Non-functional RN Spinning Mills received the regulator's approval for merger with a non-listed sister concern, but the benefit investors will get out of it is questionable.
RN Spinning Mills has been counting losses since 2019 as a fire incident forced the company to shut down its operation.
"Many attempts have been made to resume operation (of RN Spinning Mills), to no avail. Then the board considered the merger," said company secretary Raquibul Islam.
After the merger with Samin Food and Beverage Industries and Textile Mills, the non-listed company will become non-existent. RN Spinning Mills will gobble up revenue and profit earned through the operation of Samin Food and will show the figures as its own.
"That is how RN Spinning Mills will get back into operation," said Mr Islam.
The merger scheme was planned so that the listed company could begin production and generate profit for its shareholders.
But in a telephonic conversation, the company secretary of RN Spinning Mills admitted that no new window of business would open up through the merger.
On this, Dr. M. Sadiqul Islam, of the finance department of Dhaka University, said the merger in the long run would not be able to boost income. If the assets of pre-merger RN Spinning Mills are not put to use to generate income, its net asset value will become negative, he said, which would force liquidation of the assets at the end.
There are many examples across the world, where very good companies merged with failed ones but the amalgamation did not bring about any fruitful results.
Google and Motorola merged but failed. A merger between Microsoft and Nokia met the same fate.
Following the merger, RN Spinning Mills will be relocated to the premises of Samin Food and Beverage Industries in Gazipur, the company secretary said.
Samin Food and RN Spinning Mills are concerns of FAR Group.
As per the terms of the scheme of amalgamation, Samin Food shall be dissolved and all of its assets and liabilities shall be transferred to RN Spinning Mills.
All existing equity shares of RN Spinning Mills held either directly or through nominees shall be scraped.
RN Spinning Mills' existing shareholders will get shares at 1:5.59 ratio. In simple words, they will get only one share of post-merger RN Spinning against their 5.59 shares held before the merger.
The pre-merger RN Sipping Mills has 392.54 million ordinary shares while Samin Food has 233.18 million shares.
As many as 70.26 million new shares will be issued at Tk 10 each by the post-merger RN Spinning.
The total number of shares of the post-merger RN Spinning Mills will be 303.44 million, and its paid-up capital Tk 3.03 billion.
The new entity's authorised capital will be Tk 7.50 billion -- Tk 5 billion of pre-merger RN Spinning plus Tk 2.50 billion of Samin Food, as per an earlier HC order in favour of the merger.
Samin Food started operation in 2019. Its textile unit has a capacity of producing 79,848 spindles of cotton, viscose, and CVC yarn annually.
RN Spinning raised Tk 300 million through an initial public offering (IPO) in 2010.
As of March, its accumulated loss amounted to Tk 4.56 billion.
It has assets worth Tk 379.36 million but total liabilities stand at Tk 357.53 million, according to the financial statement for FY22.
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