De-merger of Ultra Tech

Cement by L&T

DE-MERGER
The separation of large company into two or more smaller
organizations
Particularly as the dissolution of the earlier merger
Business strategy
Single business broken into its components( operate their
own, sold, dissolved)
Split off various brands to invite or to prevent acquisition
Raising capital or to operate as a separate entity

L&T GROUP BEFORE DEMERGER

Countrys largest engineering and construction conglomerate
L&T business segmentation
EPC
Cement
Electrical and Electronics
Others ( IT and electrical business)
CEMENT BUSINESS
Covered most of south and middle east, handful of plants in North
13.2 million sales and 2.76 million tons exported

Established in 1923, L&T had been (and even today is) a truly
professionally managed company with core competence in turnkey
engineering projects
Logistic management kept L&T competitive
Competitive advantages
Quality
International presence
Customer focus
brand

In the late 1980s, Reliance Industries Limited (RIL) had acquired 10.05
percent stake In L&T
RIL was aspiring to acquire L&T as a whole, and not just its cement business
For L&T management, it was a life and death issue
Top management would have certainly lost their freedom and control
Managed to successfully ward of RIL attack
Lack of support from the government, public at large and financial
institutions
financial institutions which collectively held 40 percent stake in L&T

 on November 18, 2001 RIL sold its entire 10.05 percent stake

(2,50,00,000 equity shares) to Grasim, an A.V. Birla group company

for

Rs.766.5crore

Thereafter, an investment company acquired another 4.48% stake

( Grasims subsidiary)
Grasims stake to 14.53 percent
October 13, 2002 Grasim made a public announcement of open
offer
To acquire 20% stake (4.973 crore shares) in L&T

 November 8, 2002 the SEBI asked the merchant bankers JM Morgan Stanley not to proceed

with the open offer

Wanted to investigate the matter of Takeover in regard to Grasims acquisition of 10.05 percent

stake from RIL

In December 2002 L&T management tried to outsmart Grasim
Grasims direct stake in the cement business to about 3.75 percent as against its 14.53 percent

stake in L&T
on January 27, 2003 Grasim made a counter proposal of vertical de-merger of cement business

to L&T board
Grasim valued L&Ts cement business at Rs. 130/- per share
Open offer to acquire control the cement business / company.

 By April 2003, the SEBI came to conclusion that Grasim had not violated Takeover
Code
Finally Grasims open offer for L&Ts 20 percent stake opened on May 7, 2003 and
closed on June 5, 2003
Offer failed miserably
Grasim could get only 0.38% stake in the open offer
Grasim, through its subsidiary, had purchased another 0.83% stake from the open
market
Total holding to 15.73 percent of L&Ts equity capital.

Grasim to Creeping acquisition without making an open offer

Also get board seats on L&Ts board.

 In June 2003, L&T management and Birla hammered out a deal

Carry out a structured de-merger of cement business of L&T
Grasims takeover of control of the resultant cement company.

THE DE-MERGER DEAL

April 1, 2003, the cement business of L&T was vested in a
separate company (Ultra Tech Cement Limited).
It was decided that post de-merger, Grasim will acquire the
control of the resultant cement company.
However, L&T managed to retain certain key assets like
L&T brand
Ready mix cement (RMC) business
Gas power plant in Andhra Pradesh,
Entire residential and office property of the cement division.

Scheme of de-merger
L&Ts equity capital of Rs.248.67cr, consisting of approx. 24.88 cr
shares of Rs.10/- each was reduced
L&Ts paid up capital was brought down to Rs.24.88 cr consisting
of

12.44 cr shares of Rs.2 each.

shareholders of L&T received

1 share of Rs.2/- face value of new L&T
For every
2 shares of Rs.10/- face value of old L&T

 L&T was allotted 20 percent of UlraTechs equity

80 per cent was allotted to shareholders of L&T in the same
proportion as the stake held by them
For every 5 shares in L&T got 2 shares of UltraTech
Grasim receive approx. 12.5 percent stake in Ultra Tech
15.73 percent stake in L&T.

In subsequent developments, Grasim bought L&Ts stake actually

at Rs. 342.60 per share and made an open offer at the same price.
Grasim, thus, had to shell out Rs. 362 crores to L&T and Rs. 1298
crores in the open offer.

In turn, Grasim sold approx. 14.93 percent of its 15.73 per cent
stake in L&T to an employee's trust of L&T at Rs 120/- per pre demerger share or Rs. 240/-per post de-merger share. The remaining
approx. 0.8 percent would be sold when the employee trust would
dilute its stake by 1 percent or so.

BIRLAS MOTIVE
on 31st March 2003, the total cement capacity in India was approx.
135mn tn
L&T had the largest capacity of 18mn tons, In acquiring L&Ts cement
business
Birla had a simple motive of growth through acquisition
After acquisition the combined capacity of Grasim and Ultra Tech went
up to

31mn tn

Grasim the largest producer in India and the eighth largest in the world.

 L&T was also considered as a premium brand and used to fetch higher price
L&T allowed Grasim to use its brand name for more than a year post acquisition.
Grasim managed to transfer brand equity of L&T cement to Ultra Tech cement.
While Grasim was strong in the Southern markets

L&T was strong in the rest of India

L&Ts strong distribution network was very vital to Grasim to push its own brands
also.

WHY L&T SURRENDERED

Survival
Birla had succeeded in convincing FIs about the structured
vertical de-merger

CONCLUSION
L&T management did a very good job of negotiating
All in deal had a lot of positives for L&T and its management.
But performance of Ultra Tech for the year 2007-08 show that
the real winners were Birla and not L&T.

THANK YOU