ABNL scrip dives 17.6% as Street thumbs down Grasim merger

Mumbai, Aug 12: Shares of Aditya Birla Nuvo (ABNL) on Friday crashed 25% intraday, with the Street clearly unhappy about the proposed merger of ABNL with Grasim Industries.

Aditya Birla Group chairman Kumar Mangalam Birla announced the merger on Thursday after the boards of both the companies had approved it.

While Birla had said the Street should not interpret the merger as a way for Grasim's cash to be used to fund Idea Cellular's growth, analysts remain circumspect.

The ABNL stock closed at Rs 1,290.15 on the BSE – a 17.6% decline, the single-biggest daily fall since October 2008.

However, shares of Grasim Industries, which tanked as much as 8% intraday, recovered during the final hours of trading to close up 0.57 % at Rs 4,565. The benchmark Sensex went up by 1.05% on Friday.

Several domestic and international brokerages, including CLSA, HSBC and Edelweiss, have expressed their concerns about the proposed merger. The brokerages believe the merger structure is complicated and would be disadvantageous to minority shareholders.In a note to investors, CLSA said the proposed merger would create a complex conglomerate, confusing minority shareholders given the multiple and diverse businesses. It believes the merger may not win the vote of minority shareholders. “Promoter group would not be able to vote on the transaction as per our understanding. The swap ratio is favourable to Grasim on Thursday's close and is favourable to AB Nuvo on 3-month average price. Our rating is 'Under Review' until we comprehend the deal and its implications,” CLSA wrote.

London-based brokerage HSBC Securities and Capital Markets reviewed the stock recommendation on Grasim to 'hold' from 'buy'. “Merger will likely remain overhang as increasing complexity will be perceived negatively. Concerns regarding increasing complexity with addition of several non-core businesses remain,” HSBC said. Analysts have queried the management on the rationale for adding more businesses to Grasim. Shareholders of Grasim are content with the exposure to cement and do not want any exposure to telecom. On the other hand, shareholders of ABNL are concer ned that exposure to the high-growth finance business is being diluted, analysts pointed out. The Street is apprehensive that the new Grasim will attract a holding company. “Grasim's balance sheet could be leveraged for investments in businesses like telecom,” an analyst said.