Shares of Butterfly Gandhimathi Appliances Ltd slumped over 5% on Monday after Crompton Greaves Consumer Electricals Ltd proposed a scheme of amalgamation of the company with it.
In a filing with the stock exchange, Crompton Greaves stated that its board had authorised merging with Butterfly Gandhimathi Appliances. After the merging is complete, Crompton Greaves will issue 22 fully paid up shares of ₹2 for every five fully paid up shares of Butterfly that are worth ₹10.
“Post-merger, the public shareholders of Butterfly will hold around 3.0% stake in the combined entity. The scheme is subject to the necessary statutory and regulatory approvals including approval of the stock exchanges, Securities and Exchange Board of India (SEBI), the respective shareholders and creditors of each of the companies and National Company Law Tribunal (NCLT) (Mumbai and Chennai benches),” said the company in an exchange filing.
Butterfly Gandhimathi will be dissolved following the merger, and the transaction will result in a single listed company. The scheme will be effective post 12-14 month.
"We believe the proposed merger would be a win-win deal for both entities and enables the merged company for better leveraging each other’s product segments, manufacturing and R&D infrastructure, strong pan-India distribution network and unlocking full potential of combined business by taping cross-selling opportunities across all channels, which could be realised over short to medium term. The merger would also allow strengthening the balance sheet giving it an edge over its peers. We have a neutral view on this development," said Prashanth Tapse, Research Analyst, Sr VP Research, Mehta Equities Ltd.
According to ICICI Direct Research, Crompton Greaves already has a 75% stake in Butterfly and, hence, business synergies were already in place. Post acquisition, Butterfly contributes nearly 21% to Crompton Greaves's revenue.
"At the given swap ratio there will be a 3% equity dilution for Crompton Greaves. Since Butterfly's business is already a part of Crompton, we do not see a major impact of the amalgamation on the stock price," said ICICI Direct Research in its report.
On the technical front, Butterfly Gandhimathi Appliances has fallen 36.43% from its 52-week high of ₹1,903.4 recorded on October 14, 2022. The stock price fell 12.7% and underperformed its sector by 24% in the past year.
According to Rajesh Bhosale - Equity Technical and Derivative Analyst, Angel One, on Friday, there was a strong positive traction for Butterfly Gandhimathi Appliances. However, today, Friday's gains are entirely wiped out with stock down more than 5%. Overall this stock is an underperformer and any bounce should continue to be used as an exit opportunity, he said.
On the other side, shares of Crompton Greaves Consumer Electricals Ltd were flat on Monday. The stock price has fallen 22.5% and underperformed its sector by 33.7% in the past year.
"We recommend Crompton Greaves to investors and ask them to book today, overall the stock is forming a bottoming signs and ₹280-285 levels should be considered to buy; ₹315 - 320 is the immediate target," advised Bhosale.
According to MintGenie poll, 37 analysts on an average recommend 'strong buy' for Crompton Greaves stock.