Merger plan drags AB Nuvo 25%: 5 things which worry shareholders

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26 Aug, 2025 12:21

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Shares of Aditya Birla Nuvo plunged 25 percent intraday Friday. While Grasim also suffered loss of 8 percent in early trade but soon recovered by noon. The Aditya Birla Group is consolidating its business by merging Aditya Birla Nuvo with Grasim Industries to create a nearly Rs 60,000-crore diversified entity.

But why are analysts not impressed?

Analysts find the deal to be negative which will add more to the confusion. They say that given the varied nature of businesses, shareholders of both the companies would have concerns on capital allocation and business complexity.Here are few reasons that worries shareholders.

1) CLSA believes the transaction adds to confusion and creates a complex conglomerate with multiple businesses sharing no commonality. It warns that minority vote seems to be an uphill task. “Continued stake by Grasim in financial services as against a total direct exposure by shareholders could be an important area of concern.  It would require serious persuasion by the management on positives from the deal to win minority confidence and there may be uncertainty on this aspect,” CLSA cautions.

2) CLSA explains that Grasim has so far been seen as a proxy to play UltraTech along with exposure to VSF while ABNL has largely been a proxy for financial services. Despite this, both the stocks trade at a meaningful discount to underlying investments. 3) The merger appears to complicate the structure further and also raises uncertainty on the capital allocation.

4) JP Morgan says that the transaction raises concerns on Grasim being treated as a holding company for unrelated businesses and lack of structure simplification. 5) It also says that the deal does not really simplify the holding structure as cross holdings will continue to exist across group companies even after the conclusion of the deal.

However, it does not think the deal is as negative as the perception given due to exposure to fast-growing financials business with improving returns. Demerger here should unlock value for shareholders of the combined entity while non financials businesses are generating strong free cash flows and have limited capex commitments it adds.  According to the brokerage firm, swap ratio seems fair for Grasim shareholder. Combined net debt is around Rs 1700 crore.

JP Morgan states that besides the non-financial businesses (textiles, fertilisers, insulator) the proposed restructuring will also provide Grasim shareholders with a stake (directly and indirectly) in the financials business, which is growing fast (45 percent lending book growth) and its return on equity (ROE) have been improving. “Listing of this business as a pure-play financial services firm could yield valueunlocking over time we believe.The non-financials business which is being merged while not being complementary is generating steady cash flows and has a current ROE of over 22 percent,” it says in a note.

Contours of the deal: Who gets what?

As part of the plan, financial services business of the merged entity will be hived off and merged with Aditya Birla Financial Services Ltd (ABFSL), a wholly-owned arm of ABNL and will be listed subsequently. Post merger, all financial services business- insurance, NBFC, MF etc. will get consolidated under subsidiary Aditya Birla Financial Services - The financial services includes NBFC lending business, life insurance, mutual funds.

The financial service business will have 57 percent onwership by post-merger Grasim and the balance being held by post-merger Grasim shareholders on a proportionate basis.

Each shareholder of ABNL will get 3 new equity shares of Grasim for every 10 equity shares held in ABNL i.e. a shareholder holding 100 shares in ABNL will receive 30 shares in Grasim. Each shareholder of Grasim (post-merger) will receive 7 equity shares in ABFSL for every 1 equity share held in Grasim:  a shareholder holding 100 shares in Grasim will receive 700 shares in ABFSL.

In aggregate, each shareholder of ABNL holding 100 shares will receive 30 shares in Grasim and 210 shares in ABFSL.

Grasim currently has a 60 percent stake in UltraTech along with minor stakes in group firms like Idea Cellular, Hindalco and ABNL and also VSF and chemical businesses at the standalone level.  Aditya Birla Nuvo currently has stakes in Idea and financial services with the standalone business encompassing agri, rayon, solar, etc.

 At 11:37 hrs Aditya Birla Nuvo was at Rs 1,296.00, down Rs 269.70, or 17.23 percent while Grasim Industries was at Rs 4,550.05, up Rs 11.10, or 0.24 percent on the BSE.Follow @NasrinzStory