Aditya Birla Nuvo to be merged with Grasim Industries against interests of minority shareholders

Kumar Mangalam Birla, owner of the diversified conglomerate Aditya Birla Group, has increased his shareholding in Aditya Birla Nuvo by purchasing shares from minority investors, including 3.86 percent from rival Anil Ambani-owned Reliance Mutual Fund, for Rs 775 crore, said two people with direct knowledge of the development.

Aditya Birla Nuvo is to be merged with Grasim Industries. The stake purchases, which boosted Birla's holdings to 62.77 percent from 58.39 percent, invited criticism from proxy advisory firms and local investors, who said it was against interests of minority shareholders.

Reliance MF, second-largest shareholder after Life Insurance Corporation of India, sold almost its entire stake. Birla's unlisted private firms Turquoise Investments & Finance and IGH Holdings bought about 57 lakh shares between December 2016 and January 2017.

Apart from Reliance Mutual Fund, the identity of the other sellers could not be ascertained. The stake purchases are a message to investors that Birla is bullish on prospects of the company after concerns were raised that the transaction was aimed at raising his holdings in the merged entity.

An Aditya Birla Group official said the acquisition is part of its plan to increase shareholding in group companies under the creeping acquisition route allowed by the Securities & Exchange Board of India, the market regulator. Guidelines say a promoter can increase shareholding by 5 percent every year by purchasing shares from bourses.

Birla said the merger will make Grasim one of India's largest diversified companies with a healthy mix of business with steady cash flows and long-term growth opportunities.

"It will also simplify cross-holdings between group companies and play on India growth story with both manufacturing and financial services."

Soon after the announcement, Aditya Birla Nuvo shares lost 13 percent in value on the bourses. The merger plan includes listing the financial services company, with Grasim owning 57 percent, the promoters 16.6 percent and public the rest.