Aditya Birla Nuvo and Grasim Industries merger has been given a thumbs down by analysts who have called it a ‘dampener’. Aberdeen Asset management, which owns 6 per cent stake in Grasim is surprised with the restructuring of AB Group. Aberdeen’s Hugh Young told CNBC TV that Grasim is already a holding company and investors are worried about the discount. He added that he does not detect any ‘dishonourable intentions’ behind the restructuring.
In a restructuring rejig, Aditya Birla Group on Thursday said that it is planning to merge its subsidiaries Grasim and Aditya Birla Nuvo through a stock swap and spin off of its financial services business.
Shares of both the companies fell in Friday’s trade reacting to the news. Grasim Industries was trading 0.76 per cent down at Rs 4504.50 at 10.59 am, while Aditya Birla Nuvo Ltd was trading 17.50 per cent down at Rs 1291.65 during the same time.
Both the companies also came with the first quarter earnings. Grasim Industries’ consolidated net profit jumped 64 per cent to Rs 830.22 for the quarter ended June 30 as against Rs 507.60 crore in the year-ago period. Aditya Birla Nuvo posted 56.79 per cent decline in consolidated net profit to Rs 305.15 crore in the first quarter ended on June 30, 2016 as compared to Rs 706.23 crore in the April-June quarter of 2014-15.
What the merger means for shareholders
1. Once the merger is implemented, it will result in a financial services company with 57 per cent owned by post-merger Grasim and the balance being held by post-merger Grasim shareholders on a proportionate basis.
2. Each AB Nuvo shareholder will get 3 new shares of Grasim for every 10 shares held in AB Nuvo.
3. For demerger of Financial Services business into ABFSL, each shareholder of Grasim (post-merger) will receive 7 equity shares in ABFSL for every 1 equity share held in Grasim
Brokerages have mixed views about the restructuring news. Terming the merger as a dampener, Religare Capital Markets said, “Prima facie the deal value looks fair based on current market price, however Grasim now becomes a holding company with various business under its roof including telecom.”
Sharekhan Investor, however, recommended a ‘Buy’ on Grasim Industries with at a target price of Rs 5,195. It said, “Merger synergies, participation in fast-growing financial services business to enhance Grasim profile: Merger of ABN (Idea Cellular, Financial Services, Rayon, Textiles, Agro-chemicals) is likely to bring synergy benefits to Grasim (UltraTech, VSF, Chemicals) in similar line of businesses.”
For Aditya Birla Nuvo, Sharekhan recommends a ‘Hold’ rating and says it will have a negative impact on shareholders. Post the proposed restructuring and listing of ABFS, Grasim would hold a 57% stake in ABFS, while ABN shareholders would own a 30% stake in ABFS (13% via direct exposure through share issue and 18% indirect exposure through holding in Grasim). Post the restructuring, the ABN shareholders would get an exposure to Grasim’s cement business but their direct stake in ABFS will decline to just 13%.”
Emkay Research has downgraded Grasim to “Reduce” from “Buy and sees this deal as negative for existing shareholders as the company becomes a holding company for the financial services business.