Grasim stake stalls L&T demerger

Mumbai: The acquisition of Reliance Industries’ shares in the cement and infrastructure major Larsen and Toubro by Grasim Industries might have stalled L&T’s plans for demerger and dampened several multinationals’ desire to pick up stakes in the demerged entity.

Three cement multinationals – Holcim, Lafarge and Cemex – were in the race for a 37.5-per cent stake in the proposed demerged entity, even as L&T was talking to strategic partners and financial investors to garner funds for its cement entity.

Grasim created a stir on 18 November by picking up a 10-per cent equity stake in L&T for Rs 766.50 crore. The stake was acquired from RIL, which had ironically staged a corporate battle of sorts in the eighties to acquire the stake.

Even as FIs have started raising objections to the 47-per cent premium paid by Grasim to RIL for the shares — the L&T shares last traded at Rs 208.50 per share have been acquired by Grasim for 306.60 per share — many wonder what prompted A V Birla CMD Kumaramangalam Birla to part with a high premium.

First and foremost, Grasim’s acquisition, however small it may be, has put L&T’s plans to hive off its 16-million-tonne business into a separate company in shade. Analysts say it is not in Grasim’s interest for the cement demerger to proceed and the acquisition has been with an eye on L&T’s 16-million cement capacity. Further, they say that if L&T divests its cement business to a foreign multinational, Grasim would be left holding a 10-per cent stake in an engineering company, not its area of strength exactly.

With the earlier alliance between Gujarat Ambuja and ACC and now a possible one between Grasim and L&T, international cement players’ entry into the Indian market has now become a more difficult exercise.

Many may simply lose interest, says an equity research firm. If an international player cannot acquire a stake in a large company, the firm says, then it may not be interested in buying smaller companies with lower capacities, because that would mean having to follow the prices set by the big players.

If the deal works out, Grasim will get a 10-per cent equity stake in L&T for Rs 766.5 crore and the effective access to a combined capacity of 29 million tonnes. Earlier, Gujarat Ambuja had acquired a 14.5-per cent stake in ACC for a total consideration of Rs 928 crore and access to, if not control, to capacities of 25 million tonnes.

Against this, Lafarge India’s offer for Raymond’s 2.4-million-tonne cement plant was for over Rs 700 crore, and its offer to the Tata group for a two-million-tonne plant was for over Rs 500 crore – the only difference being that this was for proper control and not a stake. In this context, allying together makes more sense than putting up a greenfield venture or even buying out another plant totally.

Grasim’s acquisition of a stake in L&T is likely to make the latter the largest cement player in the cement market with a 30-per cent share of the domestic market and is expected to give an impetus to further consolidation among domestic players.