Aditya Birla Nuvo, Grasim stocks plunge on merger ‘woes’
Shares of Aditya Birla Nuvo (ABNL) fell 25% on Friday as the market gave a thumbs down to the proposed merger with Grasim Industries. Analysts said the deal was complicated and doesn’t offer synergies.
ABNL shares hit a low of ₹1,180 on the BSE, before closing at ₹1,290.15, down 17.6%. Grasim shares, too, fell more than 8% to touch a low of ₹4,160, before recovering to close at R4,565, up 0.6% on the BSE. The Sensex ended up 293 points at 28,152.40.
On Thursday, the The Aditya Birla Group said it will merge the two companies to create a R60,000-crore conglomerate (in terms of revenue), which will have diverse businesses in its portfolio, including telecom and financial services, apart from cement, VSF (viscose staple fibre) and chemicals. The financial services business will be subsequently demerged and listed separately on the stock exchanges.
Each shareholder of ABNL will get 3 shares of Grasim for every 10 shares held in ABNL, which means an investor holding 100 shares in ABNL will receive 30 shares of Grasim. Each shareholder of Grasim will receive seven shares in Aditya Birla Financial Services for every one share held in Grasim.
“We see this transaction negative for existing shareholders as Grasim becomes a holding company for the financial services business (in addition to being the holding firm for UltraTech). Likelihood of using cash flows to fund Idea’s needs is an additional negative. We don’t see any synergistic benefits from this deal,” said Sanjeev Kumar Singh of Emkay Global Financial Services.
After the merger, Grasim’s stake in Idea Cellular will increase to 28% from 4.7%, which will be a concern for Grasim shareholders, as telecom is a capital-intensive business.
Though the Aditya Birla Group had said on Thursday that the merger was not being done to fund Idea, investors remained skeptical. “The skepticism of minority shareholders was evident in their discussion with management post-results, given the high likelihood of Grasim’s balancesheet being leveraged for investments in unrelated businesses, particularly telecom,” said Mihir Jhaveri, analyst at Religare Institutional Research.