

Earlier, ONGC’s board of directors in a meeting held on August 21, gave an in-principle approval for acquisition of 51.11 percent equity stake of HPCL. The board has constituted a committee of directors to examine various aspects of the proposal and to provide its recommendations to the board of director, ONGC informed BSE. 
The NDA government’s plan to build a mega oil PSU of global scale had got a shot in the arm earlier last month with the Union Cabinet clearing the proposed acquisition of HPCL by ONGC. The sale of the 51.1 percent stake in state-run refining and marketing company HPCL, held by the government, to oil exploration and production firm ONGC could fetch the government about Rs 29,000 crore at current market prices. 

The NDA government seems to have opted for acquisition route for combining the two companies, making HPCL a subsidiary of ONGC rather than merging the two. HPCL will retain its brand post-merger. However, minority shareholders in HPCL may not gain or lose much from the deal, apart from the gain or loss in the share prices, as the deal will be exempt from the mandatory open offer required in cases of acquisition of more than 26 percent equity stake.
The government will form a committee to frame the modalities and oversee the proposed merger. The Cabinet had also said that the merger of ONGC’s existing unit — the smaller refiner MRPL (Mangalore Refinery and Petrochemicals Ltd) is expected at later stages. Experts have earlier pointed out that since MRPL and HPCL are essentially in the same business, it doesn’t make sense for ONGC to keep two separate companies under its fold. The Cabinet has said that the integration of other oil companies will soon be taken up after the HPCL’s takeover by ONGC. The government is considering combining the refiner and marketer Indian Oil Corp (IOC) and smaller oil exploration firm Oil India Ltd, even as the ONGC-HPCL deal was yet to be finalised. The government is keen to form vertically integrated oil companies which would be better able to absorb the fluctuations in the global crude oil prices, as when the exploration unit suffers from falling prices, the refining unit benefits, and vice versa.
Earlier in February, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU by merging companies with synergy in order to match the scale of the global oil giants.