L&T cement demerger set to sail through

The demerger of Larsen & Toubro's (L&T) cement division is set to receive shareholders' approval.

At the court convened extra-ordinary general meeting of L&T's shareholders and creditors on Tuesday, five amendments to the scheme of arrangement were proposed and later rejected by an overwhelming majority.

Sources close to the development told Business Standard, "Since the amendments to the scheme of arrangement were rejected, it is a forgone conclusion that the demerger proposal will be approved. However, the official results of voting on the demerger resolution are likely to be declared in a couple of days or so."

The EGM was called to pass two resolutions - demerger of the company's 17 million tonne cement business into a separate company, UltraTech Cemco - and the reorganisation of the company's share capital.

In the EGM, which lasted for more than six hours, the shareholders proposed amendments regarding the listing of Cemco before the buyback offer is made by Grasim and the reworking of the share valuation of the demerger.

Shareholders also proposed that the stake sold by Grasim in L&T, should be bought back by L&T and given to existing shareholders on a rights basis.

Also the L&T shares bought by the L&T trust from Grasim should be treated as a preferential offer and should be goverened by the SEBI guidelines and bought back at the market linked price.

The amendment proposal also included that the cement business be sold to Grasim and that Grasim should issue shares to existing L&T shareholders at a value determined by independent valuers.

The amendments were later rejected by an overwhelming majority of 463 votes against the amendments and around 130 votes for the amendment.

Once the demerger proposal is officially cleared by L&T shareholders, the company will file another report with the Bombay High Court for further necessary approvals.

L&T had filed an application with the Bombay High Court in the first week of December regarding the demerger proposal, and had received an approval on December 24 2003.

The Bombay High Court had then directed the management of Larsen & Toubro to convene a meeting of its shareholders and creditors, to decide on the demerger proposal.

The demerger of the cement business into a separate company - CemCo is a part of the agreement reached by the existing management with the A V Birla group.

L&T will retain 20 per cent of the equity in CemCo, while the balance equity will be distributed to its shareholders, in proportion to their stake in the L&T.

The proposed demerger will also see A V Birla group major Grasim Industries as the majority stake holder in CemCo with over 51 per cent stake holding.

As per the agreement, Grasim will acquire 8.5 per cent equity in CemCo from L&T for Rs 171.30 a share, after which Grasim will make an open offer at the same price for 30 per cent of CemCo.