Shares of APL Apollo Tubes (APL Apollo) and Apollo Tricoat Tubes (Apollo Tricoat) rallied up to 10 per cent to hit their respective all-time highs on the BSE in intra-day trade on Monday after their boards approved the merger of Shri Lakshmi Metal Udyog and Apollo Tricoat with APL Apollo.
The stock of APL Tricoat rallied 10 per cent to Rs 1,020, while APL Tubes gained 5 per cent to Rs 1,125. In comparison, the S&P BSE Sensex was up 1.2 per cent at 49,693 points at 09:25 am.
Apollo Tricoat’s minority shareholders will receive one equity share in APL Apollo for each equity share held in Apollo Tricoat. This implies a premium of 16 per cent to the previous closing price for Apollo Tricoat’s shareholders. The merger will result in an increase of 10.8 per cent in APL Apollo’s share capital.
This transaction has been effected by way of a scheme of amalgamation and is subject to shareholder approval each of APL Apollo and Apollo Tricoat, as well as regulatory approvals. This transaction is expected to close in Q3FY22 with the appointed date of merger being April 1, 2021.
The amalgamation shall result in consolidation of the respective operations served by one platform thereby leveraging the capability of APL Apollo, the company said.
This potential transaction (as and when it becomes effective) is expected to lead to an increase of around 10.8 per cent in APL Apollo’s share capital (likely dilution) and around 13.5 per cent increase in net profit (as per 9MFY21 results).
According to ICICI Securities, in a medium-term to the longer-term horizon for APL Apollo, this transaction is margin accretive (Apollo Tricoat’s higher-margin products to lift overall APL Apollo’s margin) and would lead to the addition of innovative value-added products to APL Apollo’s portfolio. On taking into account the closing price of both APL Apollo and Apollo Tricoat as of February 26, 2021, there is an implied premium of 16 per cent for Apollo Tricoat’s shareholders. Hence, taking into account the announced merger ratio, in the near-term, there could be some knee jerk reaction on APL Apollo’s stock price.