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De-Merger of GRASIM and L&T

Presented by:Khushboo Jalan

Shreya AdhlakhiaHiren Jotaniya

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Introduction of L&T Limited

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About It…..

TYPE – Public company listed on BSE and NSE FOUNDED – 1938 FOUNDER ( 2 Danish citizen engineer) – Henning

Holck-Larsen and Soren kristian-Toubro HEADQUARTER – Mumbai, India CHAIRMAN, MD,CEO – A.M.Naik REVENUE – 5$ billion USD (2006) EMPLOYEES – 35000(2007)

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Engineering and construction ,hydraulic equipment,electrical and electronic power services, fertilizer projects, medical electronics and information technology.

It generates almost 85% of its revenue from the construction business.

global initiative with office locations in USA,Europe, Middle East and Japan.

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The subsidiaries of Larsen & Toubro are:

• Larsen & Toubro Infotech Limited(L&T Infotech), focusing on information technology and software services.

• Larsen & Toubro EmSyS ([1]), working on the domains of embedded systems and software.

• Larsen & Toubro Finance ([2]), focused on Financial services.

• Larsen & Toubro e-Engineering Solutions ([3]), Head Quartered at Vadodara, India, focused on e-Engineering Services

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ADITYA BIRLA GROUP

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About It…….

TYPE - Private Conglomerate/Listed Companies.

FOUNDED - 1900 Aditya Birla Group operates over 40

companies in 12 countries across 4 continents.

CHAIRMAN – Kumar Mangalam Birla HEADQUARTERS – Mumbai, India

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operations in 20 countries including Thailand, Laos, Indonesia, Philippines, Egypt, Canada, Australia, China, USA, UK, Germany, Hungary, Brazil, Italy, France, Luxembourg, Switzerland, Malaysia and Korea.

EMPLOYEES - 100000+ REVENUE - $24 billion PRODUCTS - Aluminum,Copper,Cement,

Textile Fibre etc.

INDUSTRY - Metals and several others.

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Aditya Birla Group’s Business

It is organized into various subsidiaries that operate across different sectors.

Among these are viscose staple fibre, fertilizers, non-ferrous metals, sponge iron, insulators, cement, telecom, BPO viscose filament yarn, financial services, branded apparel, carbon black, chemicals, Supermarket More..., and IT

services.

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The Group consists of four main companies, which operate in various industry sectors through subsidiaries, joint ventures etc. These are Hindalco,

Grasim,

Aditya Birla Nuvo,

UltraTech Cement.

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The Groups cement business is under both Grasim and UltraTech cement.

Together and make the group account for a substantial share of the cement market in India.

UltraTech cement comprises the erstwhile cement business of L&T which was acquired by the group.

UltraTech announced an increase in sales by 17% and Profit After Tax by 46% for the quarter ending September 30, 2007

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Amongst largest industrial houses in India Revenues in excess of $4.5 bn and earnings of $400 mn Group flagships: Grasim Industries - Cement, Viscose Staple Fibre and

Sponge Iron Hindalco - Aluminum and Copper Indian Rayon - Apparel, VFY, Carbon black, IT/ITeS,

Insurance Indo Gulf - Fertilisers Group Vision : To be a premium conglomerate with a

clear focus at each business level

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Introduction of

Grasim Industries Limited (1948)

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Grasim: Business profile

Viscose Staple Fibre Largest producer in the World, with 14% market share 3 Fibre plants (220,775 MT), 1 pulp plant (72,000 MT) JV for Pulp with Tembec Inc., Canada

Chemicals Second largest producer of Caustic Soda in India (190,800 MT)

Cement 14 Mn TPA existing capacity across 8 locations 1.14 Mn M3 RMC capacities across 6 plants; 0.65 Mn Ton Bulk

Terminal Growing to 31 Mn. MT with CemCo acquisition Largest in India, 7th largest in the World White Cement (400,000 MT) India’s largest and World’s 6th largest

Sponge Iron (900,000 MT) 3rd largest and only gas based merchant supplier in India

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Business and Debt restructuring

Major business restructuring done in last 4 years Closure of non-viable Fibre and Pulp plants at Mavoor Fabric unit at Gwalior sold Software subsidiary hived off Trading operations phased out Capital unlocked from sale of investments in MRPL &

Indo Gulf Large scale rightsizing of work force reduction of 8,000 persons (1/3rd of the workforce)

Significant Debt restructuring Bringing down interest cost progressively

13.2% in FY99 to 7.6% by 9MFY04 Consequent reduction in overall CoC

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Proposal for Acquisition of L&T Cement Business

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L&T CemCo Transaction structure

Step 1 : Cement Business of L&T to be de merged into CemCo

L&T (EngCo) gets 20% holding in CemCo and balance 80% to existing shareholders

proportionatelyGrasim gets 12.6% holding in CemCo;

retains 15.7% holding in L&T (EngCo)Appointed Date of Demerger – 1st

April 2003

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Step 2A : Grasim buys 8.5% holding in CemCo from L&T – (Outflow Rs. 362 crores)

Step 2B : Grasim sells its 14.95% stake to Employee Welfare Trusts and exits L&T(EngCo) – (Inflow Rs. 446 crores)

Step 2C : Grasim to make an Open Offer for 30% of CemCo

Grasim to get management control of CemCo, on its acquiring over 50% of CemCo shares

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Summary of Investment and Valuationin cr.

Existing investment in L&T - 1,028 Grasim to make open offer for 30% of

CemCo - 1278 Grasim to acquire 8.5% of CemCo from

L&T- 362 Total outflow for 38.5% (8.5% + 30%)-

1640 Inflow on sale of L&T (Engco) shares

to L&T Foundation/Trust - 446 Net Investment for 51.1% stake - 2222

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L&T Cement Business Valuation

Equity Value 4,348

Debts 1,911

Enterprise Value 6,259

USD/Ton $ 79.90

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Potential Upsides for GrasimLeading force in key growth sector

Grasim to have transitory rights for “L&T Cement” brand for six month after Effective Date of De-merger

Significant value enhancing potential, both strategic and operational

Complementary capacities from regional point of view

Synergies likely to result into gain of – Rs.50 Crs to each company

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Production from plants with lowest “delivered cost”

Sale to markets nearer to the plants (logistics), reduced lead distance

Economies of scale on procurement

CemCo has considerable scope for upsides in operating margins

Unrealized sales tax exemptions and deferrals

Benefits of economies of scale

Benefit from utilisation of currently underutilised capacity

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Grasim + CemCo

With CemCo capacity, Grasim will be the 7th largest Cement Producer in the World.

All India Capacity Ranked No.1 31 Mn. MT Capacity 11 Composite Plants 7 Split Grinding Units 4 Bulk Terminals 6 RMC Plants Strong National Presence

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Book Value – from Rs.285 in FY99 to Rs.447per share in FY04

Debt/Equity ratio improved from 0.93 x inFY99 to 0.54 x in FY04

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Introduction about ULTRATECH

A Grasim subsidiary Incorporated on 24 August 2000 as L&T Cement

Limited Chairman- Mr. Kumar Mangalam Birla An annual capacity of 17 million tonnes The cement division of L&T was demerged in 2004

after Grasim made the 30 per cent open offer for equity shares

Manufactures and markets Ordinary Portland Cement Portland Blast Furnace Slag Cement Portland Pozzolana Cement

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Continued…….

Five integrated plants, five grinding units and three terminals -two in India and one in Sri Lanka.

All the plants have ISO 9001 certification, and all but one have ISO 14001 certification.

UltraTech is the country's largest exporter of cement clinker.

The company exports over 2.5 million tonnes per annum, which is about 30% of the country's total exports.

The export markets span countries around the Indian Ocean, Africa, Europe and the Middle East.

EPS of Rs.20.84 as on 30 June 2007

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Continued…….

The shareholding pattern of UTCC is 51% with Grasim, 12% with financial institutions, 11.5% with L&T and the remaining with institutional and retail shareholders.

The first quarter results of the Company have improved.

Market shares have risen marginally from 9.9% to 10.3%. While volumes have gone up by 5.4%, revenues have soared by 22%.

Exports have risen phenomenally at 31% year-on-year.

Together with Grasim the largest cement producer in India.

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While launching ULTRATECH:

“Nothing has changed except the name. So essentially what was earlier L&T cement, now transforms into UltraTech Cement".

- Mr. Kumar Mangalam Birla

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“Excellent product quality and customer care to remain the hallmark of UltraTech"

- Mr. Kumar Mangalam Birla

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CASE

L&T's decision to demerge the cement division to prevent a takeover by Grasim.

In October 2002, Larsen & Toubro Ltd. (L&T), a leading Indian business group, announced plans to spin off (demerge) its cement unit into a separate company.

Grasim proposed a vertical demerger plan for L&T in November 2002.

All L&T shareholders were to get a stake in the new cement company, in the existing proportion of their respective stakes. In addition, it proposed that the cement company be listed on various stock exchanges.

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In October 2002, Larsen & Toubro Ltd. (L&T), a leading Indian business group, announced plans to spin off (demerge) its cement unit into a separate company.

According to L&T sources, the company had been considering the demerger since late-2000.

Reason for demerger - the cement division generated 26% of the group's revenues, it consumed over 75% of its total investments.

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L&T along with financial institutions (FIs) would hold 76% in the new cement company, while the remaining 24% would be distributed among the existing shareholders of L&T.

Later sell 6% of its share to the FIs. retain the control in the company for the

following 4 or 5 years and subsequently, sell half of the 70% stake to a strategic partner.

L&T reportedly was trying to protect itself from a possible takeover by Grasim Industries Ltd. (Grasim).

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•Since late-2001, Grasim had acquired over 15% stake in L&T and had also made an open offer to L&T shareholders to further increase its stake.

•Grasim's stake in the cement business would come down to 3.75%, if L&T's demerger plan went through.

•Since Grasim had spent over Rs 10 billion4 in acquiring its L&T stake because its own core business.

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Reliance War

The dispute, which dated back to September 2001 when Grasim first bought a stake in L&T, soon became one of the most bitterly fought battles in India's corporate history.

The Reliance Group (Reliance), which held 3.92% in L&T in September 2001, had increased its stake to 10.05% by November 2001, by acquiring over 15.8 million shares from the market.

Reliance sold this entire stake to Grasim at Rs 306.60 per share, at a premium of 47% over the prevailing market price of Rs 208.50.

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The Open Offer

Meanwhile in May 2002, Grasim further acquired a stake of 2.84% in L&T from the open market, taking its overall holding to 12.89%. These shares were purchased at prices ranging between Rs 175 to Rs 180.

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A TUG of OFFER

Grasim came out with an alternate vertical demerger plan in November 2002. According to this plan, the cement unit was to be demerged into a separate entity which would be listed on the stock exchanges.

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FINALLY CASE FACT ------

Grasim and L & T are expected to move ahead Grasim agreed to acquire the cement division of

rival L & T in one of the country’s largest merger and acquisition transactions,

for Rs 2,200 crore. According to the complex deal between the two companies, Grasim would eventually take 51% in L&T’s de-merged cement division, tentatively called CemCo. While L&T’s cement business is valued at Rs 6,051 crore,

the company’s engineering business is valued at nearly Rs 3,000 crore.

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Thus, the value of the company works out to around Rs 9,000 crore, compared to its latest market cap of Rs 5,954.16 crore, leaving scope for further appreciation.

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THANK YOU