Move seen as first step to cross-holding dispute settlement.
Larsen and Toubro (L&T) took an initial step towards settling a long-standing dispute with Grasim Industries over cross-holdings, by agreeing to disburse four years of pending dividend for shares held by the Aditya Birla Group firm in the engineering major.
The Bombay High Court in its order on March 12, 2009 said L&T was willing to pay the dividend to Grasim, along with arrears and interest at 18 per cent. Grasim would receive around Rs 12 crore as dividend for its 3.85 million shares, in addition to the interest, said a highly-placed source.
Sources close to the development said L&T had approached the court in the middle of last year, seeking permission to deposit dividends payable to Grasim in an escrow account.
The corporate battle started in 2001, when Grasim acquired 10.45 per cent in L&T from Reliance Industries in a stock market transaction. Later, the cement-maker increased the stake to 15 per cent through open market purchases that led to an open offer for an additional 20 per cent under Sebi's takeover rules.
To settle the dispute, chartered accountant S Gurumurthy mediated a deal under which L&T spun off its cement division, later renamed UltraTech, sold the majority stake to Grasim but retained 11.49 per cent. Grasim, in turn, sold 14.95 per cent in L&T to a trust belonging to L&T’s employees and retained over 1.9 million shares or half a per cent. Meanwhile, L&T has to exit from Ultra Tech by December 2009, under a 2005 agreement.
The sale of the remaining shares has been the bone of contention. L&T claims that the stake held by Grasim should be sold to its employees’ trust at a predetermined rate (which was Rs 120 a share in 2004 and later came down to Rs 60 after the equity base was expanded through a bonus share issue in October 2008) under the agreement. Grasim argued that there was no agreement and it would sell L&T’s shares at the market rate. L&T and the employees’ trust even claimed damages of Rs 441 crore from Grasim and moved court.
After L&T’s counsel indicated the company’s willingness to pay dividend on Grasim holdings in it, the court told both parties to maintain status quo on other related issues until further orders.
Meanwhile, L&T’s 11.49 per cent stake in UltraTech remains a contentious issue because L&T is not willing to sell it. Grasim claims the first right of refusal for L&T's stake. However, L&T sources said its UltraTech stake did not come from the same transaction that led to Grasim retaining a stake in the engineering company.
Declining to comment on the court order, D D Rathi, Grasim’s whole-time director and chief financial officer, said the company’s holding in L&T had increased to 3.85 million shares after two bonus issues, which represents 0.66 per cent of the equity. The rumours about a settlement were speculative, he added. L&T officials declined to comment.
L&T’s share price, at Rs 609.55 on Thursday, values Grasim’s holding at Rs 234.80 crore. The engineering major’s stake in Ultratech is valued at Rs 673, crore at the current share price of Rs 470.55.
