The boards of directors of Kinetic Engineering Ltd (KEL) and Kinetic Motor Company Ltd (KMCL) today approved a scheme of merger of the latter into the former.

The proposed share ratio for the merger is 7.75:1, meaning that KMCL shareholders will receive four shares of the merged entity KEL for every 31 shares of KMCL.

Following this, the promoters' stake in KEL will be diluted to 52.85 per cent, from the present stake of 57.49 per cent.

The balance shareholding will be held by public and financial institutions. Ms Sulajja Firodia Motwani has been appointed Vice-Chairperson of KEL.

The KEL Board has also passed a proposal to seek approval from the Reserve Bank of India for the extension of the FCCBs worth $18 million issued by it, extending the date of conversion/redemption from February 2013 to February 2014.

Today's move marks the culmination of restructuring at the Kinetic Group following which Kinetic Engineering was reorganised to focus on automotive systems and the components business, especially power trains. KMCL's two-wheeler business was hived off to Mahindra Two-Wheeler Ltd (MTWL) in November 2008, for cash and for a 20 per cent stake in the joint venture company.

“The rationalisation will result in one entity in which shareholders' interests will be aligned as it will have both operations (auto systems) as well as the investment business (through the stake in MTWL) leading to better governance, reduced costs and better shareholding,” Ms Motwani said.

The scheme of amalgamation of the two Firodia Group companies will be filed under Sections 391, 394 and 101 of the Companies Act. KEL will move the application to the stock exchanges for their approvals after which an application will be made to the Bombay High Court for the same.

KPMG has been appointed as the tax and structuring advisor to the scheme of amalgamation.

SSPA has been appointed as the valuer to the merger and IDFC Investment Banking arm will be responsible for providing the fairness opinion.

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