The acquisition of the division -- which is being spun off into a separate company -- will be done by a clutch of investment companies of Kanwar and two group companies, Apollo International and Apollo Finance.

Significantly, the Apollo group is in talks with some overseas strategic investors who may also join them for the buyout.

Sources confirmed that three to four entities will buy the Mafatlal's stake amounting to 42 per cent held in Nocil's rubber chemicals division. Sources added that no single entity would be buying the shares of the demerged company, to be christened Nocil Rubber Chemicals Ltd. The deal between the two parties is expected to be signed by the month-end.

Sources said that Apollo Tyres will not be directly involved in the acquisition since it has embarked on a major Rs 310-crore expansion plan. Nocil's trifurcation of its businesses is yet to be cleared by theBombay High Court. The shareholders of Nocil Ltd had approved the company's restructuring in an extra-ordinary general meeting on October 31. The high court would convene a meeting of the creditors and institutions to take a view on the trifurcation.

The approval of the financial institutions is crucial since the institutions hold around 32 per cent in Nocil. Also, Mafatlal Industries owes huge amount of money to the institutions. Much of the sales proceeds may be used by the promoters to pay off their dues to FIs. The technical, commercial and legal due diligence of the division has already been done.

The rubber chemicals business of the company is far more profitable than its petrochemical and polymers businesses. For the Apollo group, it would also be a "separate profitable business venture" on its own. Apollo Tyres would also source part of the production of rubber chemicals from the proposed company. The equity of the demerged rubber chemicals company will be around Rs 19.5 crore, which is about 16per cent of Nocil's capital of Rs 122 crore.

Nocil is the country's largest producer of rubber chemicals and the division accounted for nearly one-fifth of its sale of Rs 1,100 crore in 1997-98. Earlier, Uniroyal group of the US and the UK-based ICI Plc were also negotiating with the promoters to acquire Nocil's rubber chemicals business. With the Apollo group now clinching the deal with Nocil, these two companies are out of the race.

INSIGHT

Hiving off the rubber chemicals division of Nocil at Rs 57 crore is below the market expectation of over Rs 60 crore. Nocil shares on the bourses have been affected since the hiving off the petrochemicals unit to Shell was termed as not a very lucrative proposition. With the lower sale price, the scrip could take a further beating.

As for the Apollo group, they are getting the division, which is the largest in the industry, at an attractive price. Apollo Tyres is not directly involved in the purchase of the division as it has its hands full in itsexpansion plans. To that extent the market fear that the company will be entering into unrelated diversification will prove ungrounded, and the scrip's valuation may improve.