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Selloff targets free to bid for each other

BS Corporate Bureau

It's likely that the list of bidders for the state-owned oil majors, Hindustan Petroleum Corporation and Bharat Petroleum Corporation, will include a major, major surprise. The two companies themselves, one vying for the other.

Asked whether one can bid for the other, Petroleum Minister Ram Naik minister asserted: "It is a government decision that only IOC will not be permitted to bid. All others can, provided they conform to the guidelines which will be announced."

This makes it possible for either company to bid for the other, depending on which is put on the block first. This also clears the way for Oil and Natural Gas Corporation to participate in the divestment of the two companies.

The government is in the process of appointing global advisors for the two companies as the first step in the divestment process.

Plans are under way to disinvest 26 per cent each in BPCL and HPCL. The reactions of sector analysts and merchant bankers vary from mild amusement to sheer outrage. "It is ridiculous and not likely to happen," said an analyst at a brokerage firm.

An executive at a leading merchant banking firm said: "If one of the companies acquires the other, it will dramatically change the industry dynamics.

However, it is be possible that the valuation of the combined entity will be higher than the sum of their individual valuations, depending on how well their assets complement each other."

However, an analyst at a leading investment banking firm said it would be possible for either company, given their enormous size, to raise the money required to fund the acquisition.

"The two companies have a combined retail strength of 9,200 outlets, which is larger than that of Indian Oil. If one acquires the other, there will not be many redundancies in terms of retail outlets, depots, or refineries."

BPCL owns three refineries, while HPCL has two. This is apart from the Mangalore Refinery in which HPCL has a 37.5 per cent stake.

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