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DECLINE
IN STOCK PRICES RATTLES INSTITUTIONS
FIs
to seek explanation from Grasim on L&T deal premium
Sitanshu
Swain
Mumbai, Nov 19: Financial institutions, which hold
about 21.5 per cent in Aditya Birla group company Grasim Industries
Ltd, are set to demand an explanation on the ‘due diligence’
undertaken by the company for paying a premium of 47 per cent
for acquiring the 10 per cent stake held by Reliance Industries
in engineering and cement major Larsen and Toubro (L&T).
| Kumar Birla
meets Sebi chief DR Mehta |
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Yagnesh Kansara
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Mumbai, Nov 19: In a major development,
Aditya Birla group chairman Kumar Mangalam Birla on
Monday met Securities and Exchange Board of India (Sebi)
chairman DR Mehta to apprise him of the deal relating
to Grasim Industries’ acquisition of 10 per cent stake
in Larsen & Toubro from Reliance Industries. Mr
Birla called on Mr Mehta on Monday afternoon at around
3.30 pm., was closeted with the Sebi chairman for well
over an hour. Grasim stunned the markets on Sunday evening
by deciding to acquire Reliance’s 10 per cent plus stake
in L&T at a 47 per cent premium to market price.
The deal was struck at Rs 306.60 per share.
The meeting assumes greater significance coming as it
does just a day after the deal, with the markets regulator
also probing the share price movement of L&T on
the bourses. The stock had been soaring over the past
week, and was stuck at the higher end of the circuit
filter, at 10 per cent. The sharp spurt in prices and
volumes has raised eyebrows and prompted queries about
whether someone knew that the deal was cooking.
Emerging from the meeting, Mr Birla did not say much.
All he would disclose was: “It was a courtesy meeting.”
Mr Birla was, till recently, a member of the Sebi board,
and his term came to an end in September. However, he
was unable to attend the last board meeting before the
expiry of his three-year term.
Mr Mehta said Mr Birla had come to meet him and apologise
for not being able to attend his last board meeting
as Sebi board member. “He came for a courtesy call.
The Grasim deal for L&T did figure in the conversation,”
the Sebi chairman added.
However, top Sebi sources said the markets regulator
would look into the aspect of the RIL-Grasim deal as
part of the ongoing Sebi probe into the price movements
of the L&T stock. While initially, the probe was
started to establish a possible link between frequent
announcements from the company on its proposed cement
business demerger and the price movements, the deal
between Grasim and Reliance for 10 per cent of L&T
has added a totally new dimension to the story, which
will now be examined by the regulator, the sources said.
The Financial Express on Monday reported
that the Sebi probe would take into account the deal
between RIL and Grasim.
The aspect of the takeover code will also be examined
by the regulator, though the acquisition was for only
just over 10 per cent and therefore well within the
trigger level of 15 per cent required for making an
open offer under the Sebi takeover regulations.
“Since Grasim has made it clear it is not seeking management
control, there is also no real issue of violation of
the takeover code,” a top Sebi official said.
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Life Insurance Corporation (LIC), General
Insurance Corporation (GIC), Industrial Development Bank of
India (IDBI) and Unit Trust of India (UTI) have exposures
in Grasim.
Grasim on Sunday decided to pick up the 10 per cent stake
held by RIL in L&T at Rs 306.60 per share, almost Rs 100
more than the ruling market price of the stock.
“The Aditya Birla group has said that the funds for the entire
Rs 767-crore deal will be purely from internal accruals, which
effectively would impact our investment in Grasim,” said a
top FI source.
“The company must explain its due diligence process to us
by which it has paid such a high premium over the existing
market price.
Rs 767 crore is not a small amount of money,” said FI sources,
adding that they have not found any extraordinary prospects
in L&T which justify such a premium being paid.
The FIs have taken a stand that Grasim’s act of picking up
RIL’s stake in L&T at a high price may not be justified
as the L&T share price has fallen after the deal. The
Grasim stock, too, fell by over seven per cent on Monday.
Reacting to the FI stand, Grasim director Saurabh Misra told
The Financial Express: “The nominees of the FIs attended and
approved of the board decision to pick up the RIL stake in
L&T. We have our reasoning for the price, based on facts
and figures.” He said the price was arrived at after taking
into account the size and value of the cement and engineering
businesses and the recent transactions which other companies
like the Ambuja group and Lafarge have completed. The two-year
average of the L&T stock price, which had touched Rs 600
levels last year, stood at Rs 258, Mr Misra pointed out, explaining
the rationale behind the premium paid.
The FIs, however, are not amused. “Today’s price movements
in both L&T and Grasim show that investors are not so
enthusiastic about the mega deal,” remarked the FI sources.
“Such a deal should have triggered a sharp rise in the prices
of both the shares,” they added.
Meanwhile, the FIs have also tried to enquire whether the
Aditya Birla group has already acquired some stake in L&T
in addition to the latest 10 per cent. Mr Misra clarified
that the Aditya Birla group did not hold any shares in L&T
other than the stake it acquired from RIL.
On the other hand, the FIs, which hold around 24.6 per cent
in L&T have asked the company to apprise them about the
impact of the Rs 767 crore deal.
The three major financial institutions — LIC, GIC and UTI
— are also discussing the ‘surprise development’ among themselves
and their reaction to the boardroom changes in L&T are
expected to be taken in unison.
“Our investment is quite safe and we are trying to know the
consequent developments on our investments out of Grasim’s
entry,” said a top level FI source, adding that the replacement
of the Ambanis by the Birlas in L&T was “a significant
development.”
L&T is in the midst of implementing a restructuring plan
which commenced sometime ago. The three FIs, which were concerned
about their investment in the cement and engineering major,
had a major role in preparing the restructuring plan including
the proposed demerger of the cement division. The FIs are
keeping a close watch on the price of the L&T stock following
the deal. But they were disappointed as the L&T share
fell on Monday.
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