The Grasim Industries-Larsen and Toubro (L&T)
saga has finally come to a happy ending.
story began about three years back when L&T was considering
getting out of its cement division if it got a right price
for it. The well-known transnational cement company Lafarge
showed interest but the price being offered, about $65
per tonne of cement capacity, did not match L&T's
little while later, Grasim, another major player in the
cement industry, bought over the equity stake of about
11 per cent, which the Ambanis held in L&T. The shares
were bought at Rs 306 per share. It was clear at that
time that Grasim wanted to consolidate its share of the
next move was to increase its stake in L&T. This it
did partly by buying L&T shares in the market and
by making an open offer to the existing shareholders of
L&T for buying the shares at Rs 190 per share. The
offer did not find a good response.
plans for exiting the cement business, which was in the
backburner, was revived with Grasim and CDC Capital partners
evincing interest. After several proposals and protracted
negotiations, the L& T cement demerger plan was finally
agreed to between Grasim and L&T.
essence of the deal is that L&T will demerge its cement
division into a new company called CemCo. Grasim will,
through a three-step process, acquire a 51-per cent stake
in CemCo and shed its entire stake in L&T.
will hold a 20-per cent stake in the new company and Grasim
and other shareholders will hold the balance 80 per cent
in proportion to their existing shareholding in L&T.
This will result in Grasim holding 12.6 per cent in the
will then acquire 8.5-per cent CemCo stake from L&T
at Rs 171.30 per share. Grasim will also make an open
offer for buying an additional 30 per cent of the CemCo
stake by making an open offer to the other shareholders
at the same price.
the existing L&T shareholders, who did not show much
interest in the earlier offer, this one will be tempting.
After all, he sells his new share at Rs 171.30 and at
the same time gets to retain his original L&T share.
will also sell its existing 15.7-per cent stake in L&T
to L&T's employees' trusts or foundations. This will
result in Grasim exiting from L&T altogether. The
trusts and foundations have to pay Grasim Rs 470 crore,
for which L&T officials are looking at ways to raise
the funds. Bank finance could be one possible route.
Rs 2,200-crore deal is one of the largest in Indian corporate
history and it will pitchfork Grasim to become the No
1 cement-maker in the country. Grasim's cement capacity
will go up from about 14 million tonnes to about 30 million
tonnes, which is approximately one-fourth of the country's
has a strong presence in western India and in the south.
The increase in capacity will bring in tremendous advantages
to Grasim in terms of packaging and transportation costs.
"It is a win-win deal for both the companies,"
says L&T chairman A M Naik.
chairman Kumar Mangalam Birla concurs Naik's feeling.
And why shouldn't he? While Grasim will emerge as the
top cement-maker with better synergies, L&T also should
be eminently satisfied with the deal. L&T has got
its pound of flesh as far as the valuation of the company
is concerned. More importantly, L&T can now focus
its attention on engineering, which its real strength.
to domain-b, A V Sreenivasan, secretary general,
Cement Manufacturing Association, says the deal augurs
well for both the companies as well as for the cement
industry. "This will see a consolidation in the industry
and will also revive transnational players' interest in
the Indian cement industry."
says about three years earlier many transnational players
were interested in entering the Indian cement industry
through the acquisition route. "Things did not work
out because the valuations that were offered were about
$60-65 per tonne. The valuation, in this case, is about
$80 per tonne, which is in keeping with international
have seen many mergers and acquisition deals sour up after
some time. The latest such case, according to many experts,
could be the internationally well-known merger of Hewlett
Packard with Compaq. The prime reasons for such deals
souring up are that the deals when structured do not result
in better valuations for the merged or demerged entity.
the Grasim case, a better valuation has resulted for both
the companies as well as the L&T shareholders. All's
well that ends well.