A Takeover Battle - Grasim vs. L&T

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Case Details:

Case Code : FINC024
Case Length : 19 Pages
Period : 2002 - 2003
Pub. Date : 2005
Teaching Note : Available
Organization : Grasim, L & T, SEBI
Industry : Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Beginning of the War: Exit Reliance, Enter Grasim

Grasim reportedly had ambitious intentions of becoming India's largest cement company and getting a stake in L&T was perhaps one of the easiest ways it could move closer to this goal (Refer Exhibit I for a comparative look at the two companies).

This seemed possible for, in the intensely competitive Indian cement industry, consolidation (in the form of mergers and acquisitions) had become a norm. According to industry observers, Grasim realized that by building up a stake in L&T, it stood gain substantially. Thus, when an opportunity came its way in November 2001, Grasim was more than eager to grab it.

The Reliance Group (Reliance), which held 3.92% in L&T in September 2001, had increased its stake to 10.05% by November 2001, by acquiring over 15.8 million shares from the market. Reliance sold this entire stake to Grasim at Rs 306.60 per share, at a premium of 47% over the prevailing market price of Rs 208.50...

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The Open Offer

Meanwhile in May 2002, Grasim further acquired a stake of 2.84% in L&T from the open market, taking its overall holding to 12.89%. These shares were purchased at prices ranging between Rs 175 to Rs 180.

Justifying the above move, Grasim's President and Chief Financial Officer, D D Rathi, said that since the company had surplus cash with no immediate investment plans, increasing the stake in L&T seemed to be a good opportunity.

He added that the decline in the value of L&T stock since September 2001 had also induced Grasim into buying L&T shares. Industry observers however commented that there was a lot more behind Grasim's move than the strategic investment angle.

They alleged that Grasim was trying to make a 'backdoor entry' to take control in L&T...

Excerpts Contd... >>

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