Mumbai, June 17: Two days after his birthday, Kumar Mangalam Birla received a long-coveted gift —Larsen & Toubro’s (L&T) cement business. The A. V. Birla group, of which he is the chairman, will pay Rs 171.30 per share ($ 79.5 per tonne) to snap up this slice of the engineering major in a deal that is valued at Rs 2200 crore.
L&T’s cement business will be spun off into CemCo, a separate firm in which the Birlas will acquire management control. That will make Kumar Mangalam a cement czar since he will get a capacity of 31 million tonnes under his belt, 16.5 million tonnes from L&T.
In the first stage, L&T will hold 20 per cent of CemCo’s equity. The remaining will be distributed to shareholders in proportion to the shares they hold in L&T. Investors with 100 shares of L&T will get 80 of CemCo.
Later, Grasim will acquire 8.5 per cent of CemCo from L&T at Rs 171.30 per share and, then, make an open offer at the same price for another 30 per cent of its equity. Grasim’s holding in the cement firm will initially be 12.6 per cent (it holds 15.7 per cent in L&T now). It will get a majority after the open offer, and purchase of 8.5 per cent.
At the same time, Grasim and its associates will sell their holdings in de-merged L&T (its non-cement business) at Rs 120 per share to one or more of L&T Foundation/Trusts that will be floated by its employees.
According to L&T CEO and managing director A. M. Naik, this step will ensure that the company’s share price does not suffer in the market.
L&T will receive Rs 362 crore for sale of its 8.5 per cent stake in CemCo. On the other hand, Grasim will have to shell out Rs 617 crore to financial institutions and Rs 661 crore to retail shareholders in its open offer.
A. V. Birla group officials said Rs 1,030 crore has been invested in L&T. They will receive Rs 470 crore from the sale of its stake in L&T’s non-cement business, thus resulting in a total consideration of Rs 2,200 crore.
Terming the de-merger as “partial”, Naik said it has put both companies in a win-win situation. Asked if the move will impact L&T’s net worth and subsequently its ability to bag projects, Naik said the Rs 360 crore that his firm will receive initially will bolster finances.
After the open offer, L&T will hold 11.5 per cent in CemCo. It will be free to sell this stake from 2004 to 2009, either in the market or to a buyer, including Grasim. The de-merged entity can use the use the L&T brand name until June 30 next year.