The Hindu Business Line : L&T open offer — SEBI rightly puts Grasim on the mat

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L&T open offer — SEBI rightly puts Grasim on the mat

S. Vaidya Nathan

THE Securities and Exchange Board of India has taken the right course in putting on hold Grasim's open offer at Rs 190 per share for Larsen & Toubro. SEBI had initially failed to critically evaluate the Grasim-Reliance deal (priced at Rs 306 per share) from a `change in control' perspective. At least now, it has acted in a timely manner with the review underway in the ACC-Gujarat Ambuja case.

The original SEBI decision that there was "no change in control, so no open offer needed'' has been rejected by the Securities and Appellate Tribunal, which has ordered SEBI to review the entire issue by following `proper procedure' — that is with due investigations.

The two cases are more or less alike in intent and substance. If SEBI were to change its position and order an open offer at Rs 370 per share by Gujarat Ambuja for ACC, it cannot adopt a different course in the Grasim-L&T deal. In both, there is little doubt that the huge investment was made to acquire control.

Grasim had made an open offer at Rs 190 per share for a 20 per cent stake in L&T. Ten months back, it had picked up a 10 per cent stake in L&T from Reliance at Rs 306 per share (Outlay: Rs 766 crore) and hiked this to just less than the open offer threshold of 15 per cent through open market purchases.

But if SEBI decides an open offer on the `change in control' trigger, Grasim would have to fork out Rs 306 per share for the 20 per cent open offer too.

Key aspects: Is the `change in control' trigger warranted in this case? The answer is yes. Grasim had picked up the strategic stake in L&T with an eye mainly on the cement business The most important aspects that SEBI should look into are:

Where there are no promoters (if there is, they generally ensure a good exit price in takeover situations with a sizeable premium to the market price), the price paid is a key evaluation point.

The fact that Grasim paid Reliance Rs 306 per share was not just for the sizeable block of shares on sale but to get control. Else, spending Rs 766 crore would not provide commensurate returns for Grasim shareholders.

An equally crucial aspect is the quiet burial given to the plans of L&T to demerge its cement business and offer a 37.5 per cent stake to a strategic investor. Despite numerous delays, in the six months preceding the Grasim entry, L&T had shown a high degree of seriousness in going through with the demerger.

Quite a few MNCs showed interest. Once Grasim picked up the Reliance stake, it had its nominees (albeit in a numerical minority) on the L&T board. Coincident or otherwise, the de-merger plans were put on the backburner.

Only two days back when SEBI put the open offer on hold, L&T had informed the stock exchanges that it had received interest from some players keen in a stake in the cement business.

On the one hand, this shows that there is still strategic investor interest for the cement businesses.

But the information may well have been provided now to just show that Grasim was not in the way of the demerger. The timing of L& T's information to the stock exchanges indicates such a possibility.

The Grasim plea to the Securities and Appellate Tribunal that it should be allowed to go through the open offer and that it would give effect to any revision SEBI may order later, is interesting.

It clearly shows it wants to get on to the driving seat quickly without any room for challenge. In the process, it would also make meaningless any enquiries received (according to L&T's notice) for the cement business of L&T.

The Grasim plea would also have factored in the likely protracted legal battle that may ensue if SEBI asks Gujarat Ambuja to make an open offer.

If SEBI's `hold the open offer' were to remain in place till the whole gamut of legal options are done with in the other case, Grasim's plans for L&T and the cement industry, in particular, may get affected.

It would also leave room for a hostile bid at the end of the legal processes. It is to avoid these uncertainties that Grasim wants the open offer to happen and is willing to accept revision later.

SEBI cannot miss the motives behind this particular Grasim plea before the SAT.

A lot would depend on the SAT decision in this regard. If it endorses SEBI's move — that may be the appropriate course — the regulator will be on a strong wicket. It should not then hesitate to extend the Gujarat Ambuja-ACC decision to this case as the differences are only technical.

It is a battle for control, pure and simple, and any other ground cited would only be a façade.

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