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Uneasy pause in L&T tussle
- Board meeting postponement keeps CDC on tenterhooks

Mumbai, Dec. 25: The postponement of Larsen & Toubroís (L&T) crucial board meeting is proving to be another turning point in the tussle over the cement spin-off plan.

The company has time until December 31 to invite CDC Capital Partners, which wants to pick up a stake in the company that will be set up after L&Tís cement division is separated. However, it has set terms for the deal.

There is a chance that a delayed board meeting will lead to a situation where CDCís proposal is re-negotiated. Even if that does not happen, the development has thrown up many imponderables. One of them is whether CDC would continue to evince interest. The other question is if the tough terms set earlier for buying 6.8 per cent in the spun-off entity will be toned down when a new proposition is fleshed out.

Another possibility ó one that L&T officials are not willing to confirm at this stage ó is an extension of the last date in the wake of the board meetingís deferment.

Sources close to the company say they are not unduly perturbed about a missed deadline. They feel it is a minor issue considering CDCís readiness to invest Rs 291 crore. ďAn investment as large as $ 60 million does not come to naught merely because a particular date has not been kept. The deadline could be extended,Ē he added.

As the tug-of-war rages on, a lot of importance is being attached to financial institutions (FIs), who could tilt the scales when the A V Birla group and L&T square off for the end-game. With 40 per cent of L&T in their bag, they are not perceived to be against the idea of spinning off cement division into a separate entity, but have not been too happy with the stiff terms set by CDC.

Instead, they are believed to be receptive to the offer made by Birlas, who have tempted them with the idea of a vertical split of L&Tís cement division. In this scheme of things, Grasim could better CDCís offer of $ 75 per tonne in a valuation of the companyís de-merged entity.

Among the things CDC wants is a veto right that will force L&T to take its approval before key decisions concerning the cement entity are taken. Also, its consent will be required in constitution of the board and appointment of directors, including nominees. CDCís nominee director will have a say in day-to-day affairs.

L&T will pay a penal interest of 15 per cent in dollar terms, compounded annually, on an amount of $ 60 million if it violates the arrangement. The planned cement entity will have to be created before December 31, 2003.

L&T officials claim the meeting had never been fixed for December 28, saying they had not even sent exchanges the mandatory intimation about the event. Even so, Saturday was seen as a red-letter day among corporate watchers expecting a showdown between the L&T management led by CEO A. M. Naik and the Birlas.

Naik and his colleagues have been insisting that a de-merger of the cement division would generate significant value-creation for shareholders. Though they are aware of all legal nuances, the board did not appear to be shying away from discussing the proposal.

The conglomerate said the long-planned recast of the division would reach a decisive stage once a suitable investor who will invest in the spun-off entity, is spotted.

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