The A V Birla group has threatened to move court to stall the proposed demerger of Larsen & Toubro's (L&T's) cement business, even if the L&T management gives a go-ahead at the forthcoming board meeting on December 28.
The hardening of the Birla group's stance follows indications that the financial institutions, which form the largest single block of shareholders in L&T, will vote in favour of a demerger of L&T's cement business at the board meeting, and subsequently at an extraordinary general meeting, proposed by the L&T management.
"The A V Birla group has obtained legal opinion in this regard and is actively considering the possibility of moving court. It may start with going to the Securities & Exchange Board of India and take the matter further," said a source close to the group.
The group, which has made an open offer for acquiring a 20 per cent stake in L&T through flagship Grasim, is of the view that the demerger of the cement business is illegal while the open offer is still on. It has obtained legal opinion which supports this stand.
The A V Birla group has taken the line that even if the approval of shareholders is obtained for hiving off the cement business, it would be still illegal to go ahead with the move. Under Section 23 (1) of the takeover code, a company for which an open offer has been made can transfer its business only after obtaining shareholder nod.
Birla group is understood to have taken the line that the section cannot be interpreted in such a narrow fashion but should be understood within the broader meaning of the takeover code.
Grasim has also taken a strong stand based on the price of the open offer which has been stayed by Sebi.
"L&T's two main lines of businesses are engineering and cement. The Grasim offer at Rs 190 per share is for all the businesses. How can they demerge the cement business and expect the offer price of Rs 190 to continue? This will be a strong argument the company will advocate for challenging the demerger," a source said.
Grasim had last year acquired a 10 per cent stake in L&T by buying out the Reliance group at Rs 306 per share. About a year later, it made an open offer at Rs 190 per share, a price arrived at on the basis of Sebi guidelines.
The financial institutions, which hold about 38.5 per cent stake in L&T, promptly refused to sell their stake, saying that the offer price was too low. Meanwhile, Sebi has put the open offer on hold, saying that it could not go ahead till the controversial issues surrounding the acquisition of the Tata group stake by cement major Gujarat Ambuja in the Associated Cement Companies was sorted out.
Sebi said since this too was an issue that revolved around management control, a composite view would be taken on the matter.
Meanwhile, L&T, which had put on hold its plan to demerge the cement business, now revived it. The board of L&T is meeting on December 28 to consider a proposal by CDC to acquire a 6 to 7 per cent stake in the demerged cement company.
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