Birla: Question hour

Mumbai, March 7: The Securities and Exchange Board of India (Sebi) probe into Grasim Industries’ open offer for Larsen & Toubro (L&T) reveals that the Birlas did not spell out the way they will run the engineering major after buying it.

Key questions, such as the objective of acquiring L&T shares, future plans and how these would be executed, were left unanswered.

The regulator told Grasim about these findings on February 25. The investigation, now in the final phase, should lead to a ruling in the second week of this month. Sources believe the offer will be allowed to go through with revisions, including fresh disclosures related to the vertical de-merger plan for the cement wing.

In response to observations made by Sebi, Grasim today insisted it had not set its sights on control or a change in the existing management of Larsen & Toubro. Also, it says it will not alter the current lines of business over the next two years, except for the purpose of restructuring or rationalisation of assets.

Sebi sought more clarifications from Grasim on March 5. The company has to explain how its acquisition will yield benefits for the engineering major. These meant things like multi-functional synergies, enhanced financial flexibility and the ability to raise funds at home and overseas at competitive rates.

“Disclose how these benefits will accrue to the acquirer when the offer is made only for substantial acquisition of shares and voting rights, without any change in control,” the capital market watchdog told Grasim, which has been told to reply to this letter by March 15.

According to Sebi, Grasim’s initial public announcement was ambiguous on the purpose of acquisition of shares of L&T, future plans if any for L&T and how the company intends to execute such plans.

“Grasim is also required to give disclosures in the public announcement regarding the its intention for disposal of any of the assets of L&T in succeeding two years. If it has any other future plan on L&T, the same shall be specified in the public announcement and also as to how Grasim proposes to implement such plans. Grasim has not made any disclosure regarding its intention to acquire control over L&T,” Sebi pointed out.

The market regulator added that various material information that is essential for shareholders of L&T to make an informed decision with regard to the offer have not been disclosed in Grasim’s initial public announcement.

Sebi said the material information not disclosed relates to whether Grasim has decided to acquire control over L&T or its businesses, its vertical demerger proposal on L&T’s cement unit and the reasons for the premium paid by the company for acquisition of L&T shares on the market price to Reliance.

Grasim has said in its reply said that it has made full and complete disclosure in the public announcement.

“The objective of the offer is substantial acquisition of shares of L&T, it said, adding future plans are outlined in the initial announcement.