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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Excerpts Contd...

A Tug of War

Grasim came out with an alternate vertical demerger plan in November 2002. According to this plan, the cement unit was to be demerged into a separate entity which would be listed on the stock exchanges.

All L&T shareholders including the Aditya Birla Group would get shares in the new company. However, L&T, as a company, would not hold anything. Reportedly, the relationship between the board members of Grasim and L&T also became increasingly hostile. L&T and Grasim nominees on the L&T board were resorting to 'mutual fault finding.'

While other directors blamed Grasim for insider trading, Grasim nominees blamed the other board members for the 'below par performance of L&T in 2002 (the company had reported a profit of Rs 188.9 million for the quarter ended June 2002, as compared to Rs 651 million for the same period in 2001)...

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A Twist in the Tale - CDC Steps in

In December 2002, L&T announced that it was considering the proposal made by Commonwealth Development Corporation (CDC), a UK based company, to invest in its cement business.

Under this proposal, CDC was to subscribe to optionally convertible debentures of L&T's demerged cement business and with an option to convert the debentures into 6.8% equity stake by December 2004. If CDC decided to hold on to the debentures, it could redeem them in three equal installments between 2004 and 2007. According to a clause in CDC's proposal, CDC would convert the debentures into equity only when the share price of the demerged cement company reached a specific price, called the strike price. The strike price was fixed as Rs 158 per share. Another clause in CDC's proposal stated that L&T required the approval of CDC if it wanted to come out with an initial public offering (IPO) for the cement business...

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Exhibit I: Comparing L&T and Grasim
Exhibit II: Sebi - Substantial Acquisition of Shares and Takeover Regulations 1997
Exhibit III: Shareholding Pattern in the New Cement Company
Shareholding Pattern in L&T Parent Company
Exhibit IV: Grasim's Rank in the Global Cement Industry After the Deal
Exhibit V: Leading Cement Companies in India (After The Deal)
Exhibit VI: Cement Industry in India
Exhibit VII: Timeline of Grasim L&T Tussle
Exhibit VIII: Demerger Proposal Highlights

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