The Telegraph
Since 1st March, 1999
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Birlas justify fresh deal for L&T shares

Mumbai, April 24: Grasim Industries returned to justify the price of its fresh offer for L&T shares, saying the deal at Rs 190 apiece was good enough for investors. It dismissed suggestions that it should pay Rs 292.50, the price based on the combined valuation of the engineering major, but one that the firm says is not relevant.

Grasim and Samruddhi Swastik Trading and Investments said the cumulative price of Rs 292.50 (which includes the combined valuation of L&T's cement and other businesses) is not relevant to the open offer. “The price of Rs 292.50 was worked out as a arithmetic summation of value of two independent de-merged entities that may emerge in future,” a Grasim release stated.

The offer, which opens on May 7, now hinges on how Icra assesses proposals put forward by Grasim and the L&T management to separate L&T’s cement wing.

The Birlas valued the cement division at Rs 130 per share and L&T’s entire business at Rs 292.50 per share. Grasim said its demerger plan was made after announcement of the offer, and does not affect the price it pays for shares to be purchased from investors. The valuation (of Rs 292 each) can, at best, indicate potential contingent value which, in turn, depends on how events unfold; it is not the value of shares of the existing company.

Grasim said the price quoted in what is merely a proposal at this stage could be a reference if things pan out the way it expects them to. “The indicative values for the proposed new cement firm and the remaining business of L&T, as described in the proposal, cannot be considered to arrive at the offer price. The current offer is for the shares of L&T as it exists today. It cannot be compared with the indicative valuation and offer of Rs 130 per share for the de-merged cement firm,” it added.

The offer comes after clearance from Sebi, which also lifted curbs on Grasim on buying L&T shares from the market.

Analysts believe the Birlas have justified the offer price of Rs 190 per share but the arguments might not cut much ice with L&T shareholders, particularly financial institutions. Developments over the next few weeks will hold the key to the success of Grasim’s open offer. The most keenly watched development would still remain the cement demerger plan — an issue the L&T board will discuss again.

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