The Telegraph
Since 1st March, 1999
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Sebi explains stay on open offer for L&T

Mumbai, Nov. 26: The Securities and Exchange Board of India (Sebi) today tried to convince a tribunal why it had blocked Grasim’s offer for 20 per cent of L&T.

In its affidavit submitted for Wednesday’s hearing at the Securities Appellate Tribunal (SAT), the regulator argued how the case was similar to Gujarat Ambuja’s acquisition of a decisive stake in ACC from the Tatas.

Sebi has adduced several facts to explain why it changed its view after allowing Grasim to buy 10 per cent in L&T. Sebi has attributed the delay in de-merger of L&T’s cement business to Grasim’s influence.

Rafiq Dada represents Sebi while Goolam Vahanvati is presenting the case for the Birlas. There is speculation that both sides are using political influence and putting pressure on the finance ministry to sort the issue amicably.

Sources at Investors Grievance Forum, which complained against Grasim, insists its main grievance is against the pricing of the offer. “They should make an offer to the minority shareholders at the price paid by Birlas to Reliance. So, it should Rs 306 per share instead of Rs 190,” it added.

Sebi will cite the case of ACC, where SAT itself had asked the regulator to investigate the whole affair afresh. On the other hand, the counsel for Birlas said Gujarat Ambuja’s purchase of ACC and Grasim’s acquisition L&T shares are not comparable. ACC’s website shows the Tatas as the promoters, while L&T’s annual report and annual accounts have listed no promoter.

Except for the understanding that Reliance will not buy L&T shares for the next five years, there is no understanding that the acquisition would change control of L&T, considered as a professionally run company. Second, two nominees on the board of 17 members does not, in anyway, display an attempt to wield control.

Grasim acquired a stake in L&T simply in view of the synergies that the two companies would enjoy as Grasim and L&T had sizeable cement businesses.

Cement and knowledge-intensive industries are considered as growth-oriented sectors by the Aditya Birla group and solutions to infrastructure sector were niche areas that L&T commanded in the business spectrum.

With the acquisition of a stake in L&T, Grasim's strategy was also to keep the foreign companies at bay as otherwise with their economies of scale they could run down the Indian cement industry.

The multi-functional synergies on arms length basis would yield potential cost reduction and product/service innovation and enhance financial flexibility and the ability to access domestic and international capital at competitive costs to support future growth opportunities. It would have also helped in pursuing growth opportunities that are likely to emerge in the future.

On Monday, Larsen & Toubro (L&T) sent shivers down the spine of the Birlas by announcing that a retinue of suitors was vying for its cement unit. “The company has received proposals from potential investors but it is not possible for us to divulge the details at this stage,” the company told bourses. “If Grasim finds no place among the suitors, it would deal a death-blow to the Birlas’ ambition of taking over L&T,” an analyst said.

Merchant bankers say global cement giants like Holderbank, Cemex and Lafarge, which have sounded the L&T on an alliance, could be among those interested.

“In meetings held in July and October 2000, the board had decided to restructure the cement business into a separate listed entity and induct strategic/financial investors. Certain proposals for investment in the cement entity have been received recently,” L&T said in its letter to exchanges today.

L&T has appointed a committee of directors to evaluate the spin-off plan and make recommendations to the board. Suitors will carry out a due diligence, and once it is over, the scheme must win shareholder approval.

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