The Telegraph
Since 1st March, 1999
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L&T waits for best cement deal

Mumbai, Dec. 31: Commonwealth Development Corporation (CDC)’s proposal to pick up 6.8 per cent in a cement entity to be spun off from Larsen & Toubro (L&T) lapsed today without a response from the management.

Though the top-brass did not make up their mind, there are indications that CDC will be asked to extend the offer, giving the L&T managers more time to take a decision.

With 40 per cent of L&T in their bag, financial institutions (FIs) are not perceived to be against the idea of spinning off the 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 the Birlas, who have tempted them with the idea of a vertical split of L&T’s cement division. In this scheme of things, Grasim could better CDC’s offer of $ 75 per tonne in a valuation of the company’s demerged entity. However, the Birlas could be asked to fine-tune their plan.

A group spokesperson declined to comment on whether FIs have called for a new demerger plan. It is, however, believed that while Grasim Industries had laid out a concrete proposal, the company could now raise its open offer price of Rs 190 per share for shareholders of L&T to over Rs 300 per share. Hopes on this count have pushed up the L&T scrip in recent weeks.

Sources feel CDC will be asked to soften its demand when its proposal is reviewed. Though senior L&T officials were not available for comment, sources close to the company said a decision on renewing the proposal or asking for an extension of the deadline could come in early January. The effort now is to get more time. “Though the conditions have been criticised, financial investors normally lay such stipulations while investing in a company,” a source said.

Industry watchers believe extending the deadline without a softening of demands will leave the L&T top-brass without the support of FIs at its January 10 board meeting.

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. CDC’s 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 managers have been insisting that a demerger of the cement division would generate significant value-creation for shareholders.

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