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Fresh twist to Pilani deal
- BK & Kumar Mangalam will have to stump up more

Mumbai, May 22: B. K. Birla and grandson Kumar Mangalam's renewed efforts to buy out Pilani Investments and Industries Corporation Ltd ' the company that has investments in key Birla group companies ' from other clan members could be more intricate and difficult than anticipated.

The value of some of Pilani's key investments has surged to historic highs during the past year, thereby increasing the valuation of the holding company.

The buzz doing the rounds so far is that B. K. Birla and Kumar Mangalam are trying to unravel the family crossholdings and buy out other shareholders in Pilani.

'It will be as tough as the impending Reliance group settlement,' says a source who is clued into the Birla group. He says the only saving grace in this case is that the Birla family members are on good terms with each other.

In Pilani, the BK Birla group holds 30 per cent, the MP Birla group controls 25 per cent of the shareholding, while the CK Birla group controls 20 per cent and S. K. Birla holds around 8 per cent. The rest of the illiquid shares accounting for 17 per cent is with small shareholders.

There have been discussions within the Birla clan several times in the past to unravel the crossholdings that various Birla families have in each other's businesses through Pilani but they have never headed towards a clear solution.

The value of Pilani's investment in its crown jewel ' Century Textiles ' has almost doubled since last year. Pilani holds over 35 per cent of Century Textiles, a Rs 2500-crore company which also has interests in cement. Pilani's holding in Century has been marked to market at Rs 820crore. Add to this a control premium if others decide to exit the flagship firm.

'It's not going to be easy or simple,' says a close observer of the Birla group who happens to hold some shares in Pilani and other Birla group companies.

Only a very generous offer can force the other Birlas and shareholders to release their holdings in Pilani. The rest of the members in the Birla clan, who have smaller companies compared with B. K. Birla and the Rs 30,000-crore AV Birla group controlled by Kumar Mangalam Birla, will also require funds to expand in their fields.

Sources say that the buyout plan could also be stalled because of the legal squabble over Priyamvada Birla's will to bequeath the assets of the MP Birla group to R. S. Lodha. Any settlement will have to involve them as they hold nearly 25 per cent of Pilani shares (through the MP Birla group), unless the court decrees otherwise in the ownership battle.

Sources also say that if the Lodha family decides to raise its stake to 26 per cent by buying just 1 per cent from the public shareholding, any special resolution related to Pilani will require Lodha's approval.

But what B. K. Birla will have to really contend with at present is the rise in the valuation of Pilani's stock portfolio. In addition to the core holdings in leading Birla group firms like Century, Grasim and Hindalco, it has a large chunk of Tata Steel shares.

Some of these holdings have more than doubled in 2004-05, making Pilani's intrinsic value rise exponentially this year. The buyer will have to shell out that much more to persuade other shareholders to part with their shares.

Observers say much will depend on Kumar Mangalam Birla's ability to come out with a handsome offer. In the past, Kumar Birla has made a few generous offers that others could not refuse, as in the case of Indal and Madura Garments.

But privately, he has always maintained that the onus of buying the stake will rest with his grandfather, B. K. Birla. For Kumar Mangalam, the settlement of Pilani holdings would be crucial as it holds 2.33 per cent of Hindalco and 4.69 per cent of Grasim.

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