Investors gave a thumbs down to the Aditya Birla Nuvo-Grasim merger announced a day earlier, in Friday trade. Nuvo shares slumped as much as 24.7 percent and Grasim slid over 8 percent in morning trade, after analysts had panned the deal citing factors like lack of clarity on other AB Nuvo-businesses, disadvantages to minority shareholders and the likelihood of it being a long drawn out deal due to its complexities.
In the two-way restructuring process, to unlock greater shareholder value, in the first step, ABNL will be merged into Grasim, following which the financial services business (currently under Nuvo) will be demerged and listed separately.
The strategy for this mega-restructuring within the Aditya Birla Group businesses is three-fold: to consolidate fast growing businesses with a strong, stable cash flow portfolio; unlock value for shareholders though the listing of financial services and simplifying the group ownership structure.
But analysts have flagged concerns over the deal. The deal would transform Grasim into a large conglomerate with diverse businesses in its portfolio, including telecom and financial services apart from cement, VSF and chemicals.
“This could result in much higher holding company discount. Further, the skepticism of minority shareholders on the merger was clearly evident in their discussion with management post-results, given the high likelihood of Grasim’s balance sheet being leveraged for investments in unrelated businesses, particularly telecom,” says Mihir Jhaveri of Religare Capital Markets.
Grasim finally edged up 0.57 percent to close at Rs 4,565 and AB Nuvo ended down 17.60 percent at Rs 1,290.15 at the Bombay Stock Exchange.
Grasim Industries is a flagship company of the Aditya Birla Group, with business verticals such as viscose staple fibre, cement, chemicals and textiles. It also has a 60 percent stake in subsidiary Ultratech Cement. Aditya Birla Nuvo has business divisions such as life insurance, financial services and also telecom through its 23 percent stake in Idea Cellular.
There has been much speculation within the investor and analyst community regarding the rationale and details of the restructuring, after sections of the media reported earlier this week that such a deal was in the offing. Sources had said that the move for the deal was to strengthen the balance sheet of group telecom firm Idea Cellular, in a scenario where competition is intense and price wars aggressive.
Birla on Thursday evening had rubbished the fears completely. “This was not the intention at all, it is complete speculation. Idea has its own funding plan. To think that this restructuring was being done to fund Idea is preposterous.