FFBL shareholders may get FFC shares at 0.32 ratio

July 23, 2024 (MLN): The shareholders of Fauji Fertilizer Bin Qasim Limited (PSX: FFBL) may get 0.32 shares of Fauji Fertilizer Company Limited (PSX: FFC) for every 1 share held in FFBL, according to Mettis Global calculations of the swap ratio based on book values of the two entities.

However, the actual exchange ratio will be determined by the valuation conducted by the appointed advisory firm.

The board of directors of FFC last week granted an in-principle approval to evaluate the potential amalgamation of FFBL with and into FFC by way of a scheme of arrangement.

As of March 2024, FFBL's consolidated book value was Rs139.5 per share, while FFC's stood at Rs44.6 per share.

FFC's book value includes the revaluation of investments of FCCL, FFBL, and AKBL.

To note, FFC holds a 49.9% stake in FFBL.

A swap ratio above 0.25 will be favourable for FFBL investors, while ratio below 0.25 will be favourable for FFC investors.

According to Securities & Exchange Commission of Pakistan (SECP) regulations, fair value of shares shall be determined by averaging the fair value arrived at through any three of the suggested 4 methods, (1) Net Worth Method (or break up value method), Market Value Method, Discounted Cash Flow, and Comparable Transaction Method, brokerage house Topline Secutrities noted in a report.

"In our view, FFBL and FFC amalgamation once approved by board and shareholders will be vetted by competition commission as this would be a horizontal merger (operating in same industry)," the report added.

FFC in a stock filing last week stated that the potential amalgamation is expected to generate certain synergies that could enhance the value of the combined enterprise and potentially increase future returns to shareholders.

As an amalgamated company, the entity is projected to have a leading market share in urea and DAP of around 43% and 60%, respectively, brokerage house Arif Habib Limited (AHL) noted in a report.

AHL highlighted that the horizontal merger will also eliminate the double taxation and synergies will be created.

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