"According to principle, the buyer would be larger than the firm taken over. RRC's sales and market capitalisation are far larger than ATC's. If the deal goes through, one company would be delisted from the stock market," he said. PTT owns a 49.84-per-cent share in ATC and 49 per cent of the oil refiner.

Early this week, Prasert said PTT would change its mind and amalgamate ATC and RRC through acquisition instead of merger, in order to maintain its corporate income-tax privilege. The Revenue Department insisted the tax incentive for newly listed companies - set at 25 per cent for five years, instead of the normal 30 per cent - would be revoked after the merger.

Prasert said the issue would be clearer early next year at the earliest.

ATC's share price jumped 4.77 per cent yesterday at Bt25.25 and RRC was up 0.54 per cent at Bt18.50.

PTT said the entity to be created from the consolidation between RRC and ATC would be integrated into Thai Oil Plc (TOP), to strengthen the oil-refinery business under PTT. RRC already coordinates with ATC through their joint-venture project, in which condensate feedstock is the input for the reforming complex, owned by RRC, and used to produce condensate residue and reformate. The reformate will be delivered to the aromatics complex, owned by ATC, for the production of aromatics products, while the project will also raise RRC's capacity by 65,000 barrels per day. The output will come on stream in the third quarter of 2008 or in early 2009.

Kim Eng Securities (Thailand) Plc said in a note it was possible RRC would acquire ATC, because its assets were higher than ATC's, and it had corporate income tax privileges, paying 25 per cent instead of the regular rate of 30 per cent since listing early this month.

"However, RRC would have to raise its debt financing to acquire ATC if they chose this route, because they don't have enough internal cash flow to finance the deal [valued at Bt25 billion to 26 billion], and this would increase the debt-to-equity ratio. In the second scenario, we believe RRC will issue new shares to swap for ATC shares, which will result in the dilution of RRC," said the research paper.

The brokerage believes both ATC and RRC shares are still undervalued and have a high potential to outperform the market for the remainder of the year, due to the merger.

Far East Securities reported that if ATC were chosen to acquire RRC, it would maintain tax privileges from losses carried forward of around Bt14 billion, which would come due in 2009.

In the event that RRC acquired ATC, the 25-per-cent corporate income tax incentive for five years incurred from listing RRC would be maintained, the broker said.

The broker recommends "buy" trading on ATC, in anticipation that the average product-to-feed margin in the second half of the year will recover to about US$135 to $138 (Bt5,200 to Bt5,300) per tonne, up 17-25 per cent from the current quarter.

The broker maintains this year's net-profit forecast for ATC at Bt4.3 billion. Its first-half earnings are expected to account for 32 per cent of that estimate.