To: ratan lal who wrote (4697 ) 6/22/1999 8:28:00 PM From: Mohan Marette Respond to
Hotdamn,Great news for Larsen & Toubro shareholders.L&T plans to split 3 ways, offer stake in cement business to MNC larsentoubro.com Belt up for one of the biggest pieces of action to ever hit Corporate India. Larsen & Toubro (L&T), the country's largest conglomerate, has decided to restructure its operations. The Rs 7,300-crore construction, engineering and cement giant is likely to be split into three major companies with focussed lines of business. L&T's CEO, A M Naik, is understood to have spoken to the company's board at its meeting in Mumbai today of the need to restructure businesses, unlock values and generate higher returns for shareholders. McKinsey & Co, Boston Consulting Group and Booz-Allen & Hamilton, which have already submitted initial reports on— you said it! — improving shareholder value. Mr Naik has also been asked to finalise a blueprint to be placed before the board and institutional stakeholders at the earliest. Financial institutions hold 35 per cent of the company's Rs 248-crore equity. The Ambanis, with a stake of around 9 per cent, are the largest non-institutional shareholders. According to sources, the L&T group will be split into three companies with separate businesses — engineering, procurement and construction (EPC), cement, and information technology. Several of the company's smaller non-focussed businesses such as shoes and glass-bottles will be disposed of. Based on recent deals in the cement industry, such as the acquisition of Tisco's cement unit by Lafarge and of Raasi Cements by India Cements, investment bankers estimate the value of the company's cement assets at Rs 6,000 crore. This does not take into account the premium the company could get for its brand equity, the quality of its products, and the one-time oppourtunity cost of creating such a large business. MNCs line up: Lafarge of France, Cemex of Mexico, Holder Bank of Switzerland and Blue Circle of Europe have already evinced keen interest in L&T's cement business. There is also a possibility that the cement business might be spun off into a separate company with a minority stake being offered to an international player and the remaining equity being distributed among existing L&T shareholders in proportion to their holdings. In the event of such a model being adopted, L&T shareholders could be offered cash (from the sale of the minority stake to the foreign company) along with the shares of the hived-off cement company. L&T has already spun off its infotech business into a separate 100 per cent subsidiary, L&T Information Technology Ltd. The management believes there is tremendous potential in the software business and proposes to expand its activity several-fold in the next few years. In order to reflect the true value of the business, it proposes to list it on the Nasdaq in the US. The existing shareholders of L&T are also likely to be offered shares in the subsidiary. The L&T management has drawn up ambitious plans to hit sales of Rs 25,000 crore by 2005. The company's sales rose 28 per cent to Rs 7,291 crore in '98-99 from Rs 5,677 crore the previous year. Its gross profit however showed only a marginal increase of 2.5 per cent at Rs 709 crore. L&T's share price has been quite firm in the past few weeks, rising from Rs 202 in the first week of May to Rs 302 today. Recently, the company shed its shipping division and transferred its earth moving equipment business to a joint venture with Komatsu of Japan. economictimes.com
