Description
main story of the demerger deal , background of the deal; birla's strategy; counter strategies by L&T; why L&T surrender; where did L&T loose and who won the battle
CASE ANALYSIS
Demerger of
Acquisition by
by
& its
Background
In the late 1980s, RIL had acquired 10.05% stake in L&T. RIL wanted to acquire L&T as a whole. RIL had no support from Govt, public at large or FIs
FIs had 40 % stake, LIC & UTI held 27% stake in L&T
The main story
On 18th Nov, 2001 RIL sold its entire stake (10.05%) to A.V Birla group company – Grasim for Rs 766.5 crore Thereafter, Grasim subsidiary acquired another 4.48% stake in L&T => 10.05+4.48=14.53%
On 27th Jan, 2003 Grasim made a proposal of vertical demerger of L&T’s cement business.
Grasim could just acquire 0.38% in the open offer
Grasim also proposed to make an open offer to acquire control over L&T’s cement business Post offer, Grasim through its subsidiary acquired another 0.83% stake in L&T => 14.53+0.83=15.73%
Thereafter, in June 2003, L&T and Birlas agreed for a deal to carry out a structured demerger of cement business of L&T.
The demerger deal
UltraTech’s paid-up capital was fixed at Rs 124.91 crore L&T was allotted 20% of UltraTech’s equity
Remaining 80% was allotted to shareholders => 5 : 2
Grasim’s stake => 12.5% in UltraTech against its 15.73% in L&T
12.5%+8.5%=21%+30%(open offer)=51%
FIs bring down their stake
The demerger deal contd…
Grasim shell out Rs 362 crore to L&T and Rs 1298 crore in open offer
Grasim bought L&T’s 8.5% stake at Rs 342.60 per share and made an offer on the same price.
Residual stake (20%-8.5%=11.5%) to be liquidated by Dec 2009 Grasim sold 14.93% of its 15.73% stake to an employee’s trust of L&T. Remaining (15.73%-14.93%=0.80%) sold when employee trust would dilute its stake by 1% or so
Birla’s strategies
Growth by acquisition
Use L&T as premium brand
Increase customer base
Strong distribution network
L&T cement division losses in 2002-03
Why L&T surrendered ???
Survival
FIs support for Grasim
Fear of loosing FIs support
Keep control over L&T
Counter-strategies by L&T
Negotiated firmly Retained its ready-mix cement business & other key assets
L&T stake of 20% in UltraTech
Sold 8.5% stake at a whopping Rs 362 crore. Time limit to sell the remaining 11.5% stake upto Dec ‘09. Made Birla’s sell approx 14.95% stake to emloyees’ welfare trust
Birla’s off their backs permanently
Increased their own stake
Earnings per share(EPS) shooted up
Debt : Equity improved to 0.5 : 1
Where did L&T loose???
In June 2009, L&T sold its 11.5% stake in UltraTech as small parcels to different buyers at Rs 720-735 per share.
In 2007, UltraTech share price ranged between Rs 1000-1100
Touched Rs 1250 on the NSE on 18th Jan, 2007
Who won - L&T or Birlas ???
doc_261646763.pptx
main story of the demerger deal , background of the deal; birla's strategy; counter strategies by L&T; why L&T surrender; where did L&T loose and who won the battle
CASE ANALYSIS
Demerger of
Acquisition by
by
& its
Background
In the late 1980s, RIL had acquired 10.05% stake in L&T. RIL wanted to acquire L&T as a whole. RIL had no support from Govt, public at large or FIs
FIs had 40 % stake, LIC & UTI held 27% stake in L&T
The main story
On 18th Nov, 2001 RIL sold its entire stake (10.05%) to A.V Birla group company – Grasim for Rs 766.5 crore Thereafter, Grasim subsidiary acquired another 4.48% stake in L&T => 10.05+4.48=14.53%
On 27th Jan, 2003 Grasim made a proposal of vertical demerger of L&T’s cement business.
Grasim could just acquire 0.38% in the open offer
Grasim also proposed to make an open offer to acquire control over L&T’s cement business Post offer, Grasim through its subsidiary acquired another 0.83% stake in L&T => 14.53+0.83=15.73%
Thereafter, in June 2003, L&T and Birlas agreed for a deal to carry out a structured demerger of cement business of L&T.
The demerger deal
UltraTech’s paid-up capital was fixed at Rs 124.91 crore L&T was allotted 20% of UltraTech’s equity
Remaining 80% was allotted to shareholders => 5 : 2
Grasim’s stake => 12.5% in UltraTech against its 15.73% in L&T
12.5%+8.5%=21%+30%(open offer)=51%
FIs bring down their stake
The demerger deal contd…
Grasim shell out Rs 362 crore to L&T and Rs 1298 crore in open offer
Grasim bought L&T’s 8.5% stake at Rs 342.60 per share and made an offer on the same price.
Residual stake (20%-8.5%=11.5%) to be liquidated by Dec 2009 Grasim sold 14.93% of its 15.73% stake to an employee’s trust of L&T. Remaining (15.73%-14.93%=0.80%) sold when employee trust would dilute its stake by 1% or so
Birla’s strategies
Growth by acquisition
Use L&T as premium brand
Increase customer base
Strong distribution network
L&T cement division losses in 2002-03
Why L&T surrendered ???
Survival
FIs support for Grasim
Fear of loosing FIs support
Keep control over L&T
Counter-strategies by L&T
Negotiated firmly Retained its ready-mix cement business & other key assets
L&T stake of 20% in UltraTech
Sold 8.5% stake at a whopping Rs 362 crore. Time limit to sell the remaining 11.5% stake upto Dec ‘09. Made Birla’s sell approx 14.95% stake to emloyees’ welfare trust
Birla’s off their backs permanently
Increased their own stake
Earnings per share(EPS) shooted up
Debt : Equity improved to 0.5 : 1
Where did L&T loose???
In June 2009, L&T sold its 11.5% stake in UltraTech as small parcels to different buyers at Rs 720-735 per share.
In 2007, UltraTech share price ranged between Rs 1000-1100
Touched Rs 1250 on the NSE on 18th Jan, 2007
Who won - L&T or Birlas ???
doc_261646763.pptx