Jaypee Group merges arms with Jaiprakash Associates

Diversified infrastructural industrial conglomerate Jaypee Group is merging its hotel, cement, real estate and construction subsidiaries Jaypee Hotels (JHL), Jaypee Cement (JCL), Gujarat Anjan Cement (GACL) and Jaiprakash Enterprises (JEL) with the flagship public-listed company Jaiprakash Associates (JAL).

The merger will bring the group’s all cement companies under one roof enhancing economies of scale and effectively deal with demand-supply mismatch in different regions, the Delhi-based company said.

The move will also help the company avoid outgo on account of dividend distribution tax (DDT). The real estate, hotels and other construction subsidiaries will be also brought under one umbrella, giving the group a synergy in businesses. The transaction, which will be cashless, will bring down promoters’ stake in JAL from 45.28% to 37.65%. The cross holding of the company shares will be transferred to the trusts being created by the respective companies. The benefit of the shares to be held with the trust shall accrue to JAL.

JAL holds 100% stake in JCL, which is setting up a cement plant in Andhra Pradesh. JCL, in turn, owns 95% in GACL, which is building a cement plant in Gujarat. JCL and GACL are unlisted firms. JP Enterprises, a listed firm, is into civil engineering, construction and real estate. Jaypee Hotels, 72% owned by JAL, owns three hotels in Delhi and Agra. JAL owns a hotel in Mussourie. All hotels in the Jaypee group are run by JHL, which also owns land parcels.

The merger will be effective from April 1, 2008. The share swap ratio for the merger will be 1:11 for GACL (one share of JAL for 11 share of GACL), 1:10 for JCL, 1:1 for JHL and 3: 1 for JEL. Shares of Jaypee Hotel closed up 4.56% at Rs 84.85 on the Bombay Stock Exchange on Monday. The stock has rallied 114% since December 5. Jaiprakash Associates fell 2% to Rs 87.40.