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Grasim offers to buy 20% in L&T at Rs 190

BS Corporate Bureau in Mumbai

Eleven months after it bought out the Reliance group's 10 per cent stake in Larsen & Toubro, the Aditya Birla group appears to be gearing up to take full charge of the cement and engineering conglomerate.

The board of Grasim on Sunday approved a 20 per cent open offer for L&T at Rs 190 a share, 10 per cent higher than the minimum stipulated price under the Sebi guideline of 26-week average high-low. The outgo through the offer, if fully subscribed, will be Rs 945 crore (Rs 9.45 billion).

The acquisition is planned to be executed through Grasim and its wholly owned subsidiary, Samruddhi Swastik Trading and Investments Ltd, acting in concert.

Birla officials said Grasims current holding in L&T had crept up to 14.5 per cent, with the investment being Rs 960 crore (Rs 9.6 billion) till date.

Grasim has been constantly hiking its stake in the company through market purchases over the past six months, but it cannot exceed 15 per cent without making the offer.

Though analysts see the offer price as being "not so attractive", Grasim can now go on increasing its stake from the market as much as it wants, once it gets the open offer out of the way.

The offer price, however, was far lower than the Rs 306.50 a share, Rs 766 crore (Rs 7.66 billion) in total, that Grasim paid to buy out the Reliance groups 10.05 per cent in November last year.

The average price at which the balance 4.45 per cent Grasim stake has been bought from the market is Rs 177 (Rs 194 crore in total).

Had the Birlas made the open offer by May this year, they would have had to make the offer at Rs 306.50 a share, under the Sebi guidelines.

D D Rathi, Grasims president and chief financial officer, told Business Standard: "We feel this is the best time to make an open offer for L&T. We also need to get the average acquisition price down."

At least at this point, Grasim says it is not keen on taking full management control of L&T.

"Our public announcement, to be released tomorrow (Monday), says we are not seeking a management change," Rathi said.

Accordingly, Grasim will not be seeking further representation on the board of L&T, at least immediately.

Grasim has two directors on the L&T board: A V Birla group chairman Kumar Mangalam Birla and his mother Rajashree Birla.

The biggest attraction for Grasim is L&Ts 16-million-tonne cement business, which has turned the corner and has been making significant contribution to L&Ts bottom line.

The L&T cement division grossed around Rs 2,700 crore (Rs 27 billion) in the last financial year.

It also has a fast-growing infotech subsidiary that can supplement Kumar Mangalam Birla's vision of building up a strong presence in the IT sector.

Rathi said Grasim would not be financially stretched if the open offer was fully subscribed.

He added the offer would open in December, once Sebi formally cleared the offer. He expects the entire open offer process to be completed by January.

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