Merger of Bishnauth Tea co. ltd. with everyday industries.

Brief history of the merging and merged companies and scheme of Merger

History of Bishnauth Tea Co. Ltd. (i.ed. Merging Company)

Bishnauth Tea Company Ltd, (hereinafter referred to as BTCL) was incorporated at Calcutta in 1863. It is a subsidiary of the Williamson Magor group of the Khaitan. The company is engaged in the cultivation of tea plantations and manufacture of electrical appliances, plant and machinery. Bor Pukhuri Tea co. Ltd. was amalgamated with the company in 1965. In the year 1998. Rupajuli Tea company (India) Ltd. (RTCIL) and Niagara investment Company Ltd, (NICL), wholly owned subsidiaries of the company amalgamated with the Bishnauth Tea Company Limited (BTCL) in 1997.

History of Eveready industries (India) Ltd. (i.e. Merged company)

Eveready industries (India) Ltd. (hereinafter referred to as EIL) a flagship of the B.M Khaitan-controlled Williamson Magor group was incorporated in 1934. It was formerly known as Union Carbide. The company manufactures and sells dry batteries and allied products, flashlight cases and parts, zinc alloys, strips & plates, satellite super alloys, cinema arc carbons, carbon electrodes & electrolytic manganese dioxide. In 1997, the company acquired the tea business through a merger with McLeod Russel, which contributes to about 40% of turnover. The battery is sold under the brand name ‘Eveready’ and tea under ‘Taj’ and ‘Premium Gold,’ EIL’s battery manufacturing facilities are located at Delhi, Chennai and Hyderabad.

Effectiveness of Merger and its impact of the Shareholders of merging company

– BTCL

It is clear from the table-6.9 and 6.10 that performance of merging company, BTCL was healthy before merger. The company is seriously impacted by the merger during post-merger. The net profit margin of the company witnessed a sharp decline in the year of merger from 11.29% to 1.36% (i.e decline by 87.95%) and thereafter it further declined and attained a negative margin of 14.13%. On the whole, the pre-merger average net profit margin of 13.17% declined substantially to –4.29% representing decline by 132.57%).

In the RONW front also the company suffered during post-merger period. The pre-merger average RONW of 9.27% declined to –5.96%, representing decline by 164.29%.

The short term solvency of the company also adversely affected. The pre-merger average liquidity ratio of 4.27 decreased to 1.64%, representing decline by 61.59%. But, it is not below the standard norm.

It is also noticed that the leverage position of the company is affected from the merger. The leverage ratio of the company increased from 0.55 to 1.45 in the year of merger (i.e. increase by163.64%). And thereafter the company reduced debt component in the capital structure. It successively declined each year after the merger. Thus, the merging company, BTCL is seriously affected from the merger.

The shareholders of merging company are also seriously affected from the merger.

EPS of the company declined from Rs. 12.63 to Rs.4.37 in the year of merger, representing a decline by 65.40% and it further declined to Rs. 36.65. on the whole, the average pre-merger EPS of Rs. 15.22 declined to Rs. 11.35, representing a declined by 174.57%.

In terms of dividend, the shareholders were getting an average dividend of Rs. 4.67 during pre-merger period. After the merger the shareholders did not get any dividend.

The pre-merger average P/E ratio declined from 6.15 to 193.17, representing decline by more than 32 times, BVPS of the company declined marginally. The average pre-merger BVPS of Rs. 160.27 declined to Rs. 148.46 representing decrease by 7.37%.

Pre-merger average share price (i.e. one year share price only) declared from Rs.97.75 to Rs.30.63, representing a decline by 68.66%.

Effectiveness of merger and its impact on the shareholders of merger company –

EIL.

It is noticed from the table that the company’s financial performance is seriously affected during post –merger period. The net profit margin of the company is showing continuos declining trend from the pre-merger period. It declined from 6.57% to 1.12% (first year before merger(. After the merger it further declined tonegative margin of 4.13% on the whole, the pre-merger if further declined to negative margin of 4.13%. On the whole, the pre-merger average net profit margin of 4.17% is declined to -4.29% representing a decline by 202.88%.

In terms of RONW also, the company saw negative results after the merger. The average pre-merger RONW of 5.45% declined to –5.96% representing a decline by 209.36%.

Liquidity ratio is also affected by the merger. The average pre-merger liquidity ratio of 3.85 is declined to 1.64, representing a decline by 57.40%.

Sales and reserves and surplus also experienced decline marginally after the merger. The average pre-merger sales and reserves and surplus fell to 4.42% 2.04% respectively.

But, the only advantage is reduction in the leverage ration. The pre-merger average leverage ration of 1.36 is declined to1.16, which represents a decline by 14.70%. Thus, the merged company EIL is seriously affected from the proposal.

It is noticed in the table tat the EPS of the company before merger was showing declining trended. It declined from Rs. 12.44 (i.ed. Y-3) to Rs. 2.35 (y-1). In the year of merger it marginally increased to Rs. 3.28 and thereafter it declined to a negative value of Rs. 27.49 and again increased. On the whole, the pre-merger average EPS of Rs. 8.14 substantially declined to Rs. –8.52, representing decline by 204.67%.

Another loss to the shareholders f the company is loss of dividend after merger. Before the merger the shareholders were getting an average dividend of Rs. 3.49 per share. However after merger the company could not pay the dividend.

Substantial decrease is also seen with the P/E ratio. The average pre-merger P/E ratio of 15.59 decreased to –193.17, which represents decline by 1339.06%.

The benefit availed of by the shareholders of the company is only increase in he BVPS, that too marginally. The pre-merger average BVPS of the company increased from Rs. 10.91 to Rs. 11.34, representing increase by just 1.34%.

Surprisingly in this case, the market price of share of the company declined substantially during post-merger period instead of increasing. It was trading at an average value on Rs. 847.53. However, during post-merger period, it declined to Rs. 22.97, representing a decline by 71.30%. in the year of merger the average market price declined from Rs. 74.8 to 43.05 (i.e. Decline by 43.45%) and thereafter it again declined to Rs. 15.50.

In this case, neither, merging nor merged company is benefited from the merger. During post-merger period, all the performance key indicators have shown negative. Shareholders are also diversely affected by this merger. In both the companies, the shareholders were given dividend during post merger period.

The company’s performance has suffered because of ever increasing debt burden and interest cost. And another reason is that the tea industry was badly affected during the year financial year 2000, due to averse weather conditions in tea growing areas of Northeast. Tea last three years have been bad for the tea industry in general. Tea production in the country dropped. Prices remind firm despite lower production due to a decline in Exports. Exports were affected due to government’s decision to allow free import of tea for re-export as it led to inflow of inferior quality tea affecting the exports of original Indian tea.

Thus, the post-merger results were effected due to the adverse situation prevailing in the industry. Due to this reason, merged company could not be successful in getting the synergic benefit out of merger.