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Revamp frees up Birla growth cash
- Rayon at centre of 3-way merger

Mumbai, Sept. 11: Indo Gulf and Birla Global Finance will merge with group company Indian Rayon to form a combined entity that will be called Aditya Birla Nuvo.

The announcement came at the end of an unusually busy Sunday at Aditya Birla Centre, the hub of the Rs 35,000-crore group, where the boards of the three firms held separate meetings chaired by Kumar Mangalam Birla.

“We are at a vantage point. It’s an opportunity and an exciting future ahead of us. The growth engines will be going forward,” Kumar Mangalam told reporters in the evening.

The merger will release funds from money-spinning businesses like fertilisers and carbon black into cash-guzzling growth drivers like financial services and telecom. The brick-and-mortar have raked in the cash but do not have enough growth outlets where the funds can be invested for expansion. “Fertilisers, textiles and carbon black are throwing up a lot of cash and we intend to use that for businesses growing at a fast clip,” Kumar Mangalam said.

“The restructuring is an important step in shareholder value creation. It creates a company that captures opportunities in the evolving economy through leadership in focused value businesses,” he added.

Under two restructuring schemes, one Indian Rayon share will be issued for three of Indo Gulf. Three Birla Global Finance shares will be swapped for one of Indian Rayon.

After the reorganisation, Indian Rayon will emerge as one of the largest private sector companies in India. The company’s consolidated accounts for 2004-05, when restated with the results of the two companies merging into it, show sales of over Rs 3980 crore, an increase of 25 per cent. Net profit will be over Rs 150 crore, up 150 per cent while net worth will be Rs 1,825 crore, a jump of 60 per cent.

The swap ratio is expected to translate into a reasonable premium for Indo Gulf and Birla Global Finance shareholders based on the Indian Rayon share price of Rs 617.45. Birla Global shares are traded at Rs 142.90 while the going rate for the Indo Gulf stock is Rs 169.25.

Sanjeev Aga, managing director of Indian Rayon, will be the managing director of Aditya Birla Nuvo. The board of directors will include S.K. Mitra, managing director of Birla Global Finance, Rakesh Jain, managing director of Indo-Gulf, K.K. Maheshwari, executive president responsible for the group’s chemical business, and Adesh Gupta, the CFO of Indian Rayon.

Jain, who oversees the carbon black business, and Mitra, who now sits at the head of the financial services, will continue to report directly to the board chairman.

“This is a major step in taking forward the well-crafted strategy of leveraging value businesses for accelerated growth. Post-consolidation, India Rayon becomes a more sizeable player with a diversified, high-growth business engine,” Aga said.

Mitra, who will hold the reins of financial services within AV Birla Nuvo, said Birla Global’s well-established presence in the consumer/investor financing would strengthen the merged entity’s market muscle.

The share exchange ratios were based on the valuations of Bansi S Mehta & Company and Deloitte Haskins & Sells. The proposed restructuring schemes will be filed with exchanges and in high courts of Mumbai, Gujarat and Uttar Pradesh. The merger will take effect from September 1.

Birla Global Finance has just completed a restructuring exercise. Indian Rayon, over the years has been used by the group as an investment vehicle to acquire new businesses. It was used, for instance, to snap up Madura Garments and later, to buy software maker PSI Data and BPO company Transworks. Indian Rayon acquired these new businesses after it sold its cement plants to Grasim Ltd. It has cash-generating businesses in segments like insulators and carbon black that allow it to foray into new sectors.

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