Who are the board of directors of Tata Textile Mills? Why, it is Mazar Valjee, Shahid Anwar Tata, Adeel Shahid Tata, Bilal Shaid Tata, and Farooq Advani (among others). And who are the board of directors of Island Textile Mills? What do you know: it is Mazar Valjee, Shahid Anwar Tata, Adeel Shahid Tata, Bilal Shaid Tata, and Farooq Advani (among others) again. The board of directors for Salfi Textile Mills? You guessed it. And the board of directors for Tata Energy? Ditto.
If these revolving faces sound a little silly to you, it definitely sounded more than odd to the directors of the four companies. While all four companies are under the umbrella of the textile group Tata Pakistan, it seemed more prudent to have some sort of merger take place.
(One, semi-obvious, note: the Tata Pakistan industrial conglomerate has nothing to do with the much larger Mumbai-based global conglomerate that has a similar name.)
Which is exactly what the board decided on April 1, 2020. According to a notice issued to the Pakistan Stock Exchange on September 1, Island Textile Mills is to hold an extraordinary general meeting on September 24. Along with all of its respective assets and liabilities, the company is to be amalgamated into Tata Textile Mills. This will result in the ‘dissolution without winding up’ [this phrase is key], of Island Textile Mills.
Not only will Island Textile Mills ‘dissolve without winding up’, but so will Salfi Textile Mills, and Tata Energy. All will become a part of the company Tata Textile Mills.
Tata Textile Mills will issue to all the shareholders of Island, 15,100,000 fully paid-up ordinary Tata Textile shares of Rs 10, in the ratio of 30.2 Tata Textile shares for each Island share. Similarly, the mills will issue to all the shareholders of Salfi Textile Mills, 17,381,364 fully paid-up ordinary Tata Textile shares of Rs 10, in the ratio of 5.2 Tata Textile shares for each Salfi share. Finally, Tata Textile Mills will issue to all the shareholders of Tata Energy, 6,187,500 fully paid-up ordinary Tata Textile shares of Rs 10, in the ratio of six Tata Textile shares for each Tata Energy share.
So, what are these Tata companies?
Of the four companies, Salfi Textile Mills is actually the oldest. It was incorporated in January 1968, and it manufactures and sells yarn. Its facilities are located at Landhi in Karachi. It was renovated in 2005, and boasts 36,708 spindles as of 2019.
Then, there is the other spinning company, Island Textile Mills. This was established in 1970, but taken over by Tata Pakistan in 1981. Its facilities are located at Kotri Industrial Estate, close to Karachi. A second unit was built for the mill in 2015. The company now has 44,984 spindles as of 2019.
Tata Energy was incorporated in 1994. This company has only one purpose: provide electricity to the two mills mentioned above. The first power generation plant was installed at Landhi in 1995, and the second was installed at Kotri in 1998. Tata Energy has invested around Rs775 million in this sector, and the annual power generation capacity at both locations is more than 10 megawatts.
In case that was not enough textile mills for Tata, the company also owns Tata Textile Mills, another spinning facility this time in Muzaffargarh in Punjab. It was incorporated in 1987, and has 44,000 spindles for manufacturing cotton yarn as of 2019.
Of the three spinning mills, Tata Textile Mills made a loss only in one year (2016) between the years 2014 and 2019. Salfi Textiles recorded a loss in three of those six years, while Island Mills recorded a loss in two of those six years. In 2019, Tata Textile Mills made a profit after tax of Rs32 million in 2019, while Island Mills made a profit of Rs185 million, and Salfo made a loss of Rs86 million respectively.
In making this decision to merge, the board of directors said they had three reasons, with the ‘ultimate aim of maximising shareholder returns’.
First, the amalgamation of companies would allow for a reduction in costs associated with doing business, particularly legal and tax advisory costs. Second, the companies will be able to minimise the resources required to devote to the business of managing the shares held by each (four companies, four annual reports and financial statements, four annual general meetings – it adds up).
“These two factors taken together will allow the surviving entity to maximise dividend distribution for its shareholders,” said the directors.
Third, the larger size of the final company would increase the risk absorption capacity, “thus enhancing its capacity to manage the potential risks arising out of the adverse and uncertain operating environment.”
In the long run, the board of directors said it would lead to greater stability, cost reduction, increase of the surviving entities’ international and local competitiveness, and sustainable operations.
The move comes amidst a wave of corporate consolidation in the textile industry. Just a few weeks ago, the Bibojee Group – owned by the descendents of Habibullah Khan Khattak, including retired Lt Gen Ali Kuli Khan Khattak – merged their two textile spinning companies as well: Janana de Malucho Textile Mills and Babri Cotton Mills.
However, the Bibojee Group companies are both located in Kohat, but while the majority of of the Tata Pakistan operations are located in Karachi, there is at least one company in southern Punjab.