L&T completed the strategic divestment of its Electrical & Automation Business to Schneider Electric for Rs 14,000 crore.
Larsen & Toubro’s share price jumped over 2% on Tuesday as investors reacted to the company’s successful strategic divestment of its Electrical & Automation Business to Schneider Electric for Rs 14,000 crore. The completion of the deal comes over two years after it was announced by the two companies in 2018. According to market participants, this will mark the conclusion of the biggest merger & acquisition deal for Larsen & Toubro (L&T). Shares of the engineering and construction major have surged 35% from the March lows to now trade at Rs 966 per share on the Sensex on Tuesday.
L&T has said that the deal comes with the aim of unlocking value for future growth, while it added that its exit from the Electrical & Automation Business is a part of the strategic portfolio review process. Explaining the delay in the completion of the deal, A.M. Naik, Group Chairman, Larsen & Toubro said, “The challenge was to carve out a business of this scale, with minimum disruption to the sprawling customer base and do it all amid the constraints of a pandemic.” The M&A transaction involved a slump sale of the domestic business and share purchase transfer.
The all-cash deal strengthens L&T’s balance sheet at this juncture. “Given recent deterioration in L&T’s balance sheet due to cyclical issues in E&C, commissioning of Hyderabad Metro and NBFC challenges coupled with delays in closure of the Schneider deal, the development will enhance investors’ comfort,” said brokerage and research firm Edelweiss Securities. The brokerage has a ‘Buy’ call on L&T with a target price of Rs 1,280 per share.
The company has over the past few years exited several businesses to align with its strategy to focus on EPC Construction & Projects, Manufacturing & Defence and Services. The move has resulted in value unlocking for shareholders. “ With this all cash deal, the Indian engineering major has exited its only products business so that it can focus on its core competencies in construction and engineering and the high margin services business,” said Standard Chartered Securities in a note.