3:10 swap for Birla cement restructuring

MUMBAI, September 28: The boards of Grasim Industries and Indian Rayon on Monday approved the share entitlement ratio of three shares/GDR...

MUMBAI, September 28: The boards of Grasim Industries and Indian Rayon on Monday approved the share entitlement ratio of three shares/GDRs of Grasim for every 10 shares held for the transfer of Indian Rayon8217;s cement business to Grasim.

Kumar Mangalam Birla, chairman of Aditya Birla group, said here today that Indian Rayon shareholders stand to gain from the entire exercise as for 37 per cent of Indian Rayon PBDIT profit before depreciation, interest and tax transferred, issue of Grasim shares translates into a gain of 39 per cent. The share ratio as recommended by the two independent valuation experts would be effective from September 1, 1998.

quot;The ratio is a fair valuation and strikes a balance in the interest of shareholders of both companies,quot; he said. Birla said the promoters will increase their stake in Grasim through open market purchases as per Sebi guidelines which allow promoters to hike their stake by two per cent every year.

The stake of the Birlas in Grasim will decline to 20 per cent from22 per cent as result a cancellation of cross-holdings. quot;About 8.9 lakh shares arising out of cross-holdings of Indian Rayon in Grasim will be cancelled in the interest of enhancing shareholder value,quot; Birla added. He said several options were considered before arriving at the present route of transferring cement business of Indian Rayon to Grasim, including a merger of both the companies. Grasim, which now emerges as India8217;s third largest cement maker with a capacity of 10.6 million tonne, will inherit Rs 437 crore of debt linked to Indian Rayon8217;s cement business.

Under the restructured cement division, Grasim plans to do away with the old structure were each of the five cement divisions were separate profit centres and used to compete with each other on certain overlapping marketing zone, particularly in Maharashtra.

Birla said that a single brand umbrella will be created over the next five years. 8220;We are examining businesses and carrying out a portfolio analysis and trying to bench mark theminternationally,8221; he said. Grasim enlisted the services of Boston Consulting Group as management consultants and DSP Merrill Lynch as transaction advisors to the board.