The boards of these three companies would be meeting separately on January 24 to consider the merger proposal, the group said.

Arvind Products currently does not carry on any business. However, post merger, the combined entity would be able to effectively capture business synergies that exist between cotton yarn, denim and gabardine, a company statement said.

At present, the companies are dependent on each other and on Arvind Mills for raw materials and for selling their products. The merger would integrate business operations and significantly reduce inter-business transactions.

This gains significance for Arvind Polycot, which was expected to commence production of gabardine shortly. As of now, it would purchase cotton yarnfrom Arvind Intex and grey cloth from Arvind Mills.

The cotton yarn produced by Arvind Intex was primarily sold to Arvind Mills and Arvind Polycot and the cotton yarn produced by Arvind Cotspin was sold to Arvind Mills and its subsidiary in Mauritius.

The merger would also result in a transparent structure eliminating all the cross holdings between these group companies. On the completion of the merger, the group would have a more focussed and easy structure, the statement said. Arvind Polycot with an equity of Rs 24.1 crore has reported sales of Rs 62.10 crore and a net profit of Rs 4.23 crore for the fiscal year 1997-98, while Arvind Cotspin recorded sales of Rs 106.29 crore and net profit of Rs 8.01 crore. Cotspin has an equity of Rs 42 crore.

Arvind Intex, with an equity of 51.35 crore, has posted a net profit of Rs 8.80 crore on sales of Rs 140.47 crore. The merged company was expected to post over Rs 500 crore in sales in 1999-2000, the statement said.

While Arvind Intex and Arvind Polycot arelisted on the stock exchanges, Arvind Cotspin is a 100 per cent export oriented unit based at Kolhapur in Maharashtra and is an unlisted company.

Chartered accountants, Bansi Mehta & Company and C C Choksi & Company have been appointed to carry out the valuations and determine the share exchange ratio, the statement added.

Merger rumours have pushed up the share price of Arvind Mills by 8 per cent to Rs 49.60 at the close of trading on the Bombay Stock Exchange. The stock has been witnessing considerable appreciation on the BSE over the last few days.

Lalbhais have been thinking of merging the three companies for a long time due to considerable amount of synergies among them and with the group flagship Arvind Mills. Hence, the initial proposal was to merge one of the firms Arvind Intex into Arvind Mills itself which received considerable opposition from FIIs. FIIs went on a selling spree of the company's scrip forcing Lalbhais to make a quick about turn.