Grasim submits new L&T demerger plan

Grasim Industries Ltd, belonging to the Aditya Birla group, has submitted its alternate demerger proposal for Larsen & Toubro’s (L&T) c...

Grasim Industries Ltd, belonging to the Aditya Birla group, has submitted its alternate demerger proposal for Larsen & Toubro’s (L&T) cement business to the L&T board. The L&T board will hold its crucial meeting on Wednesday to discuss Commonwealth Development Corporation (CDC) proposal, and the Birla proposal, if time permits.

According to sources, the Birla group proposal envisages Grasim swapping its 15 per cent holding in L&T for L&T Cement shares owned by financial institutions (FIs). The three-step vertical demerger proposal has Grasim finally ending up with a 50 per cent stake in the demerged cement company, following an open offer for another 20 per cent, and shedding its entire stake in L&T through the swap.

In a notice to the Bombay Stock Exchange, Grasim stated that at the January 27 board meeting, the company decided that since L&T was contemplating consideration of the existing proposal before it to demerge its cement business, Grasim should also submit an alternate proposal for L&T board’s consideration, which, in its view, is in better interest of all the stakeholders of L&T and Grasim. ‘Accordingly this is being done. Grasim recognises that it does not have any control over L&T and it will be entirely a prerogative of the board and shareholders of L&T to decide upon the proposal,’ Grasim said in the notice.

Story continues below this ad

L&T sources said that the company had received the proposal from the Birlas on Monday. While the quarterly results would be initially taken up for discussion, it would be followed by the CDC proposal put up by the L&T management. Sources added that the meeting was expected to run on till quite late in the evening.

As per the Grasim proposal, in the first step, L&T Cement is to be demerged through the vertical demerger route, with L&T shareholders getting one share of L&T Cement for one share in L&T. In Step II, Grasim would swap its holding in L&T for L&T Cement shares owned by FIs. The proposal works out the total value for L&T at Rs 275 per share. The proposal claims that FIs that way would get L&T shares at a market-linked fair value in the swap. In Step III, Grasim would make an open offer at Rs 130 per share for a further 20 per cent of L&T Cement. The proposal assumes the value of L&T Main at Rs 145 per share (assuming a price-earnings multiple of 12).

The proposal envisages a Rs 650 crore cash outflow for Grasim, while FIs get a cash inflow of Rs 195 crore and the public has a Rs 455 crore inflow. The proposal puts up a combined value of L&T at Rs 275 per share (L&T Cement Rs 130, L&T Main Rs 145) which, it says, is a 50 per cent increase on the current Grasim open offer price for L&T of Rs 190 per share. It also seeks to highlight the fact that the value is a 62 per cent premium to the Rs 170 per share market price on the day the open offer was announced. Besides, the proposal says the strategic valuation of the cement business is at a higher price ($65 per tonne) for 50 per cent. It also does not involve raising any debt.

The Birlas have opposed L&T’s plans to rope in CDC Capital Partners as strategic investor by offering them 6.8 per cent stake in the company, in its demerged cement business. Grasim holds just over 15 per cent stake in L&T and had made an open offer for acquisition of further 20 per cent in the company last October.