Prima facie, it looks like the government will walk away with the booty in this case. The government will earn about $4-4.5 billion as a result of this acquisition. That should assist it in meeting its divestment target. Based on Tuesday’s market price, the deal works out to Rs27,786 crore (or $4.17 billion).

As Kotak Institutional Equities notes, transferring the government’s stake in a downstream company to an upstream firm or creating a holding company structure of oil CPSEs will only help the government in raising funds without losing effective control of these entities. CPSE stands for central public sector enterprises.

As far as HPCL is concerned, since this is an acquisition and not a merger—which would be another way to integrate public sector oil companies in keeping with the finance minister’s proposal in the budget—there will not be a dramatic change. That is because it is merely a transfer of ownership for HPCL from one entity to another. In any case, the sharp rally in the HPCL stock this fiscal year (about a 95% jump) so far makes near-term upsides hard to come by. Moreover, the fuel retailer is at the beginning of a mega capex (capital expenditure) phase, which is expected strain its balance sheet.

On the other hand, ONGC would have to take debt to finance this deal, which may not go down well with investors. Some, however, do feel that the deal would add to earnings. “Our analysis shows the deal would be earnings accretive for ONGC, as its earnings per share would improve by Rs0.4-0.5 to Rs28.5 for FY18E and Rs28.2 for FY19E,” point out analysts from Elara Securities (India) Pvt. Ltd. That is after adjusting for a rise in interest cost, owing to ~Rs28,000 crore rise in net debt for the HPCL acquisition.

The important question, however, is whether there are any synergies between upstream oil companies (such as ONGC) and downstream oil firms (such as HPCL). There seem to be no major ones. “There is no apparent synergy between ONGC and its downstream subsidiary MRPL (Mangalore Refinery and Petrochemicals Ltd), or for that matter, between BPCL (Bharat Petroleum Corp. Ltd) and its upstream subsidiary BPRL (Bharat PetroResources Ltd)—the common belief of earnings stability and hedging may prove to be a myth, if the global economic/commodity cycles for upstream and downstream businesses coincide, as was the case in FY2009-10,” wrote Tarun Lakhotia, a research analyst at Kotak, in a note on Monday. Post the Lehman crisis, there were times when globally both crude oil prices and refining margins were trending lower at the same time.