SAT ruling on Grasim open offer a victory for small investors

Uday Chatterjee
30 November 2002

Mumbai: Last year, the AV Birla group picked up Reliance Industries’ 10 per cent-plus stake in L&T at a price of Rs 306.50 per share on negotiated terms. The Reliance nominees on the L&T board, the Ambani brothers stepped down and Kumar Mangalam Birla and his mother Rajashree Birla took their place on the board. The group’s objective appeared to be to consolidate its cement business and gain synergies from L&T’s engineering skills and experience.

Subsequently, the group continued to purchase L&T shares in the open market and raised its holdings in L&T to about 15 per cent.

Last month, Grasim of the AV Birla group announced its decision to consolidate its shareholding in L&T through an open offer to mop up another 20 per cent of its shares. The offer was made at Rs 190 per share.

The price offered by Grasim satisfies Sebi's formula of 26-week high-low and the recently added criterion of the average of share prices for two weeks preceding the date of public announcement of the open offer.

The other shareholders of L&T are the financial institutions (FIs), which have over 30 per cent stake, and the small investors. No one expected that they would accept the open offer, when someone else had been paid much more than what they were being offered. The Investors’ Grievance Forum (IGF), headed by Kirit Somaiya, Lok Sabha MP, asked Sebi to stall the offer till Sebi’s ongoing probe of Grasim’s acquisition of L&T shares were complete.

Early this month, Sebi asked Grasim to withhold its open offer, pending its investigations into possible violations with respect to its acquisition of 10.05 per cent equity stake in L&T last year.