Our Bureau

Kolkata, September 20

The board of cigarettes and hotels major, ITC Ltd meets today to consider the financials and regulatory nitty-gritty of the proposed merger with paperboards maker ITC Bhadrachalam Paperboards Ltd (IBPL).

The directors of ITC are expected to finalise the ratio in which shareholders of IBPL would be offered shares of ITC following the merger, and also to appoint a high-profile committee to supervise the merger exercise.

Market sources said the current pricing of ITC and IBPL and the differences in perception on cigarettes and paperboards would indicate a merger ratio of one ITC share for 20 to 25 shares of IBPL held. ITC shares have been holding up in the current stockmarket meltdown but IBPL shares have followed the market trend, they pointed out. ITC shares opened today at around Rs 635 and drifted to Rs 617 before closing higher at Rs 642. The IBPL scrip opened close to Rs 42, weakened to Rs 39.50 before losing 1.67 per cent of value to close at Rs 41.60p.

Industry sources said it would be a mistake to classify IBPL as a paper company exposed to cyclical risks of the basic paper industry, for it was a focussed paperboard company. Its output was a niche product and well insulated against downturns in the market.

"If anything, demand for paperboard would rise slowly and consistently over the next few years as development and rising consumer expectations would push demand for value-added printed board packaging", said sources.

Share of packaging as a percentage of product cost and also as a component of the total economy rises with development, they added.

Within the company, IBPL would help strengthen ITC's interface and interaction with farmers through its social forestry programme and also extend the reach of mass interfaces like the proposed chain of Internet kiosks being set up by ITC under its e-choupal initiative.

Industry sources said the top names in the country have already been sounded out for serving on the committee. High Courts would be moved soon after the board meeting so that the statutory extraordinary general meetings (EGMs) could be held by December, said sources.

As ITC holds 61.6 per cent in Bhadrachalam, the shares on conversion after the merger will be extinguished. The addition to ITC equity base would therefore be minimal but its asset base would grow by nearly Rs 1,000 crore besides topline and bottomline growth.

ITC directly holds 41.26 per cent of the paid-up equity of ITC Bhadrachalam and controls 18.99 per cent stake in the paper company through its wholly owned subsidiary Russell Credit.