Tatas protect power assets from hostile takeover

Vol 4, PW 10 (21 Jun 00) Midstream & Downstream

Mumbai-based Tata group has surprised power sector watchers with an announcement that it is to merge three of its power companies into a single entity.

On June 14th, group chairman Ratan Tata told a press conference at the Taj hotel inMumbai that the plan - with retrospective effect from April 1st, 2000 - would see Tata Hydro-Electric and Andhra Valley Power Supply merging into Tata Power. "The only way we can protect ourselves from a hostile take-over is to ensure that our companies are valued properly and have a strong management, said Tata, We want to ensure that our companies are not undervalued.

Industry analysts explain the Tata move as a reaction to Reliances offer to hike its stake in the Bombay Suburban Electricity Supply (BSES) company. "This merger was precipitated by the fact that Reliance is set to take over BSES, said an analyst at a foreign stock broking house, All other reasons are irrelevant.

By merging these companies and increasing their stock price the Tata companies will remain out of reach of predators." Ratan Tata denies the decision was prompted by Reliance. This merger has nothing to do with the Reliance proposal to acquire a larger stake in BSES," he said.

One of the principal reasons behind the merger was a decision by the state government to reduce Stamp Duty on mergers to Rs60cr ($14m), said Tata. Other analysts dismissed the merger as a "mere consolidation of balance sheets" as the three companies had been functioning as a single entity all these years.

"All these years they had one (power) company and three balance sheets. Before the merger the revenues used to be divided in the ratio of 5:3:2.

This is nothing more than a consolidation of books.