Mr Kumar Mangalam Birla chairman of Aditya Birla Group said that the merger of the cement businesses of the Aditya Birla Group will create the world's 10th largest cement maker and also India's largest.
Mr Birla during an interview with Business Standard said that Grasim will be the promoter firm for the combined entity with 55% to 65% stake and later look for creeping acquisition to increase the promoter holding. Birla also spoke about plans for the group's other companies, Aditya Birla Nuvo, Aditya Birla Financial Services and Hindalco.
Q - What is the objective of the restructuring?
A - The objective is to create one legal entity. For long, investors have been asking which entity would grow more than the other. The decision to merge amplifies our concern for investor interest.
Q - On what basis have you planned the restructuring?
A - It has been planned on three parameters. First, Grasim's direct share holding in UltraTech should only enhance. Second, Grasim's parentage should remain intact. Third, it will help achieve financial flexibilities to support a higher rate of growth for the company. Grasim would now focus on the viscose staple fibre and cement business. The company recently invested INR 1,000 crore to add an additional 25% capacity for VSF production. The cash flow from Grasim will remain intact for the growth of VSF and cement businesses.
The market has reacted adversely on concerns about the holding company discount. The restructuring will significantly help us to re-rate our companies. Whatever holding company discount is being applied on Grasim's valuation will be made up by the cement business valuation. Grasim will not be a traditional holding company, as it will continue to grow its VSF business. The enterprise value of UltraTech is USD 110 per tonne as compared to USD 160 of Shree Cements and USD 160 of ACC. After the deal, the enterprise value of UltraTech will go up substantially.
Q - After the merger, what would be the position of the combined entity?
A - The restructuring will make the new cement company the largest in the country and the 10th largest in the world. The Grasim shareholders' economic interest also remains unchanged. The UltraTech board has given in-principal approval for the merger. It has also appointed Bansi S Mehta and Co as the valuer and UBS as the investment banker. The deal will be completed in nine months.
Q - What would be the identity of the new entity?
A - We will retain the UltraTech brand for the new company after the restructuring. This is the brand under which most of our products are sold. So, it makes sense to retain the brand.
(Sourced from Business Standards)
