The Telegraph
Since 1st March, 1999
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L&T grapples with demerger dynamics

Mumbai, May 23: Larsen & Toubro (L&T) is yet to give a final shape to its cement demerger plan. The company met today to discuss Icra’s report on the demerger plan but failed to take any decision as the report raised more questions than answers.

Icra’s report was a detailed analysis of the demerger proposals put forward by the AV Birla group and the L&T management.

Icra will address the issues raised by the board members at a meeting, which is likely to be held early next month. However, the demerger issue will not figure in the board meeting scheduled for May 29, which will consider the annual results of the diversified major.

Speaking to newspersons after a marathon board meeting that lasted for six hours, J. P. Nayak, president of cement operations and a member of the L&T board, said while Icra presented an analysis of both proposals, the board members wanted some clarificiations.

Nayak did not elaborate on the nature of the questions raised but said that the presentation made by Icra was a detailed one. He added that the L&T board will meet again to consider the demerger proposals.

In February, the L&T board had mandated Icra to evaluate the demerger proposals put forth by both Grasim Industries and the L&T management.

L&T officials had then said that Icra would evaluate both the proposals, their merits and de-merits and present its opinion to the management.

The L&T management wants a structural demerger of its cement business where only 25 per cent is offloaded to existing shareholders of the company. Its proposal sees CDC Capital Partners investing 6.8 per cent in the demerged entity. The investment firm was planning to pump in Rs 291 crore into the demerged unit.

On the other hand, the Birla group is in favour of a vertical demerger where shareholders are given shares in the demerged entity based on their existing shareholding.

Even as the presentation of this report was awaited, the Securities and Exchange Board of India (Sebi) cleared the open offer by the Birlas at Rs 190 per share for shareholders of the diversified company, thus complicating the situation further.

This period also saw the AV Birla group valuing L&T's cement business at Rs 130 per share and its entire businesses at Rs 292.50 per share. In a public announcement, Grasim and Samruddhi Swastik Trading and Investments Ltd said that the cumulative price of Rs 292.50 per share assigned by it is not relevant for the purpose of the current open offer.

Thereafter, it is expected that in the event of the demerger proposal of the Birlas being accepted, the group would make another open offer for the cement company at Rs 130 per share.

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