Aditya Birla Group is unlikely to buy Larsen & Toubro’s (L&T) 11.5% stake in its subsidiary UltraTech Cement, as it does not want to launch the mandatory open offer, which, if successful, would scale up its equity in the cement company to 86%, a person familiar with the group’s thinking said.
Requesting anonymity, the person said the Birlas did not wish to spend money for scaling up their stake in UltraTech in which they already hold a comfortable 55% stake. If fully subscribed, the required open offer coupled with L&T’s stake, would raise the Birla group’s stake in UltraTech by 31.5%, an exercise which would cost around Rs 2,700 crore at Thursday’s price.
The UltraTech stock gained marginally to close at Rs 691 on Thursday. Under the Sebi takeover code, a mandatory 20% open offer is required, if an investor picks up a 15% stake in a company, or if a promoter buys more than 5% in one year through creeping acquisition, or if a promoter buys a single share beyond 55%.
The same person said it made more sense for the group to spend money, if they wished to, for scaling up holding in UltraTech’s parent company, Grasim, in which they hold a 25% stake.
The Birlas enjoy the right of first refusal on L&T’s holding under the terms of an agreement with L&T signed in 2003. The same agreement also made it clear that in case the Birlas do not exercise their rights, L&T has the liberty to sell its shares to financial investors through open market operations. L&T is, however, not allowed to sell the shares to strategic investors.
There are also restrictions on how much each financial investor can hold, but these details are not publicly available. L&T would have to sell its stake by the end of the year under the 2003 agreement. The agreement had helped end an epic corporate battle, during which Grasim made an open offer for L&T. It ended with L&T selling its cement business to the Birlas.
In a recent interview with ET, L&T chairman AM Naik said: “The Birla group enjoys the right of first refusal on its stake in UltraTech. We can offer it to a third party, if they (the Birla group) don’t buy.” Mr Naik had further said that the Birlas and L&T had not spoken on this issue. “It’s not a complicated matter. We will sell the shares at the right price at the right time,” he had said.
When contacted, Grasim CFO Adesh Gupta told ET: “We can’t discuss our strategy on this issue now. We will take a call whenever they (L&T) offer us their stake.”
Source: Economic Times