AB Nuvo- Grasim Merger

The AB Nuvo- Grasim merger is a 2 step process- The first step involves merging the two companies and the second would be a spin-off of the financial division.

  • For every 10 shares held, the shareholders of AB Nuvo will receive 3 shares of Grasim.
  • Post-merger when the financial services business is spun off, the shareholders of the merged Grasim will receive 7 shares of Aditya Birla Financial Services – the arm which holds the insurance and asset management companies.

The merger value of Grasim is higher by ~Rs.700 as compared to AB Nuvo which is the additional embedded value of these 7 shares of AB Financial Services- eg. Grasim- Rs.4900*3= 14700, AB Nuvo-Rs.1400*10= 14000.

The merger though made business sense in consolidating into a bigger entity (maybe to fund additional capex requirement for Idea Cellular) and simplifying holdings, was negative for shareholders of AB Nuvo in terms of valuation. As Financial services is currently under AB Nuvo but in the 2nd step shareholders of Grasim will also get 7 shares of financial services in addition to AB Nuvo Shareholders, thus AB Nuvo shareholders will not get the full benefit.

The counter argument for Grasim is that it already had a 60.2% holding in Ultratech Cements apart from its viscose fibre and chemicals division in it will now have to bear the burden of the debt-laden Idea Cellular and other slow growing divisions like Rayon, Urea among others that were present in AB Nuvo.
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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ 

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