In-depth financial analysis of merger of ABNL and Grasim and subsequent demerger of financial services to understand its effects on stakeholders and its future value

Abstract

The merger of Grasim and ABNL to create New Grasim has been a landmark deal in Indian Corporate history. Aditya Birla group went ahead with this merger to financially support the growth businesses of ABNL with cash-rich businesses of Grasim. The demerger and listing of ABFSL after the merger is expected to unlock and create value in the high growth financial services business. The decision was opposed by proxy advisory firms, investors, minority shareholders, and analysts in the beginning due to the increase in promoter holding in the new entity as well as the financial services business. But proper communication by group CFO Mr. Sushil Agarwal and consistent PR (public relations) efforts helped to allay the fears of all the stakeholders. The initial dip in the stock prices post-merger also recovered quickly and gave above average returns leading to the vote for merger despite the increase in holding company discount. The Aditya Birla group is betting big on its financial services business which explains most of the actions taken by the company in the past year. The grant of licence for payments bank to Idea Cellular, has further strengthen their resolve to bet big on this sector. The parentage and cash flows of New Grasim is going to be strategically important for their listed financial services business ABFSL.