The Telegraph
Since 1st March, 1999
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New flank opens in L&T battle

Mumbai, Dec. 22: There’s a new twist to the tug-of-war over the demerger of Larsen & Toubro’s cement division. Votaries and opponents of the plan are splitting their hair to find out if discussing the idea itself is tantamount to a breach of the takeover code at a time when the jury is still out on Grasim’s open offer.

This has opened yet another flank in a battle that has pitted the A V Birla group against an L&T management that wants the cement wing spun off into a firm where its preferred strategic ally can get a foothold.

Analysts say this is the first time when merely debating a proposal is inviting scrutiny under the code. The matter has now assumed importance ahead of the December 28 L&T board meeting that is expected to evaluate CDC Capital Partners’ investment proposal.

For now, opinions appear split. According to industry watchers, one of the things confounding the issue is the takeover regulations’ ambiguity in defining a ‘change in business structure’ when an offer is ‘alive’.

Grasim Industries, whose open offer to L&T shareholders, has been put on hold by Securities and Exchange Board of India (Sebi), wants the demerger scheme kept in abeyance as long as the case is not resolved.

Sources close to the Birlas confirmed a request to that effect has been made, backed up with the argument that the L&T management cannot go in for a de-merger that will fundamentally alter the company’s structure.

Insiders at L&T do not buy this line of reasoning, and insist that the company has not violated regulations by talking about the plan. “The company’s board has powers to discuss such proposals. It will be a violation of takeover norms only if a management actually goes ahead with sale, transfer or disposal of assets without the consent of shareholders,” sources said.

Though Sebi officials were not available for comment, there are signs that they are examining the entire issue independently and that a decision will follow soon.

The demerger plan has already provoked a lot of rancour, with Grasim accusing the L&T management of asset-stripping. Sources say sparks could fly at the weekend board meeting given the strong line taken by the Birlas.

The group has already threatened to initiate legal action if the L&T management clears the spin-off plan. It has also marshalled a counter-proposal, under which it is ready to match the price to be paid by CDC for a slice of the cement firm. It has also tried to tempt investors by suggesting a vertical split that would give existing shareholders of L&T proportionate holding in the de-merged entity.

CDC wants to pick up 6.8 per cent for $ 60 million. L&T has been trying to convince stake-holders all along that the money flowing in from the equity sale would result in significant value-creation, apart from setting a sound benchmark for the valuation of cement business.

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