Birla group in mega merger

Indo Gulf, Birla Global to merge with Indian Rayon to form Aditya Birla Nuvo.

The Aditya Birla group yesterday announced a major restructuring by merging Indo Gulf Fertilisers and Birla Global Finance with Indian Rayon.

The new diversified entity, named Aditya Birla Nuvo, will be the third largest group company focusing on textiles, carbon black, fertiliser, information technology, IT-enabled services and financial services. Two larger group companies "" Hindalco and Grasim "" mainly focus on copper and aluminium, and viscose stable fibre and cement, respectively.

Under the restructuring scheme, the shareholders of Indo Gulf and Birla Global will each get one share of Indian Rayon for every three held by them.

The merger is effective from September 1. The swap ratio was worked out by Deloitte Haskins Sells and Bansi S Mahta & Co. Amarchand Mangaldas & Suresh Shroff and Co was the legal adviser.

Briefing reporters after the boards of the three company met separately to approve the consolidation move, Aditya Birla Group Chairman Kumar Mangalam Birla told reporters here that the restructuring was aimed at creating a diversified high-growth engine and strengthening of the group's manufacturing portfolio.

"The restructuring is an important step towards shareholders' value creation. It creates a company that captures opportunities in the evolving Indian economy through leadership in businesses like carbon black, viscose filament yarn, textiles and fertilisers, and driving high-growth businesses namely garments, IT and ITES, financial services and telecom," he said.

One of the reasons behind the proposed merger was that the fertiliser business did not live up to expectations and the group did not think that the sector would be deregulated, Birla said. The employees of Indo Gulf and Birla Global Finance will be absorbed by the new entity. The promoters' holdings in the merged entity will be 38 per cent.

The merger will help Indo Gulf use the efficiency of Indian Rayon, which will be able to use the cash reserve of the former. Indo Gulf's net worth stood at Rs 628 crore on September 1 and cash and investments were to the tune of Rs 442 crore.

The Rs 72-crore Birla Global Finance is involved in the business of asset-based finance, corporate finance, investment banking, capital market and treasury.

Sanjeev Aga, managing director of Indian Rayon, will be the managing director of Aditya Birla Nuvo. The board will include SK Mitra, managing director of Birla Global Finance; Rakesh Jain, managing director of Indo Gulf; KK Maheswari, group executive president in charge of its chemical business; and Adesh Gupta, chief finance officer of Indian Rayon.

Jain will continue to lead the carbon black business of the group. After restructuring, he and Mitra will report to Birla. The existing Indo Gulf unit in Uttar Pradesh will report to Aga. The 11-member Indian Rayon board now includes Kumar Mangalam Birla and Rajashree Birla.

According to the consolidated accounts of 2004-05, the new entity will have sales of Rs 3,980 crore, 25 per cent higher than that of Indian Rayon; net profit of Rs 150 crore (150 per cent growth) and a net worth of Rs 1825 crore (60 per cent growth). Aga said Aditya Birla Nuvo would have, after restructuring, a revenue of Rs 5800 crore, Rs 4,500 crore of capital employed and a debt-equity ratio of 1:0.99.

Indian Rayon has gone through several rounds of restructuring. It demerged the cement business and closed its sea-water magnesia project in 1998. It also hived off the insulators business into a joint venture with NGK Japan. In 1999, it bought back the equity shares in the venture.

The company has invested in a gamut of new businesses over the past five years. In fact, it has generated cash of Rs 764 crore since financial year 2001 from value businesses, namely viscose filament yarn, carbon black, textiles and insulators, and has deployed it in high-growth businesses such as garments, insurance, IT and ITES and telecom.

It acquired Madura Garments in 2000, PSI Data System in 2001, a BPO company, Transworks in 2003. It went for substantial acquisition in Idea Cellular earlier this year. The company also formed a life insurance joint venture with Sun Life of Canada in 2001.