Aditya Birla Nuvo to merge with Grasim

Deal to create Rs 60,000-cr entity; financial services business to be listed after demerger

Kumar Mangalam Birla, chairman of Aditya Birla Group, on Thursday announced the merger of Aditya Birla Nuvo (ABNL) with Grasim Industries to create an entity with Rs 60,000-crore annual revenue or about $9 billion. This will be followed by the demerger of the financial services business into a separate listed company.

ABNL has interests in Aditya Birla Financial Services (ABFSL), telecom (Idea Cellular), textiles and fertilisers, along with new ventures such as payments banks and solar power through various entities. Its financial services business is seeing high growth and needs funding. Grasim, on the other hand, has presence in cement, chemicals and viscose-staple-fibre businesses.

"The new entity will have a mixture of mature and new-age businesses with steady cash flows. This is one of the primary objectives of the merger," said Birla. "The other objective is to unlock the value of the financial services firm, which will now be separately listed," he said. The listing of the demerged financial services business by May next year is also expected to help it raise funding. This will simplify the cross-holdings in various operating companies, he said.

According to the scheme, shareholders of ABNL will get three new shares of Grasim for 10 shares in ABNL. After the merger, every share in the "new Grasim" will entitle seven shares in ABFSL, when it gets demerged.

For example, a shareholder with 100 shares in ABNL will get 30 shares of Grasim and 210 shares of ABFSL. Whereas, a shareholder with 100 shares in Grasim will continue to hold those and will in addition get 700 shares of ABFSL.

The "new Grasim" will hold a 57 per cent stake in the separately listed financial services business, while the rest will be held on a proportionate basis by those acquire shares after the merger. The new Grasim will hold a 60 per cent stake in UltraTech, 28 per cent in Idea Cellular and 51 per cent in the solar division.

In 2015-16, ABNL posted consolidated revenue of Rs 23,129 crore with a net profit of Rs 1,886 crore, while Grasim Industries' revenue was Rs 36,637 crore with a net profit of Rs 2,359 crore. Last year, the Aditya Birla Group had consolidated its apparel businesses into the then Rs 5,290-crore entity named Aditya Birla Fashion and Retail.

Daljeet S Kohli, the head of research, Indianivesh Securities, says, "It is negative for Grasim because it will ultimately become a holding company, which will be saddled with a lot of unproductive businesses such as rayon, fertilisers, and manufacturing that will not add much value. Grasim shareholders will be confused whether they are buying telecom, cement, or which industry. This will lead to re-rating of Grasim."

Kohli said for ABNL, the financial services business can add value because that is a fast-growing business. But, value creation will depend on the time of the listing and issue pricing. "For ABNL shareholders, initially, it will be a negative reaction because ultimately it is getting merged, but finally there is the value in financial services. The holding company discount will go away," said Kohli.

DSP Merrill Lynch was the sole advisor to Grasim and the companies were valued by Price Waterhouse and Bansi S Mehta & Co. JM Financial and Kotak Mahindra Capital gave fairness opinion.

ABNL on Thursday reported a 56.79 per cent decline in consolidated net profit to Rs 305.15 crore in the quarter ended on June.

The company had posted a net profit of Rs 706.23 crore a year ago.