India's Reliance Industries Ltd said it plans to absorb its Reliance Petroleum unit, giving it direct control of the world's largest refinery complex.
Reliance Industries, India's largest listed firm with a market value of $40.7 billion, said in a statement its board would meet on March 2 "to consider and recommend the amalgamation of Reliance Petroleum Ltd with the company."
Reliance Industries separately said it would buy Chevron Corp's 5 percent stake in Reliance Petroleum, valued at $344 million as of the close of trade on Friday.
Reliance Petroleum, in which Chevron had an option to raise its holding to 29 percent by mid-2009 or completely exit, said its board would also meet on Monday to consider and recommend the amalgamation.
Both companies' statements were similarly brief and contained no further detail.
Analysts had expected the amalgamation to signal the exit of Chevron, which would have been left with a small holding in Reliance Industries after its stake was converted.
"Chevron has gone slow with its investment in various refinery projects. The market was concerned that this (raising stake) would not come through given the global meltdown and price of crude and their overall strategy," said Sharmila Joshi, vice president sales at brokerage firm Systematix.
A Chevron spokesman could not be immediately reached for comment.
Reliance Petroleum commissioned its 580,000-barrel-per-day refinery in December, located next to Reliance Industries' 660,000-bpd refinery in Jamnagar on India's west coast.
The combined firm would have refining capacity of 1.24 million barrels per day, the largest in the world.
"It is vintage Reliance. Most likely the parent's holding will be transferred to treasury stock and sold as and when required at a premium," said Arun Kejriwal, strategist at research firm KRIS.
"They did it the last time too," he said, referring to the absorption of an earlier company also named Reliance Petroleum into Reliance Industries in 2002.
Indian Trade Secretary G.K. Pillai said the new 580,000-bpd unit would remain export-focused and enjoy tax concessions granted to it, in spite of the amalgamation of the companies.
"(The) character of both the plants will remain as it is (even after the amalgamation)," Pillai told Reuters.
Reliance Petroleum was listed in May 2006 and has a market value of nearly $7 billion. Reliance Industries said it would own 75.38 percent of Reliance Petroleum after buying out Chevron. Billionaire Mukesh Ambani is chairman of both.
Before the announcement, shares in Reliance Petroleum fell 1.2 percent to 76.20 rupees. The shares have fallen 12.7 percent so far in 2009 after falling 60.9 percent in 2008.
Shares in Reliance Industries fell 2 percent to 1,265.05 rupees. The stock has risen 2.8 percent in 2009 after falling 57.3 percent in 2008.
Analysts said the move would create an entity with more muscle to raise funds. Reliance could also cancel its stake in the unit after an amalgamation, which analysts said would boost the combined firm's earnings per share and other key metrics.
Reliance Industries is India's top energy group, and has gas fields and oil wells along the Indian coast.