According to sources, the Birla proposal envisages Grasim swapping its 15 per cent holding in L&T for L&T Cement shares owned by financial institutions (FIs). As reported by FE on January 8, 2002, the three-step vertical demerger proposal will lead to Grasim holding a 50 per cent stake in the demerged cement company, following an open offer for another 20 per cent, and shedding its entire stake in L&T through the swap.
In a notice to The Stock Exchange, Mumbai (BSE), Grasim has stated that at its January 27 board meeting, it was decided that since L&T was contemplating consideration of the existing proposal before it to demerge its cement business, Grasim should also submit an alternative proposal for L&T boards consideration, which, in its view, was in the better interest of all the stakeholders of L&T and Grasim. Grasim recognises that it does not have any control over L&T and it will be entirely a prerogative of the board and shareholders of L&T to decide upon the proposal, Grasim has stated in the notice.
L&T sources said that the company had received the proposal from the Birlas on Monday. While the quarterly results would be initially taken up for discussion, it would be followed by the CDC proposal put up by the L&T management.
Sources said that the meeting was expected to go on till late in the evening, adding a committee would have to be formed to look into the alternate proposal by the Birlas.
As per the Grasim proposal, in the first step, L&T Cement is to be demerged through the vertical demerger route, with L&T shareholders getting one share of L&T Cement for one share in L&T.
In Step II, Grasim would swap its holding in L&T for L&T Cement shares owned by FIs. The proposal works out the total value for L&T at Rs 275 per share. It claims that FIs, that way, would get L&T shares at a market-linked fair value in the swap.
In Step III, Grasim would make an open offer at Rs 130 per share for a further 20 per cent of L&T Cement. The proposal assumes the value of L&T Main at Rs 145 per share (assuming a price-earnings multiple of 12).
The proposal envisages a Rs 650-crore cash outflow for Grasim, while FIs get a cash inflow of Rs 195 crore and the public has a Rs 455-crore inflow. It puts up the combined value of L&T at Rs 275 per share (L&T Cement Rs 130, L&T Main Rs 145) which, it says, is a 50 per cent increase on the current Grasim open offer price for L&T of Rs 190 per share. It also seeks to highlight the fact that the value is at a 62 per cent premium to the Rs 170 per share market price on the day the open offer was announced. Besides, the proposal says the strategic valuation of the cement business is at a higher price (US$65 per tonne) for 50 per cent. It also does not involve raising any debt.
Armed with the alternative proposal, the AV Birla group nominees on the L&T board Kumar Mangalam Birla and Rajashree Birla are expected to oppose CDCs proposal to pick up a 6.8 per cent stake in L&T for Rs 291 crore. The CDC proposal has been in the eye of a storm with persistent criticism on the conditionalities attached. The Birlas had opposed L&Ts plan to rope in CDC CapitalPartners as a strategic investor in its demerged cement business.
The sudden revival of the demerger proposal by L&T last year threw a spanner into the Birlas plan to garner a foothold in L&T, with cement synergy being the primary reason for the Birlas to acquire a stake in the diversified conglomerate.
Grasim holds just over 15 per cent stake in L&T, and had made an open offer for acquiring a further 20 per cent in the company last October. Subsequently, on the Securities and Exchange of Indias advice, the open offer was put on hold, pending investigation on the issue of control of L&T by the Birlas.
Accusing the L&T management of indulging in asset-stripping, in a reference to the companys attempt at demerge its cement business at a time when the Grasim open offer was technically on, Grasim had issued legal notices to the L&T directors a day prior to L&Ts December 7, 2002 board meeting.