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No stake hike, management control in L&T: Grasim

Grasim Industries, which bought a 10 per cent stake in Indian engineering and cement giant Larsen & Toubro over the weekend, said on Monday it has no plans to increase its stake or seek management control of L&T.

Grasim, India's third-largest cement maker, bought the stake in L&T, the country's largest cement producer, from Reliance Industries for Rs 7.66 billion.

"We're not seeking management control but will support management as a long-term investor," said Saurabh Misra, the head of Grasim Industries' cement division.

"We have no plans to acquire more shares or make an open offer."

Indian market rules stipulate that a company acquiring a 15 per cent stake in another has to make an open offer for a further 20 per cent from minority shareholders.

Grasim paid Rs 306.60 a share, a 47 per cent premium over Thursday's closing market price of Rs 208.50. India's largest stock exchanges were closed Friday.

Misra justified the premium by saying L&T's share prices were "the lowest in years" and did not reflect the intrinsic value of L&T.

Misra declined to comment when asked if L&T would proceed with its declared intention to spin off its cement division as a separate company and sell a big stake to a strategic foreign partner.

"It's for the L&T board to decide, and it's inappropriate for us to comment," Mistra said.

Larsen & Toubro has been in talks for more than a year to sell a 37.5 per cent stake in its cement business, with the world's three largest cement makers -- Lafarge of France, Holcim of Switzerland and Mexico's Cemex -- expressing interest.

But Misra added the Indian cement sector already possessed sophisticated technology and there was little a foreign player could provide but investment funds.

Domestically, Misra said the Grasim acquisition could prompt further M&A (merger and acquisition) activity in the Indian cement industry.

"The Indian cement industry is crying out for consolidation, and our investment will trigger other acquisitions," he said.

India is the world's third-largest cement producer and second-largest cement market after China. The domestic industry has struggled to keep prices at profitable levels in the face of considerable over-capacity.

Annual production capacity totals about 115 million tonnes, about 25 per cent more than demand, which in 2000-01 totaled 93 million tonnes.

REALLY?

Misra cited a host of fuzzy reasons for why Grasim paid $160 million and a 47 per cent premium for a stake that guarantees it no boardroom leverage.

"At 10 per cent, we get to know the company better and can participate in its future," Misra said.

And Misra said the acquisition had been driven both by synergies as well and linkages into other businesses allied to cement.

"L&T's construction business provides a forward linkage from cement, and its engineering business is a forward integration from construction," he said.

"It fits our portfolio as we're in cement, and want to grow in more knowledge-intensive sectors such as engineering," he added.

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