Shares of Butterfly Gandhimathi Appliances fell 5% to Rs 1,200 in intraday trade on Monday after the company announced its merger with Crompton Greaves Consumer. Meanwhile, shares of Crompton were up 1% at Rs 294.10 at 9:30 am, while the S&P BSE Sensex was up 0.22%.

Post-merger, Crompton Greaves will issue 22 fully paid shares of Rs 2 each for 5 shares of Butterfly at Rs 10 each. As such, the transaction will result in a single publicly traded entity, and Butterfly will be dissolved following the merger.

The plan is expected to go into effect in 12-14 months. After the merger, Butterfly’s public shareholders will own approximately 3% of the combined entity.

The merger will unlock various revenue and cost synergies and achieve economies of scale by pooling combined resources and power growth across India.

The management of both companies believes that the combined entity will benefit from the pooling of human capital with diverse skills, talents and experience to compete in an increasingly competitive industry.

In addition, they said it would help allocate capital more efficiently and simplify the corporate structure.

Analysts believe business synergies exist as Crompton Greaves owns 75% of Butterfly.

“Post-acquisition, Butterfly contributes about 21% of revenue to Crompton Greaves. At the given swap ratio, Crompton Greaves is 3% diluted. Since Butterfly’s business is already part of Crompton, we don’t see a merger impact on the share price,” said an analyst at ICICI Securities.

Butterfly Gandhimathi’s shares have been downtrend since January 17, 2023. They fell 17% on the BSE during the period. The stock will likely trade near the lower end of the Bollinger Band at Rs 1,176 on the daily chart, as price and moving average action indicate a weak trend.

However, the moving averages on the weekly chart may support the rebound. Also, the stock is testing its major support – 100-WMA (weekly moving average) at Rs 1,229 for the week. The existing downtrend could be halted if the stock closes above the same level. If that happens, the upside could be tested at Rs 1,270 and Rs 1,365.