Why Reliance and RPL are executing the merger?

1.Reliance and Reliance petroleum company merger was a fateaccompali as Reliance has been followig the practice of creating large capital-intensive projects under new companies to ring-fence itself from project risk. However RPL is going to be operational wef Apr 2009 and thus it is in the interests of RIL to merge RPL with it as large giants are able to survive any recession.

2. Another reason for the merger is that probably RPL is sitting on inventory losses and thus would be requiring the requisite balance sheet support from RIL.

3. However a point which will require the brain storming is fate of what treasury stock i.e. RPL shares owned by RIL. Treasury stock holders are those holders who do not have any voting rights and also do not receive any dividend. This point holds importance as RIL can not receive its own shares in exchange for the 70.3% of RPL, which RIL owns.

4. Nothing to bother as Reliance will again create some company or can execute the sale of these treasury stock to wriggle out of the situation as it is an old player.

5. Update: The merger is good for the health of Reliance but is not good for investors. Thus as a strategy one can get out of RPL and can invest in Reliance industries as this switch by an individual will be in his or her interests rather than switching being forced by RIL.