Mumbai: Consolidating its disparate businesses, the Aditya Birla Group at a board meeting on Sunday approved the proposal to merge group companies Indo Gulf Fertilisers and Birla Global Finance into Indian Rayon Industries. The merger would form new company Aditya Birla Nuvo.

It has been decided to fix the share swap ratio at 1:3, that is Indo Gulf shareholders will get one share of Indian Rayon for every three shares held. Similarly Birla Global shareholders will get one Indian Rayon share against three of Birla Global shares.

The share swap ratios were based on the valuations done by Bansi S Mehta and Co and Deloitte, Haskins and Sells. Amarchand Mangaldas & Suresh Shroff and Co was the legal adviser.

Considered to be among the major consolidations in recent times the restructuring has been valued at over Rs 5,000 crore.

The merger will be effective from 1 September 2005.

Speaking to the media here after the board meetings, Kumar Mangalam Birla, chairman, Aditya Birla Group, said the main reason behind the proposed merger was that the fertiliser business had not lived up to expectations and the group did not think that the sector would be deregulated in the future. He also said the employees of Indo Gulf and Birla Global Finance would be absorbed by the new entity. The promoters' holdings in the merged entity will be 38 per cent.

He said Indian Rayon would be able to use the cash reserve of Indo Gulf Fetiliser. Indo Gulf's net worth stood at Rs 628 crore on September 1 and cash and investments were to the tune of Rs 442 crore. He said that from the Birla Global perspective, it made better sense to create an integrated financial sector entity.

He said that as Indian Rayon held 74 per cent stake in Birla Sun Life, there seemed to be a complementary fit in the merger. In the case of Indo Gulf, in 2003, the idea was to make it a fertiliser major.

The Rs 72 crore Birla Global Finance is involved in the business of asset-based finance, corporate finance, investment banking, capital market and treasury.

According to Kumar Mangalam Birla the merger would create two sets of businesses - the first would be the brick and mortar businesses of fertilisers, carbon black, viscose filament yarn and textiles that would be the focused value segment; and the second, the high growth segment comprising garments, financial services, IT and IT-enabled services and telecom.

"The restructuring is an important step towards shareholders' value creation. It creates a company that captures opportunities in the evolving Indian economy through leadership in businesses like carbon black, viscose filament yarn, textiles and fertilisers, and driving high-growth businesses namely garments, IT and ITES, financial services and telecom," he said.

Sanjeev Aga, managing director of Indian Rayon, will be the managing director of Aditya Birla Nuvo. The board will include SK Mitra, managing director of Birla Global Finance; Rakesh Jain, managing director of Indo Gulf; KK Maheswari, group executive president in charge of its chemical business; and Adesh Gupta, chief finance officer of Indian Rayon.

Jain would continue to head the carbon black business of the group and along with Mitra would report to Birla. The existing Indo Gulf unit in Uttar Pradesh will report to Aga. The 11-member Indian Rayon board now includes Kumar Mangalam Birla and Rajashree Birla.

According to the consolidated accounts of 2004-05, the new entity will have sales of Rs 3,980 crore, 25 per cent higher than that of Indian Rayon; net profit of Rs 150 crore (150 per cent growth) and a net worth of Rs 1825 crore (60 per cent growth).

Aditya Birla Nuvo will have, after restructuring, a revenue of  Rs 5800 crore, Rs 4,500 crore of capital employed and a debt-equity ratio of 1:0.99.

With the merger Aditya Birla Nuvo will become the third largest Birla group company, focusing on textiles, carbon black, fertiliser, information technology, IT-enabled services and financial services. Two larger group companies - Hindalco and Grasim - are focused on copper and aluminium, and viscose staple fibre and cement, respectively.

Indian Rayon has been restructured a number of times earlier. In 1998 its cement business was demerged and its seawater magnesia project closed. It also hived off the insulators business into a joint venture with NGK Japan. In 1999, it bought back the equity shares in the venture.

Indian Rayon acquired Madura Garments in 2000, PSI Data System in 2001 and a BPO company, Transworks in 2003. In 2001 the company formed a life insurance joint venture with Sun Life of Canada in 2001 and acquired a substantial stake in Idea Cellular this year.