DEMERGER OF

ULTRA TECH
CEMENT
BY
L&T AND ITS
ACQUISITION BY
GRASIM

Durvangi Vaity
04
Shweta Raut
07
1

PGPG-

GRASIM WAS BADLY AFTER

L&T

WHY?

ANSWER
As on 31st march, 2003 cement capacity:
in million tonnes
1. In India
135
2. L&T
18
(13.3%)
3. ACC ltd.
15
(11.1%)
4. Grasim
13
(9.6% )
5. Gujrat Ambuja
12.5 (9.3%)
43.3%

Grasim wanted to acquire L&T.

Its root cause is in another story.
1.

L&Ts 10.05% stake was with RIL. RIL

was ready to sell.

2.

RIL acquired it in late 1980s

3.

L&T fitted very well in RILs plan to set

up mega projects one after another.

Why RIL wanted to

sell?
RIL

could not manage to get support

from the govt., public at large or FIs.

Largest

shareholders of L&T
FIs
40%
LIC and UTI
27%

The main story

STEP
STEP
STEP
STEP
STEP
STEP
STEP
STEP

1:
2:
3:
4:
5:
6:
7:
8:

Acquired 10.05% stake from RIL.

Acquired 4.48% stake through subsidiar
Open offer after more than 6 months.
Delay in open offer.
Proposal by L&T
Counter proposal by Grasim
SEBIs approval.
Structured demerger deal

Structured Demerger Deal

STEP
STEP
STEP
STEP
STEP
STEP
STEP
STEP
STEP

1:
2:
3:
4:
5:
6:
7:
8:
9:

Formation of ULTRA TECH Cement Ltd.

Effect on L&Ts equity & paid-up capital.
UltraTechs paid-up capital.
Share of L&T in Ultra Tech.
Share of Grasim in Ultra Tech.
Open offer for 30% stake by Grasim.
Doubling of price for 8.5% + 30% stake
Liquidation of 11.5% stake of L&T.
Selling of pre-demerger stake of Grasim.

Q:-Smart Negotiation by
L&T
1.
2.
3.
4.
5.
6.

Sold 8.5% stake at very high price.

Made Birlas sell their 14.95% stake to
employees welfare trust.
Strengthen L&Ts Balance Sheet
Transfer of debts to Ultra Tech.
Debt to Equity ratio improved.
Selling of 11.5% stake in small
trenches.

Q:- Takeover strategies of

Grasim
Str1. Bought 10.05% stake from RIL
Str2. Acquired 4.48% through subsidiary
Str3. Made open offer after more than 6
months
Str4. Appeal to SAT
Str5. Took stay on L&Ts proposal
Str6. Counter Proposal of Vertical Demerger
Str7. Creeping acquisition
Str8. Convinced FIs

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Q:-Defensive Strategies of
L&T
Str1.

Proposal of demerger of cement

business into subsidiary.
Str2. Consent for the structured deal
Str3. Surrendered for survival.
Str4. Good negotiation in the deal.

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Q:- Real Winners?

Real winners are the Birlas.
1. After acquisition capacity of Grasim and
UltraTech went up to 31 million tonnes.
2. Grasim became Indias largest producer
and the 8th largest in the world.
3. L&T was a premium brand and used to
fetch higher prices. Grasim was allowed
to use the brand for 1 year. Within this
period, Grasim managed to transfer
brand equity of L&T Cement to Ultra
Tech Cement.

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4.

While Grasim was strong in southern

markets, L&T was strong in rest of India.
5.
L&Ts strong distribution network was
very vital to Grasim to push its own
brand also.
6. The B/S shows that cement division had
incurred losses in 2002-03. Yet Grasim
acquired it. This is because Birlas were
aware that in next 4-5 years cement
business would turn highly profitable.

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Financial
performance

= PBT
Sales

L&T

L&T

Ultra
Tech
200304

200304

200708

7.84%

12.53% 1.8%

Ultra
Tech
200708

16.02%

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Increase in profits from 200304 to 2007-08

L&T

307.96%

Ultra Tech

2494.92%

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THANK YOU