Investors give thumbs down to Nuvo, Grasim merger

Shares of Aditya Birla Nuvo fell by 17.34% while Grasim recovered during late morning trades on the stock exchanges after the Aditya Birla group announced a mega merger between the two companies to create a single holding company with annual revenues of Rs 60,000 crore. 

Nuvo recovered after falling 25 per cent in the opening trades – its highest intra day fall since 2008. Grasim also fell by 8 per cent during early morning trades but recovered as the management tried to make investors understand the "complex transaction".  

As per the deal,  Nuvo will merge first with Grasim and then the financial services business will be hived off to be listed separately.  Grasim fell after brokerages downgraded the company saying the new Grasim will be burdened with unrelated businesses like Idea Cellular which would require huge investments to take on competition from Reliance Jio.

AB Nuvo shareholders, on the other hand, are apprehensive as exposure to the high growth finance business is diluted. Global brokerage CLSA said the transaction adds to the confusion and creates a complex conglomerate and said the new company has multiple businesses sharing no commonality.

As per the deal, for every 100 shares in Nuvo, an investor will get 30 shares of Grasim and 210 shares of the financial business whereas a shareholder withj 100 shares in Grasim will get 700 shares of the financial unit.  Promoters stake in Grasim will go from 31.28 per cent to 40 per cent in the new Grasim. Investors are expecting the Birlas to sweeten the deal.