On Friday, Tata Steel Limited announced that it will be merging with seven of its subsidiaries, including four listed and three unlisted companies, in order to simplify its operations and save expenses.
The merger of Tata Steel Long Products Ltd (TSL), Tinplate Co. of India Ltd, Tata Metaliks Ltd, TRF Ltd, The Indian Steel & Wire Products Ltd, Tata Steel Mining Ltd, and S&T Mining Co. Ltd was accepted by the board of Tata Steel.
Analysts claimed that the merging simplifies the business structure and may result in cost savings and synergy benefits in addition to possible earnings growth.
On Friday's stock exchanges, Tata Steel witnessed gains as high as 4.1%, but they were substantially reduced as the benchmark Sensex index fell more than 1.73%. It did, nonetheless, close with gains of 0.55%.
Tata Metaliks shareholders will receive 79 shares from Tata Steel for every 10 shares they possess, while Tinplate shareholders will receive 33 shares for every 10 shares they own. According to experts at Anand Rathi Equity Research, the share swap at a premium of 2% and 1%, respectively, appears to benefit Tata Metaliks and Tinplate owners.
However, according to analysts, Tata Steel shareholders will benefit from the share swap ratio in Tata Steel Long Products, where Tata Steel will exchange 67 shares for every 10 shares of Tata Steel Long Products (at a 7.8% discount). TRF is also in Tata Steel's favor because it will exchange 17 shares for every 10 shares of TRF (a 53% discount on the share price).
Indian Steel & Wire Products Ltd.'s shareholders will receive 426 rupees from Tata Steel per share. S&T Mining Co. Ltd. and Tata Steel Mining Ltd. are completely owned subsidiaries of Tata Steel.
Operational integration and improved facility utilization are two of the main advantages that Tata Steel has identified as having the potential to provide synergy benefits for the combined company. Resources from merging firms may be combined, and companies' marketing and distribution networks can work together.
The optimization of logistical costs and improved raw material security may also result from the consolidation. Additionally, analysts predicted that following the merger, the businesses' royalty on the purchase of iron ore would decrease dramatically.
Although it did not quantify or offer any particular advice on potential synergies, the company also mentioned the advantages that will result from effective working capital and cash flow management.
