Grasim, Nuvo shares tank on merger reports

The Aditya Birla group companies, Aditya Birla Nuvo, Grasim and Idea Cellular lost a combined market value of Rs 5,300 crore on Wednesday following reports the group was merging its two holding companies, Grasim and Aditya Birla Nuvo, apart from hiving off the financial services businesses from Nuvo into a separate company.

Bankers said they have made presentations to the group to carve out the financial services and insurance businesses from Aditya Birla Nuvo to attract investors in the business. Another idea presented to the group was to consolidate its 43 per cent Idea Cellular stake currently scattered among Grasim, Nuvo and Hindalco.

According to the plan, the entire shareholding of Idea Cellular would be consolidated in Grasim and shareholders of Nuvo will get Grasim’s shares in lieu of their 24 per cent stake. All these are proposals made by the bankers to the group management.

A Birla group spokesperson declined to comment on the “market speculation”.

But, the investors did not like the merger idea. On Wednesday, Grasim lost Rs 2,900 crore of market value while Nuvo lost Rs 835 crore. Idea Cellular lost another Rs 1,500 crore of market capitalisation even as the Sensex was down 1.1 per cent.

Analysts said investors are worried over the high tax obligation for the Nuvo-Grasim merger and increased holding company discount of the merged entity and hence the selloff. Aditya Birla Nuvo shares went up by a massive 76 per cent in the last three months while Grasim was up 15 per cent in the same period.

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In March this year, the promoters had increased their stake in Nuvo to 58.4 per cent as compared to 57.18 per cent reported in the December quarter.

The group had earlier indicated that that it was open the idea of hiving off its financial services business into a separate company. The boards of Grasim and Nuvo are meeting on Thursday to take into account the first quarter results. The Nuvo board is likely to look at the financial services demerger proposal.

In May last year, the group announced a plan to merge its Aditya Birla Nuvo Ltd operated fashion retailing business with Pantaloons Fashion & Retail to create India’s largest branded apparel player, valued at Rs 12,000 crore.  As per the plan, Madura Fashion (the branded apparel retail division) and Madura Lifestyle (the luxury branded apparel retailing arm of ABNL) was demerged into Pantaloons Fashions, a listed subsidiary of the group.

Aditya Birla Nuvo shareholders  received 26 new equity shares of Pantaloons for every 5 shares held, while Madura Garments shareholders got 7 new equity shares of Pantaloons for every 500 shares held.

Ultratech, the group's cement major, is also in the middle of a Rs 16,000 crore acquisition of Jaypee's cement capacity and is currently busy in completing the transaction.