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Slender stake shield for Birlas

Mumbai, Nov. 24: The Birlas, plotting the conquest of L&T, have left their flanks uncovered by holding relatively small stakes in group firms like Grasim and Hindalco — a situation that could invite raiders’ designs.

Kumar Mangalam Birla, who leads the A. V. Birla group, has banked on inorganic growth through a string of high-sakes acquisitions to do the trick for him. However, he seems less sagacious when he has been content with owning not even 26 per cent of his key firms.

In Hindalco, the largest private sector aluminium maker in the country, the group has little above 23 per cent — not even enough to stall a special resolution. In group flagship Grasim, records with stock exchanges put the stake at a measly 20.42 per cent in September 2002. In Indian Rayon however, the Birlas own 26.93 per cent.

The ownership pattern is in stark contrast to other leading business groups like the Tatas, who have used creeping acquisitions to increase stakes in companies to comfortable levels of around 30 per cent. What is more intriguing is that the Birlas have not used the buyback route to boost stakes to comfortable levels in the past two years. This is a widely used option, in which a promoter’s stakes goes up as a percentage of the total after shares offered for buyback are extinguished.

Corporate watchers say the A. V. Birla group’s stake is much less than that of financial institutions. The move to retain the same level of equity for the past two years flies in the face of earlier indications that the stake in all group firms would be raised to 40 per cent.

Raising the equity to 40 per cent — the threshold Kumar Mangalam Birla had often spoken of on several occasions in the past — will require more than Rs 1,800 crore.

However, slow progress on this count has made corporate watchers rethink. “It stems from a tremendous confidence that existing promoters are unlikely to be dislodged from the perch by hostile takeovers in the Indian corporate environment,” an analyst said.

Second, the ambitious young scion of the Birla empire appears more keen to capitalise on the tremendous opportunities presented through inorganic expansion — consolidation of group companies can wait for another time. The huge cash tills that Hindalco and Grasim control are used to acquire the likes of Indal, L&T and, if the government sells, Nalco.

What is interesting is that while the group is sitting satisfied with its slice of equity in big companies, it has done everything to bolster stake in newly acquired firms. It made, for instance, two open offers to Indal shareholders after acquiring Alcan’s controlling stake in the Calcutta-based company. By virtue of that share purchase, Hindalco's stake in Indal is now over 90 per cent.

In L&T, after the group made its big-bang acquisition of 10 per cent from Reliance Industries at Rs 306 per L&T share, the company has since then ramped up its shareholding by crossing the 15 per cent trigger limit for making open offers.

As a result, the group has hit a wall with small shareholders and financial institutions perturbed by the dismal price offered for L&T shareholders which is pegged at Rs 190 per share. Disgruntled small investors, have, through investor associations, managed to nudge market regulator Sebi into taking a relook at the deal.

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