JSW Steel to absorb JSW Ispat...Swap ratio fixed at 1:72

India Infoline News Service | Mumbai |

The merger completes the integration of the two businesses and enables the full realization of strategic benefits resulting from the combination.

In December 2010, JSW Steel Limited (“JSW Steel”) and Ispat Industries Limited, now renamed as JSW Ispat Steel Limited  (“JSW Ispat”), took a historic step when JSW Steel invested Rs 2,157 crore in JSW Ispat and became the largest shareholder in JSW Ispat. Today, the two companies have cemented their alliance by announcing the merger of JSW Ispat with JSW Steel.

The merger completes the integration of the two businesses and enables the full realization of strategic benefits resulting from the combination.

The Boards of Directors of JSW Steel and JSW Ispat, in their respective meetings held today, approved the merger proposal. The exchange ratio recommended by the Valuers and approved by both the boards is 1 (one) equity share of JSW Steel to be issued for every 72  [seventy two] equity shares of JSW Ispat.

Commenting on the merger, Mr.Sajjan Jindal, Chairman and Managing Director, JSW Steel said, “Merger of JSW Ispat with JSW Steel is an important step in our ongoing growth journey towards creating a world class global steel company. JSW Ispat brings several unique advantages and the merger will help in realization of integration benefits of the two companies.”

JSW Ispat Turnaround
JSW Ispat has made significant progress in its turnaround journey since the acquisition by JSW Steel. A number of strategic and operational initiatives have been completed, and some are in progress:
JSW Steel assisted in better sourcing of key production inputs especially power supplies from JSW Energy leading to improved profitability.
Marketing strategies have been reworked leading to freight synergies and better realizations.
The complexity previously arising from the financial imbalance at JSW Ispat at the time of acquisition was removed through timely equity infusion, debt refinancing and rationalisation of working capital funding.
JSW Ispat was brought out of CDR through enhanced ability to pay interest. Currently, the company is EBITDA positive.
Commissioning of 55MW power plant, lime calcination plant and railway siding by June 2013 is expected to give significant benefits.
JSW Steel continues to sustain the turnaround through cost reduction initiatives in the form of setting up of 1 MTPA coke oven and a 4 MTPA pellet plant expected to be commissioned in FY 2014 to ensure dedicated supplies of these key inputs at competitive costs.

As a result of the above milestones, JSW Ispat is now stabilized and is poised to be profitable on completion of the above mentioned projects.
Merger Benefits and Synergies

The integration of JSW Ispat into JSW Steel is expected to bring significant strategic advantages with it, particularly alternative steel making technologies, ability to achieve swift capacity expansion, shore based facility and Pan India expansion of market reach. The merger completes the integration and aims to capture full value of the combination:

Scale and Strategic Diversification
Catapults JSW Steel to become one of India’s leading steel companies in terms of installed capacity.

Economies of scale.
Enhanced Market Reach & Location Advantages
De-risk single location upstream profile.
Leverage each other’s marketing and distribution platforms to expand market reach.
Reduce marketing, general and administration overheads via better utilization of infrastructure and elimination of redundancies.
Strong Technology Platform
House  multiple modern steel-making technologies under one roof.
Enable flexible production processes.

Financial Benefits
Realize significant financial benefits via accelerated utilization of unabsorbed tax losses at JSW Ispat as well as optimal use of depreciation on further capital investments.
Improve JSW Ispat’s cost structure via faster implementation of several plant integration initiatives.
Potential to reduce cost of financing.

Composite Scheme of Arrangement and Amalgamation (Scheme)
Under the terms of the proposed Scheme of merger, equity shareholders of JSW Ispat will receive 1 (One) equity share in JSW Steel of face value of Rs 10 each for every 72 [seventy two] equity shares in JSW Ispat held by them.
JSW Steel’s shareholding in JSW Ispat will stand cancelled under the Scheme.
JSW Steel will issue 1.86 crore new equity shares, thereby increasing its outstanding shares to 24.17 crore and its equity capital to Rs. 241.72 crore. JSW Steel will also issue 48.54 crore new 0.01% non convertible cumulative redeemable preference shares to the preference shareholders of JSW Ispat increasing its preference share capital to Rs. 764.44 crore.

In the post merger equity share capital, the promoters of JSW Steel will own 35.12% in the merged entity, 14.92% shall be held by JFE Steel International Europe BV (herein referred to as “JFE Holdings”) and the remaining 49.96% will be held by the public shareholders

The Downstream units of JSW Steel [Vasind and Tarapur] and Downstream unit of JSW Ispat [Kalmeshwar] will be transferred to a wholly owned subsidiary of JSW Steel as a part of the Scheme .

The appointed date of the Scheme will be July 1, 2012.

Approvals and Timelines of the transaction
The scheme is subject to approval of the Hon’able High Court, Lenders, Creditors, Preference Shareholders, Equity Shareholders, BSE, NSE, Competition Commission of India and other relevant approving authorities.
JSW Steel expects to complete the process of merger by the end of this financial year.

Independent Advisors to the Transaction
Independent Valuers: KPMG India Private Limited for JSW Steel and Price Waterhouse & Co. for JSW Ispat
Fairness Opinion: Enam Securities Private Limited for JSW Steel and Citigroup Global Markets India Private Limited for JSW Ispat
Legal Advisor: Amarchand & Mangaldas & Suresh A Shroff  & Co


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