The Hindalco board on Monday approved the scheme of arrangement and decided that the shareholders of Indal will get one share of Hindalco for every seven shares held. The face value of Indal shares will be reduced from Rs 10 per share to Rs 2 per share. Hindalco will continue to maintain its 97 per cent stake in the resultant demerged Indal.

The arrangements takes effect from April 1, 2004. The merger process is expected to be completed by March 2005, the company said in a statement to the stock exchanges.

The Birlas held nearly a 25 per cent stake in Hindalco as on June 30, 2004, according to information filed with the stock exchanges. The announcement had little impact on the Hindalco scrip, which closed 0.35 per cent lower at Rs 1128.55. The Indal scrip has already been delisted after Hindalco bought out Indal shareholders and raised its stake to 97 per cent.

Although the scheme of arrangements was announced after market hours, it was widely speculated earlier that the Hindalco board would meet on Monday to consider some kind of merger with Indal.

The Hindalco release to the bourses said the capital expenditure plan, for which a sum of Rs 2,000 crore (Rs 20 billion) has been earmarked, will be undertaken as planned under the aegis of Hindalco.

The plan includes the expansion of its metal capacity to 100,000 metric tonne per annum and power generating capacity to 267.5 MW at Hirakud, ramping up of the alumina plant at Muri to 500,000 MT per annum and enhancement of the special alumina chemicals capacity to 1,27,000 MT per annum at Belgaum.

Indal's Utkal alumina project in Orissa will also be transferred to Hindalco. The copper smelter capacity of Indal is being increased to 500,000 MT.

The Birla group acquired the majority control of Indal nearly four years ago through acquisition of Alcan's 54.6 per cent stake. The buyout and a subsequent purchase of a 20 per cent stake from minority shareholders through an open offer at Rs 120 per share had cost the group over Rs 1,000 crore (Rs 10 billion).

Analysts, who were expecting a full merger of Indal with Hindalco, were a bit confused on the contours of the development. "The merger should be a logical step.

"There has been a sort of operational merger already in place with both companies having a single marketing team. I can not understand the logic behind this kind of arrangement which keeps the aluminium foils division outside the purview of the merger," said a senior analyst. The profile of the two group companies makes the Hindalco-Indal combine a very cost-efficient aluminium producer, he added.