The Grasim Industries–Aditya Birla Nuvo Limited Merger: Wealth Creation?
(6 pages of text)
On August 11, 2016, the chairman of Aditya Birla Group (ABG) announced that ABG would merge Aditya Birla Nuvo Limited (ABNL) with Grasim Industries Limited (Grasim). ABG’s board also proposed to demerge Aditya Birla Financial Services Limited, a subsidiary of ABNL, from the newly merged Grasim. Financial analysts speculated that the merger was planned to fund ABNL’s telecommunication business before an upcoming spectrum sale and the launch of a strong, competing telecommunication company. The investor community, particularly minority shareholders, were concerned about the merger and felt that ABG’s main motive for the merger was to increase its stake in Grasim. What were the rationales for the merger? Would the promoter’s holding increase after the merger, as the shareholders perceived? Was the share swap ratio between ABNL and Grasim justified? Would there be a post-merger synergy creation, and which of the two companies would transfer wealth to the other? Should the shareholders vote in favour of the merger?
The case can be taught in mergers and acquisitions courses at the graduate level of business management programs. By working through the case and assignment questions, students will have the opportunity to do the following:
- Understand types of mergers.
- Understand potential motivations for mergers.
- Learn about synergy creation through mergers.
- Calculate and interpret wealth creation and earnings per share by accretion or dilution.
India, Large, 2016
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