ICICI LIMITED MERGE WITH ICICI BANK

De-merger of Ultra Tech Cement by L&T

DE-MERGER

The separation of large company into two or more smaller organizationsParticularly as the dissolution of the earlier mergerBusiness strategy Single business broken into its components( operate their own, sold, dissolved)Split off various brands to invite or to prevent acquisitionRaising capital or to operate as a separate entityL&T GROUP BEFORE DEMERGERCountrys largest engineering and construction conglomerateL&T business segmentationEPCCementElectrical and ElectronicsOthers ( IT and electrical business)CEMENT BUSINESSCovered most of south and middle east, handful of plants in North13.2 million sales and 2.76 million tons exportedEstablished in 1923, L&T had been (and even today is) a truly professionally managed company with core competence in turnkey engineering projectsLogistic management kept L&T competitive

Competitive advantagesQualityInternational presenceCustomer focusbrandIn the late 1980s, Reliance Industries Limited (RIL) had acquired 10.05 percent stake In L&TRIL was aspiring to acquire L&T as a whole, and not just its cement businessFor L&T management, it was a life and death issueTop management would have certainly lost their freedom and control Managed to successfully ward of RIL attackLack of support from the government, public at large and financial institutionsfinancial institutions which collectively held 40 percent stake in L&T

on November 18, 2001 RIL sold its entire 10.05 percent stake (2,50,00,000 equity shares) to Grasim, an A.V. Birla group company for Rs.766.5croreThereafter, an investment company acquired another 4.48% stake ( Grasims subsidiary)Grasims stake to 14.53 percentOctober 13, 2002 Grasim made a public announcement of open offer To acquire 20% stake (4.973 crore shares) in L&T

November 8, 2002 the SEBI asked the merchant bankers JM Morgan Stanley not to proceed with the open offer Wanted to investigate the matter of Takeover in regard to Grasims acquisition of 10.05 percent stake from RILIn December 2002 L&T management tried to outsmart Grasim Grasims direct stake in the cement business to about 3.75 percent as against its 14.53 percent stake in L&Ton January 27, 2003 Grasim made a counter proposal of vertical de-merger of cement business to L&T boardGrasim valued L&Ts cement business at Rs. 130/- per share Open offer to acquire control the cement business / company.

By April 2003, the SEBI came to conclusion that Grasim had not violated Takeover CodeFinally Grasims open offer for L&Ts 20 percent stake opened on May 7, 2003 and closed on June 5, 2003Offer failed miserably Grasim could get only 0.38% stake in the open offerGrasim, through its subsidiary, had purchased another 0.83% stake from the open market Total holding to 15.73 percent of L&Ts equity capital. Grasim to Creeping acquisition without making an open offer Also get board seats on L&Ts board.

In June 2003, L&T management and Birla hammered out a deal Carry out a structured de-merger of cement business of L&T Grasims takeover of control of the resultant cement company.

THE DE-MERGER DEAL

April 1, 2003, the cement business of L&T was vested in a separate company (Ultra Tech Cement Limited).It was decided that post de-merger, Grasim will acquire the control of the resultant cement company. However, L&T managed to retain certain key assets like L&T brandReady mix cement (RMC) businessGas power plant in Andhra Pradesh, Entire residential and office property of the cement division.

Scheme of de-merger

L&Ts equity capital of Rs.248.67cr, consisting of approx. 24.88 cr shares of Rs.10/- each was reduced L&Ts paid up capital was brought down to Rs.24.88 cr consisting of 12.44 cr shares of Rs.2 each. shareholders of L&T received 1 share of Rs.2/- face value of new L&T For every2 shares of Rs.10/- face value of old L&T

L&T was allotted 20 percent of UlraTechs equity80 per cent was allotted to shareholders of L&T in the same proportion as the stake held by them For every 5 shares in L&T got 2 shares of UltraTechGrasim receive approx. 12.5 percent stake in Ultra Tech 15.73 percent stake in L&T.

In subsequent developments, Grasim bought L&Ts stake actually at Rs. 342.60 per share and made an open offer at the same price. Grasim, thus, had to shell out Rs. 362 crores to L&T and Rs. 1298 crores in the open offer.

In turn, Grasim sold approx. 14.93 percent of its 15.73 per cent stake in L&T to an employee's trust of L&T at Rs 120/- per pre de-merger share or Rs. 240/-per post de-merger share. The remaining approx. 0.8 percent would be sold when the employee trust would dilute its stake by 1 percent or so.BIRLAS MOTIVE

on 31st March 2003, the total cement capacity in India was approx. 135mn tnL&T had the largest capacity of 18mn tons, In acquiring L&Ts cement businessBirla had a simple motive of growth through acquisitionAfter acquisition the combined capacity of Grasim and Ultra Tech went up to 31mn tnGrasim the largest producer in India and the eighth largest in the world.L&T was also considered as a premium brand and used to fetch higher priceL&T allowed Grasim to use its brand name for more than a year post acquisition. Grasim managed to transfer brand equity of L&T cement to Ultra Tech cement.While Grasim was strong in the Southern markets L&T was strong in the rest of IndiaL&Ts strong distribution network was very vital to Grasim to push its own brands also.

WHY L&T SURRENDERED

SurvivalBirla had succeeded in convincing FIs about the structured vertical de-merger CONCLUSIONL&T management did a very good job of negotiatingAll in deal had a lot of positives for L&T and its management. But performance of Ultra Tech for the year 2007-08 show that the real winners were Birla and not L&T.

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