The Telegraph
Since 1st March, 1999
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Landmark brake on Grasim offer for L&T shares

Mumbai, Nov. 18: In a decision that could have far-reaching implications for investors as well as companies eyeing one another, the capital markets regulator has asked Grasim, the Aditya Birla Group flagship, to put on hold its open offer to acquire shares in Larsen and Toubro (L&T).

The Securities and Exchange Board of India (Sebi) cited “investor complaints about the price” as the reason for the directive to postpone the offer for 20 per cent shares in the cement and construction firm.

Grasim has offered prospective sellers Rs 190 per share – Rs 2.45 less than the stock’s closing price on the Bombay Stock Exchange today.

But several investors had complained that the price is much lower than the Rs 306.60 per share Grasim had paid Reliance in November last year to pick up 10 per cent stock in L&T. The transaction with Reliance is also being probed by the watchdog.

The Aditya Birla Group ruled out any discrimination, saying its offer price of Rs 190 is higher than Rs 174. 93, the average price of the share over the past 26 weeks – a guideline for setting the rate.

If a Sebi investigation concludes that a higher offer price should be set, it will change the way companies make open offers for shares. Such a decision will force business houses to treat all prospective sellers on a par and offer the same price.

A company can strike private deals to buy shares in another firm as long as the buyer’s stake does not exceed 15 per cent. Once that ceiling is crossed, the buyer will have to make an open offer to all existing shareholders at a set price. If the shareholder is satisfied with the price, he can sell his shares to the firm which made the open offer. “There have been many investor complaints about the price (offered by Grasim),” sources in Sebi said.

They said JM Morgan Stanley, which is managing the Grasim offer, has been asked to make a public announcement on the postponement. The offer was scheduled to open on December 9.

A spokesperson of the Aditya Birla Group said: “Grasim has complied with all regulations and acted in line with the highest standards of corporate governance. We have strong conviction in our rights in law.”

G.N. Bajpai, the chairman of Sebi, had told reporters earlier in the day that the investigation into the deal with Reliance has been put on the fast track to ensure that a decision is reached before the Grasim offer opens. The evening’s announcement indicates that Sebi would like to investigate the case at its own pace.

Two issues are at stake. One, the charges of insider trading against Reliance Industries. Allegations had been levelled that the share price was pushed up through frenetic buying days before Reliance’s transaction was concluded with Grasim. But Reliance had denied the charges, saying that Grasim approached it for the 10 per cent shares only after the former finished its purchases from the share market.

The second issue is whether Grasim can make an open offer below the prevailing market rate. The yawning gap between the price for Reliance and that for other investors has also triggered a debate.

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