'This merger is a play on the Indian growth story and we expect the shareholders to benefit from this transaction.'
The Aditya Birla Group on Thursday announced the merger of its two holding companies, Aditya Birla Nuvo and Grasim, to make the holding structure clearer, ensure stable cash flows and unlock value in its financial services arm. In an interview to Dev Chatterjee and Abhineet Kumar, chairman of Aditya Birla group Kumar Mangalam Birla gave the rationale behind the merger and why the “complex” deal is good for all shareholders. Excerpts:
What made you to think of a merger between the two companies?
The merger would help shareholders to get exposure in both mature and new-age businesses. Both have many identical businesses, like viscose filament yarn (VFY) and viscose staple fibre (VSF) that are related to the textiles sector.
The financial services business of Aditya Birla Nuvo will get listed and shareholders of both companies will get shares in that entity. It’s a win-win deal for the shareholders of both companies.
We are not intending to make another large holding company. It is also important to know that Idea Cellular would make arrangements for its own fund requirements and this merger will not impact its fundraising capacity in any way.
The new Grasim will hold around 25 per cent in Idea Cellular and we expect to complete the merger by the end of the current financial year.
What made you think of listing the financial services business?
The financial services business has reached a critical mass and listing would help it to raise funds in the future. We are looking at listing the business by May-June next year.
How do you think this deal is good for minority shareholders?
This is a very complex transaction and we have taken two independent opinions on the valuation of both companies. This merger is a play on the Indian growth story and we expect the shareholders to benefit from this transaction.
You talked about the India growth story … what kind of investments is the group making in the coming years?
We just invested Rs 20,000 crore (Rs 200 billion) in the Jaypee acquisition and concluded another Rs 40,000 crore (Rs 400 billion) of investments in other businesses. With the commodity cycle picking up, now we expect returns from these investments.
In the new holding company, which business will require the most funding and which will generate the maximum free cash flow?
Financial services business currently needs the maximum capital, especially for growing the non-banking financial services business. There are many companies generating free cash flow, including VSF and chemical businesses under the present Grasim. So, one of the objectives of this merger is to use the free cash flow for high-growth business needing capital.
There has been a series of structuring in the group, including last year’s demerger of the fashion business. What is the guidance on future restructuring?
This deal pretty much completes our restructuring plans. We do not really see any such move in the near future.
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