Grasim-Ultratech cement businesses to be consolidated

Grasim Industries, the Aditya Birla group flagship, announced the restructuring of its cement business. The company’s board met today to consider a restructuring proposal, which has been widely reported in the media as pertaining to consolidation of its cement business.

Grasim has a cement division and also owns a majority stake in Ultratech Cement, which it acquired from Larsen & Toubro. L&T recently sold the minority stake it held in Ultratech, clearing the way for consolidation.

The proposed structure:

  • Grasim will demerge its cement business to a subsidiary company called Samruddhi Cements.
  • Today morning, Grasim announced the incorporation of this company as a subsidiary of Samruddhi Swastik Trading & Investment. Samruddhi Swastik is a subsidiary of Grasim, hence Samruddhi Cements becomes an indirect subsidiary.
  • Samruddhi will issue shares to Grasim shareholders in the ratio of 1:1. Once this happens, Grasim’s shareholders will own 35% of Samruddhi with the balance being held by Grasim Industries. This seems to indicate that when Grasim transfers the business to Samruddhi, it will issue shares as consideration to Grasim. That can explain why Grasim will own a 65% stake in the company.
  • Samruddhi will be listed on the stock exchanges. Concurrently, Grasim will also propose a consolidation of cement businesses to the board of Ultratech. This will be a formality as the company is controlled by the group, in any case. This is the second leg of the consolidation and a crucial one. It is unclear why the entire proposal was not laid out at one shot.
  • In the second leg, Samruddhi and Ultratech may be merged into one, or one will be amalgamated into the other. The share swap ratio will determine the benefits to shareholders of both companies.
  • Grasim says this was the structure that ensured its control over its cement business did not get diluted yet shareholders too got a direct interest in the demerged entity. The objectives that are sought to be achieved by the merger are: protect and maximise value to shareholders, create a pure play cement operation, open up new financing options for growth, provide direct exposure to Grasim’s shareholders and restructure with least possible transaction costs.
  • Grasim will be the holding company for the cement business. It owns a 54% stake in Ultratech and a 65% stake in Samruddhi. The promoters own a 25% stake in Grasim and will get about a 9% stake in Samruddhi. The net effect, post-demerger, will be an increase in the promoter’s stake with Grasim owning a controlling share in the cement business. Grasim will continue to invest in the VSF and other businesses.

The last leg of the transaction remains, that of consolidating Ultratech with Samruddhi, this will be the crucial part, as they will have to determine how much value to attribute to each business. Now, Ultratech will consider the consolidation proposal placed by Grasim. Once the share swap ratio and structure becomes public, Grasim’s shareholders will know how this restructuring is beneficial for them.

Read the Grasim press release.

Read the Grasim presentation here.

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