Mumbai: Larsen and Toubro Ltd (L&T) and Grasim Industries Ltd, two of India’s best-known and most valuable conglomerates that waged a bitter battle in the early 2000s, are at it again.
This time, the battle is being fought in a Mumbai court.
At stake is a 0.6% holding in L&T, or 1.9 million shares in the company that Grasim, part of the Aditya Birla Group, was supposed to transfer to the L&T Employees Welfare Foundation, an employee trust, at Rs120 a share.
At that price, the shares will fetch Grasim Rs22.8 crore, next to nothing when compared with the current valuation of L&T.
Shares of the engineering firm closed at Rs3,003.35 each on the Bombay Stock Exchange on Wednesday. At this price, the shares would be worth Rs570 crore. And at the stock’s 52-week high price of Rs4,505.50 (15 November), the shares would be worth Rs856.05 crore.
Grasim retained these shares in L&T after the engineering firm spun off its cement business and sold it to the Birla company after a protracted battle between 2001 and 2004 (see “The bone of contention” on Page 3). The fight began when Grasim acquired a 10.45% stake in L&T from Reliance Industries Ltd through a negotiated deal, increased its stake to 14.98% and made an open offer for another 20% stake (its stake increased to 15.75% as a result)—a hostile move targeted at acquiring L&T’s cement business.
THE BONE OF CONTENTION (Graphic)
The boardroom battle was resolved in 2004, with Grasim acquiring a majority stake in L&T Cement (now UltraTech Cement Ltd) from L&T after the engineering conglomerate was restructured. As part of the recast exercise, Grasim sold its 14.95% stake in L&T to L&T Employees Welfare Foundation at Rs120 a share and retained the remaining 0.8% stake. Had it not done so, the foundation would have been forced to make an open offer as under the Indian capital market regulator’s guidelines, any entity acquiring 15% stake or more in a firm must make an open offer for another 20% of the firm.
L&T executives familiar with the case cite an agreement between their company and Grasim under which the latter is bound to transfer these shares when the L&T Employees Welfare Foundation’s stake in L&T falls below a certain level (which ensures that the acquisition of the 0.8% doesn’t trigger an open offer). A Grasim executive denied the existence of the agreement.
Clearly, the bone of contention is the price. A Grasim official, who did not wish to be identified, said it would be against the shareholders’ interest to sell the shares at Rs120. D.D. Rathi, whole-time director and chief financial officer of Grasim, said L&T had filed a case in the Bombay high court in 2007 and that its plea had been rejected.
L&T has now appealed to the higher division bench of the court. Rathi refused to elaborate as the case is before the court.
L&T board member and finance director Y.M. Deosthalee admitted that there was a “dispute on the shares” between the two companies, but declined to comment further for the same reason.
The fight between L&T and Aditya Birla Group has spilled into business dealings between the two as well. When L&T put its ready-mix concrete business up for sale earlier this year, it did not invite bids from Grasim Industries, which wants to grow its own ready- mix business.
Chartered accountant S. Gurumurthy played the role of a mediator in the earlier dispute and clinched a deal in which the cement division of L&T was carved out and sold to the Aditya Birla Group.
The equity stake of the employees welfare foundation in L&T was diluted after L&T raised $400 million (Rs1,620 crore today) in a global depository share issue in 2007.
The trust had earlier issued convertible warrants (debt that can be converted into equity after specified years) and raised $250 million. The two transactions diluted its stake in L&T from 14.9% to 12.72%.
L&T CEO A.M. Naik, who rose to CEO from the post of a shop floor trainee, is not new to takeover battles.
He was part of the senior management team that fended off a takeover attempt from the late Dhirubhai Ambani when the Reliance Industries chairman acquired a 10% stake in the engineering company in the 1980s.
Ambani was building Asia’s single largest refinery at a single location (in Jamnagar) and wanted to use L&T’s engineering expertise to prune costs.
Since L&T was executing some sensitive projects for many government-owned scientific institutions such as Bhabha Atomic Research Centre, the government came to the rescue of L&T and asked state-owned financial institutions, which were significant shareholders in the company, to block the takeover.
Following an independent transaction after its restructuring, L&T still owns an 11.49% stake in Aditya Birla Group’s subsidiary UltraTech Cement Ltd.