Rama Pulp is a company in paper segment and currently under Nath Group (Nath Bio Genes {earlier Nath Seeds}, Agri-Tech India and couple of other small companies.
Yesterday, the board approved merger of three companies, Rama Pulp, Nath Pulp and Nath Chemicals (private company). Both companies are in paper sector and it will be good if they merge and even the Chemicals company has some synergies with them.
The merger seems fine but I am little confused about merger ratios and how it could impact value for existing shareholders of Rama Pulp.
They have taken Net worth as below (on 31 March 2017).
Rama Pulp - 41.2 Crore
Nath Pulp - (-16.9 Crore) Negative net worth
Nath Chemicals (12.2 Crore) (this company is private)
Now, the merger ratio
After merger gets approved, Rama Pulp will be the only company existing.
For every two shares of Nath Pulp, shareholder will get 1 Share of Rama Pulp
For every 1 share of Nath Chemicals, shareholder will get 1.8 shares of Rama Pulp.
I think this deal overvalues Nath Chemicals ?
It undervalues Nath Pulp (based on market valuation) but they are considering that company as one with negative net worth.
ALSO, I am surprised that the Promoters will hold 70.43% in final company after merger. This sounds quite strange to me considering the fact that they have quite low holding at the moment in both public listed companies. They have 100% holding in private company (which seems to get overvalued in this case).
This is quite confusing for me and I am not able to understand how the company has arrived at these valuations.
Members on this forum are experts in such topics and I am looking for viewpoints from ValuePickr forum about this merger.
I invested in this stock 4 years back considering it a good option for value investing. It has given good returns.
This is my first topic here so I am not sure if I have correctly followed all the rules. If some changes are required, I will make them or moderators can edit this topic.
BSE Link to Merger Decision
http://www.bseindia.com/xml-data/corpfiling/AttachLive/e0703b7a-6cca-4d4e-ac52-1c76295af7c3.pdf