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L&T management ropes in FIs to oppose Birlas' offer

Rumi Dutta & Arijit De in Mumbai

The financial institutions, the largest shareholders in Larsen & Toubro, have been informally approached by the L&T executive management, which has made out a case against the Aditya Birla group flagship Grasim's open offer for the engineering and cement conglomerate.

This is the first indication of an active opposition, albeit a behind-the-scenes one, by the L&T management to the Grasim move. Confirming the development, a top financial institution source said: "We have been approached by L&T. They are seeking our support against the Birla group's open offer."

The L&T management, institutional sources said, had pointed out that the intrinsic value of the stock was at least 40 per cent higher than Grasim's offer price of Rs 190 a share, and hence did not offer the FIs an attractive exit option. Under the various valuation methods, the L&T scrip will be valued at close to Rs 300 a share.

An institutional source said: "We have indicated to L&T that we are sticking to our earlier decision of not participating in the open offer, because we do not see the offer price as favourable. There has been no further development since then to make us change our stand."

However, some senior members of L&Ts corporate management committee declined to speak on the issue.

An L&T spokesman said, "We do not want to comment on matters of speculation." Grasim, too, did not wish to comment.

Earlier, in the 1990s, the financial institutions had played a critical role in staving off an attempt by the Reliance group to take control of L&T.

However, this time the decision of the institutions may not be very critical, observers say. Under the Securities and Exchange Board of India's takeover code, Grasim has to make an open offer to hike its stake further because it is nearly 15 per cent, the trigger point.

Once the Birlas get the open offer out of the way, they will be free to hike their stake through the creeping acquisition route as and when they wish.

The strategy appears similar to the one adopted by Reliance for power major BSES.

The Birlas already have two nominees on the L&T board, but can seek greater representation once the open offer closes.

As of now, the Birlas have not indicated whether they would take charge of day-to-day operations at L&T.

Ever since Grasim bought Reliance's 10.05 per cent in L&T in November 2001, it has termed the investment a strategic one.

Grasim's initial investment is seen as a pre-emptive one, meant to block L&T's decision to hive off the cement business.

Grasim has also given an undertaking in a public announcement to L&T shareholders that the diversified conglomerates lines of business will be altered only if approved by L&Ts board and shareholders.

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