Aditya Birla Group has proposed to implement another consolidation exercise to bring more businesses under Grasim Industries Ltd by merging Aditya Birla Nuvo Ltd (ABNL) with the flagship company while hiving off the financial services business as a separate listed firm.
Grasim is already a diversified firm with huge exposure to chemicals and textiles businesses. It is also the parent of UltraTech Cement Ltd, the country's single-largest cement producer. After the restructuring, it will house a portfolio of manufacturing and services businesses with a leading presence in cement, financial services, telecom, textiles and chemicals sectors.
It will have total revenue of about Rs 59,766 crore ($9 billion) and operating profit of almost Rs 11,961 crore for the year ended 31 March 2016.
“The proposed restructuring will create one of India’s largest, well-diversified companies with a healthy mix of businesses with steady cash flows and long-term growth opportunities,†said Kumar Mangalam Birla, chairman, Aditya Birla Group. “With diverse businesses spanning manufacturing and services, the combined company provides a play on India’s growth story. The demerger and listing of the financial services business will unlock value for shareholders.â€
The boards of Grasim, ABNL and Aditya Birla Financial Services Ltd (ABFSL) approved the restructuring on Thursday.
ABFSL is currently a subsidiary of publicly listed ABNL. It houses several businesses including non-banking finance, housing finance, asset management, general insurance advisory, broking wealth management, health insurance, private equity and online money management.
After the consolidation exercise it will also house the life insurance business and operate a payments bank through a 51:49 joint venture with group company Idea Cellular Ltd.
The listed financial services firm will be owned 57% by post-merger Grasim; the remaining stake will be held by post-merger Grasim shareholders.
It is not yet clear if Aditya Birla Money Ltd, a listed subsidiary of ABFSL that runs a stock broking business, will remain separately listed on the bourses.
The group also has other listed firms such as Aditya Birla Fashion & Retail Ltd and Idea Cellular.
This is the third organisational recast by Aditya Birla Group over the past year and a half.
Last year, it consolidated its branded apparel business under Pantaloons Fashion and Retail India Ltd and renamed it as Aditya Birla Fashion & Retail, creating India's top branded clothing company by revenue and number of sales outlets. At the time, the business was housed under separate subsidiaries and business units of ABNL.
Also last year, the group consolidated its chemicals business under Grasim.
Nuts and bolts of merger
For the merger of ABNL with Grasim, each shareholder of ABNL will get three new equity shares of Grasim for every 10 shares held in ABNL.
For the demerger of the financial services business into ABFSL, each shareholder of Grasim (post-merger) will receive seven shares in ABFSL for every one share held in Grasim.
In aggregate, each shareholder of ABNL holding 100 shares will receive 30 shares of Grasim and 210 shares of ABFSL.
The board of Grasim has also recommended sub-division of its shares of Rs 10 each into five shares of Rs 2 each. The transaction is subject to the customary, statutory and regulatory approvals. The transaction is likely to be completed by first half of 2018.
After the restructuring is completed, Grasim will become the top cement company with the largest selling brand. It will be among the top 10 diversified private NBFCs, top four private-sector life insurers and asset management companies, third-largest telecom operator (with a stake in Idea Cellular) in India and a leading global producer of viscose staple fibre.
The company said it will also be the largest chlor-alkali manufacturer, the top maker and exporter of viscose filament yarn and the fourth-largest producer of insulators globally.
Grasim shares skid 6.4% to close at Rs 4,538.95 each on the BSE while ABNL shares rose 3.5% to Rs 1,565.7 each in a strong Mumbai market on Thursday. There is still some arbitrage opportunity for ABNL shareholders at the last-traded market price, given the merger ratio.
Although the merger details were made public after trading stopped for the day, media publications had reported on the impending plan early this week.
Transaction advisers
DSP Merrill Lynch was the financial adviser to Grasim. Price Waterhouse & Co LLP & Bansi S Mehta & Co were the limited joint independent valuers while JM Financial Institutional Securities provided independent fairness opinion to Grasim.
Kotak Mahindra Capital provided limited independent fairness opinion to ABNL.
Khaitan & Co (for overall transaction) and Cyril Amarchand Mangaldas (for financial services unit) were the legal advisers for the transaction.
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