L&T, Grasim demerger deal likely today

The curtains are expected to come down on the proposed demerger of Larsen & Toubro (L&T) on Tuesday, with the unveiling of the deal between ...

The curtains are expected to come down on the proposed demerger of Larsen & Toubro (L&T) on Tuesday, with the unveiling of the deal between L&T and Grasim Industries. While there is no official word on the contours of the deal, sources add that the 15 per cent-odd stake which Grasim will be left with in the engineering company (EngCo), post vertical demerger, will be bought by an employees welfare trust created by L&T. The deal also entails Grasim buying eight per cent of the FIs’ stake in the demerged cement company (CemCo) and then making an open offer for another 28 per cent in it. The intricately structured, step-wise demerger deal is expected to be a major victory for the Kumar Mangalam Birla-led Aditya Birla group and its flagship Grasim Industries. Significantly, Birla group officials declined to confirm till evening whether a board meeting of Grasim was fixed for Tuesday. The boards of both Grasim and L&T are meeting on Tuesday to decide on the demerger.

According to sources, the vertical demerger will involve a step-wise move by the Birla group to a 51 per cent stakeholding in the demerged cement company. Immediately after the first step of demerger, which will see Grasim with a 15 per cent stake in CemCo, the FIs are expected to sell eight per cent of their 40 per cent stake in CemCo to the Birla group at a price of between Rs 170-175 per share. Thereafter, Grasim will make an open offer for another 28 per cent in CemCo at a price of between Rs 170 and Rs 175 per share. With 23 per cent (15 per cent initial and 8 per cent from FIs), Grasim would need 28 per cent more to reach a 51 per cent stake in the cement company. The FIs may or may not participate in the open offer for CemCo. If they don’t, their stake will remain at 32 per cent after the sale of their eight per cent stake. In any event, even if the Birlas don’t get the full 28 per cent, they are expected to end up ahead of the FIs in terms of stakeholding after the open offer.

Grasim’s 15 per cent in EngCo will be bought by an employees welfare trust created by L&T, for which L&T will raise the funds. The trust is likely to use the shares for stock options in the future. The purchase is expected to be made from Grasim at between Rs 125-130 per share. This will bring down Grasim’s stake to zero in EngCo, since Grasim wants only CemCo. This also suits the FIs since their stake in EngCo will remain unchanged and they see a strategic role for the engineering company in the national context. Neither the FIs nor Grasim are willing to comment on the deal at the moment.

In the markets, the L&T stock climbed 3.3 per cent on Monday on hopes of a resolution to the demerger drama.