Mutual funds may oppose Grasim, Nuvo merger

The mutual fund investors, who own a minority stake in Grasim and Aditya Birla Nuvo, are expected to vote against the proposal to merge both companies in the voting that began early this month and continue for a month.

Both companies are, however, confident that they would be able to garner enough votes from shareholders to get the merger going. A top official of a leading mutual fund said there was no change in the merger proposal announced in August last year and the mutual fund would vote against the proposal even if other shareholders vote for the merger. One of the mutual fund officials said in the recent cases like Maruti and Vedanta, few MFs broke ranks to vote for the proposals which they, as an industry, had opposed during the initial stages.

Mutual funds hold 8.21 per cent stake in Grasim and 7.57 per cent stake in Aditya Birla Nuvo.  The promoters hold 31.2 per cent in Grasim and 58.39 per cent in Nuvo. The transaction requires a minority shareholders vote and promoters are not allowed to vote on the proposal. The Birlas are, however, expected to get support from government-owned institutions like Life Insurance Corporation (LIC) and GIC which support incumbent managements citing long-term interests.”

As on Thursday, Nuvo was trading flat at Rs 1520 a share while Grasim was trading at Rs 1049 a share.

Grasim shareholders are jittery over the fact that the company will now attract an increased holding company discount of 30 per cent instead of 20 per cent.

An email sent to the Birla group did not elicit any response.

In August last year, the Birlas had announced a two-step merger in which Aditya Birla Nuvo will be merged with Grasim and then the financial services business would be hived of from “New Grasim”  and listed by May this year. As per the scheme, for every 100 shares in AB Nuvo, an investor will get 30 shares of Grasim and 210 shares of the financial business whereas a shareholder with 100 shares in Grasim will get 700 shares of the financial unit.  

Analysts had said the Nuvo-Grasim merger would add to the confusion and creates a complex conglomerate with multiple businesses sharing no commonality whatsoever.

The Birla group is also trying to announce a merger between Idea Cellular with Vodafone by as early as next week to become India’s largest telephone operator. The deal would help the group to assuage Grasim shareholders who are think they would be burdened with a cash guzzling business.