Kumar Mangalam Birla is finally set to take undisputed control of Larsen & Toubro's cement business at the end of a complex exercise that will see Grasim hike the offer price for it to Rs 160-170 a share.
An L&T employees' trust will, in turn, buy out Grasim's holding in the core engineering company for Rs 122-128 a share. The Grasim board, which meets tomorrow, will decide on the offer price.
As per an informal agreement worked out between Grasim, the financial institutions and the L&T management on Saturday, Grasim will make a 30 per cent open offer at Rs 160-170 a share for the cement company following a vertical demerger.
Additionally, the institutions are said to have agreed to sell at least an 8 per cent stake in the demerged cement business to Grasim.
By virtue of its 17 per cent current holding in L&T after the recent open offer, Grasim will end up with a 25 per cent stake in the cement company after buying out the institutions' 8 per cent stake.
With a subsequent open offer for another 30 per cent at Rs 160-170 a share, Grasim is angling for undisputed control, with a 50-55 per cent stake.
In any case, Grasim would be the largest shareholder in the cement company, with more than the 42 per cent that the institutions have, sources familiar with the proposal said.
Meanwhile, L&T will form an independent trust for the benefit of its employees. This trust would buy out Grasim's 17 per cent stake in the engineering company at Rs 122-128 a share, sources said.
Along with the 40 per cent stake held by the financial institutions in L&T, the trust route will ensure that 57 per cent of L&T's equity is 'locked up.'
This arrangement then frees L&T from any potential takeover threats and paves the way for the Birlas' exit from the core engineering company.
It was understood that once the legal hurdles were cleared, Grasim would go ahead and merge L&T Cement with itself, sources said. The revised proposal, in the band of Rs 160-170 a share, will be placed before the Grasim board for its consideration. The board will take the final call on the price.
The L&T board is slated to meet later in the day to discuss the demerger proposal. Birla executives declined to comment on the issue.
Grasim's decision to raise the price follows its recent discussions with the financial institutions which insisted on a higher valuation for the cement business following credit rating agency Icra's recommendation that the benchmark valuation of cement mergers and acquisitions should be around $85 a tonne.
The revised offer will put L&T Cement's valuation close to $75 a tonne, similar to that pegged by private equity firm CDC Capital Partners -- which had wanted to pick up around 6 per cent in the cement business -- but higher than the $65 a tonne that Grasim had proposed earlier.
