Announcing the development at Marico's eleventh annual general meeting on Tuesday, Marico chairman CV Mariwala told shareholders that the board of directors of Marico Industries and BOIL have reached an understanding to assign the two brands to Marico. While the move is expected to boost investor confidence levels, it will put to an end the classical case of the "Poison Pill" defence mechanism which automatically protected Marico from the predators' hands as the key brands Parachute and Saffola were safe under BOIL's custody.

Parachute is a market leader in coconut oil segment with a 54 per cent market share while Saffola is a leading refined oils brand in the consumer packs segment. Between them, the two brands had during 1998-99 clocked a turnover of over Rs 335 crore.

It is expected that Marico will, aftercompletion of due diligence and other preparatory formalities, discharge the full consideration during April-June 2000. The payment of royalty to BOIL would stop on payment of the full consideration. Marico will finance this payment out of internal accruals and short-term borrowings.

The assignment of brands would provide a tax shield through the depreciation which Marico can claim on the brands. The impact on earnings per share is expected to be marginally positive.

Valuation of the brands was carried out by Deloitte Haskins and Sells and ILFS Merchant Banking Services Ltd. Recognising the fact that it was Marico which has significantly enhanced the brand equity and that as of now, barring payment of royalty and lack of total legal ownership, the brands were fully available to Marico, it was considered sound to peg the price for the assignment at the capitalised value of royalty rather than at the full market value of the brands, which would be much higher.

``The valuation was in the range of Rs 30crore and Rs 70 crore for the two brands. However, the final consideration arrived at was at the capitalised value of royalty (Rs 30 crore) and not at the full market value of the brands which would have been much higher,'' Mariwala said.

In fact, six months back markets were agog with rumours on the possibility of Marico entering into such an agreement with BOIL. The company had then denied any such move.