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    LNT Grasim Case

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    RickMartin
    - Grasim Industries and Larsen & Toubro (L&T) were two major players in the Indian cement industry in the late 1990s and early 2000s. - In 2002, L&T decided to demerge its cement business into a separate company called CemCo. Grasim then acquired stakes in CemCo over multiple transactions, gaining majority control through an open offer in 2004. - The demerger and acquisition was a complex deal involving multiple stakeholders. It resulted in Grasim gaining a large cement business and control of the newly formed UltraTech Cement, while allowing L&T to focus on its core engineering business. Shareholders of both companies benefitted from the arrangement.

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    LNT Grasim Case

    Uploaded by

    RickMartin
    180 views9 pages
    - Grasim Industries and Larsen & Toubro (L&T) were two major players in the Indian cement industry in the late 1990s and early 2000s. - In 2002, L&T decided to demerge its cement business into a separate company called CemCo. Grasim then acquired stakes in CemCo over multiple transactions, gaining majority control through an open offer in 2004. - The demerger and acquisition was a complex deal involving multiple stakeholders. It resulted in Grasim gaining a large cement business and control of the newly formed UltraTech Cement, while allowing L&T to focus on its core engineering business. Shareholders of both companies benefitted from the arrangement.

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    LnT Grasim

    Original Title

    LnT Grasim Case

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    - Grasim Industries and Larsen & Toubro (L&T) were two major players in the Indian cement industry in the late 1990s and early 2000s. - In 2002, L&T decided to demerge its cement business into a separate company called CemCo. Grasim then acquired stakes in CemCo over multiple transactions, gaining majority control through an open offer in 2004. - The demerger and acquisition was a complex deal involving multiple stakeholders. It resulted in Grasim gaining a large cement business and control of the newly formed UltraTech Cement, while allowing L&T to focus on its core engineering business. Shareholders of both companies benefitted from the arrangement.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    180 views9 pages

    LNT Grasim Case

    Uploaded by

    RickMartin
    - Grasim Industries and Larsen & Toubro (L&T) were two major players in the Indian cement industry in the late 1990s and early 2000s. - In 2002, L&T decided to demerge its cement business into a separate company called CemCo. Grasim then acquired stakes in CemCo over multiple transactions, gaining majority control through an open offer in 2004. - The demerger and acquisition was a complex deal involving multiple stakeholders. It resulted in Grasim gaining a large cement business and control of the newly formed UltraTech Cement, while allowing L&T to focus on its core engineering business. Shareholders of both companies benefitted from the arrangement.

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    Introduction

    Founded in 1938
    Presence in multiple industries
    Engineering & Construction
    Cement
    Information Technology
    Financial Services
    E&C contributes to 60% of revenue

    Founded in 1947 as fabric company


    Presence in multiple industries
    Viscose Staple Fiber
    Cement
    Sponge Iron
    Chemicals and Textile
    Looking to expand through M&A

    Cement Comparable
    Parameters

    Grasim

    L&T

    Revenue

    46%

    26%

    Industry Position

    3rd largest

    Largest

    Number of plants

    12

    10

    Production capacity

    13 MTPA

    18 MTPA

    The Scenario L&T Spin-off

    Timeline of Events
    The Grasim Board approved an
    open offer for purchase of up to 20
    per cent of the equity shares of
    L&T, in accordance with the
    provisions and guidelines issued
    by the SEBI Regulations, 1997.
    Grasim increased share up to
    14.15%

    Grasim became the 3rd


    largest player in the
    cement industry while
    L&T was the 2nd largest
    player in the cement
    industry

    2001

    1998
    2000
    Grasim acquires Indian
    Rayons
    Cement,
    Dharani
    cement,
    Sri
    Digvijay cement

    Completed the implementation


    process to demerge the cement
    business of L&T and completion
    of open offer by Grasim, with the
    latter acquiring controlling stake
    in the newly formed company
    Ultra-Tech

    2003
    2004

    2002
    Grasim acquired 10% percent
    stake of Reliance Industries in
    L&T at Rs. 306 per share at a
    premium of 47% above market
    price

    The board of engineering


    major Larsen & Toubro Ltd
    (L&T) decides to demerge its
    cement business into a
    separate cement company
    (CemCo).

    The Scenario Various Cases


    Final Deal Making

    Open Offer
    Role of Reliance

    Case 1: Role of Reliance

    Single Largest shareholder of company.


    Supplier-Customer relationship.
    Accused of using LnT for its finances.
    Accused of unethical practices.
    Capital Gains of 360 crores in a negotiated
    deal with Grasim.

    Case 2: Open offer @ 190


    Stalled on the basis of petition by Investors
    Grievance Forum (IGF).
    Legal implications Letter of the law.
    Minority shareholders- Spirit of the law.
    Negatively on Grasims Brand equity.

    Problems Highlighted
    Insider Trading.
    Open Offer Chaos.
    Takeover code.

    Beneficiaries of Deal
    Shareholders.
    L&T and Grasim.
    Financial Institutions.

    Case 3: Final deal making


    Structural Demerger vs. Vertical Demerger.
    Grasim may try to gain management
    control with the support of financial
    institution.

    Core Competencies
    Governance

    Financial Prudence
    Consistently
    demonstrated
    excellent financial prudence
    Excellent debt - equity ratio of
    0.57 as on 31 March 2004
    Grasims interest burden has
    always been low

    Operational Excellence
    Operational excellence is another
    of its core strengths.
    Limestone cost is the third lowest
    in the industry.
    Operating margin for the year
    ending March13 was 21.15%.

    Quality Emphasis

    Followed VBM- the best


    practices
    in
    Quality
    management.
    Made operating manager
    more answerable to the
    shareholder.

    Board accountability to
    the
    Company
    and
    stakeholders
    Strategic guidance and
    effective monitoring by
    the Board
    Protection of minority
    interests and rights

    Process and Systems


    Excellent processes and systems company culture is of a meritocracy
    Grasim has always looked to
    achieving international standards
    It has taken several contemporary
    initiatives TQM, BPR, IQRS

    Alternative Solutions
    Grasims Proposal

    CDCs Proposal

    With Convertible Debentures 6.8% CDC would get


    complete control of the cement entity

    A vertical demerger by L&T on a going concern


    basis.

    stiff penalties will be levied on L&T if any of the


    conditions are breached

    All equity shareholders of L&T will receive equity


    shares of new CemCo in the same proportion as
    their equity holding in L&T

    Right to Veto

    Second Public Offer for acquiring 20% stake

    Offer Price was fixed at Rs. 130 per share

    FIs announced their support to vertical demerger


    plan

    Drag-along conditions, if CDC were to divest its


    holding, it would force L&T to divest up to 44.2 per cent
    of its stake in the cement division
    L&T would end up paying penal interest of 15 per cent
    in dollar terms compounded annually on $ 60 million

    Favourable to CDC, Not towards shareholders

    Final Decision

    Final Decision
    80:20 division

    Phase 1: Grasim by virtue of its ownership of 15.7 per cent


    of L&T, will acquire 12.6 per cent in Cemco.

    Phase 2: Grasim is to buy 8.5 per cent of L&T's stake in


    Cemco at Rs.171.30 a share, aggregating about Rs.360
    crores. L&T's stake in Cemco will fall to 11.5 per cent

    Phase 3: Open offer at Rs. 346, for 30 per cent of the


    equity of CemCo, to acquire the management control of
    CemCo.

    The company will get Rs360 crore in cash from the sale
    of 8.5 percent stake to Grasim Industries

    Grasim will sell 14.93% of its 15.73% of its holdings in


    L&T to employees trust of L&T. Remaining 0.8% would
    be sold when employee trust will dilute its holding by
    1%

    The de-merger of the cement division will also result in


    reduction of debt by Rs1,868 crore and will reduce the
    debt- equity ratio from 0.61:1 to nearly 0.5:1

    Grasims stake in new CemCo.


    Initial allotment: 12.5%
    Sold by L&T: 8.5%
    Open offer: 30%
    Total: 51%

    Win-Win-Win situation
    GRASIM

    L&T

    Demerged L&T would come across as a


    focused engineering and technology company

    Grasim & UltraTech became the largest


    producer in India and 8th largest in the
    world

    Post demerger company was able to reduce


    debt sustainability

    Grasim was strong in southern markets ,


    L&T was strong in rest of India

    Independence from Aditya Birla Group without


    spending any money

    L&Ts strong distribution network was


    very vital to Grasim to push its own
    brand

    Cement generated immediate cash flows


    for Grasim compared to any other
    business

    Shareholders
    For 100 shares of L&T shareholders get
    50 shares of new L&T & 40 shares of new
    cement company

    Thank You

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