Merger to benefit AB Nuvo with capital influx: BofAML

The boards of AB Nuvo and Grasim have decided to merge the two companies and then demerge Nuvo’s financial business to form a separate entity before listing it. "One of the key drivers for this entire restructuring has been to try and provide the right platform for the future growth of the financial services business," according to Raj Balakrishnan, Managing Director, Investment Banking, Bank of America Merrill Lynch. He added that the exercise hasn't been undertaken as a move to fund AB Group's telecom unit Idea, instead the group genuinely believes that a combination of cash flow generating and growth businesses creates more value for shareholders. "Our belief is that by putting these two companies together, it provides the right kind of parentage which would facilitate the ability to deploy capital into financial services over a period of time," he said. Q: What is your view of the AB Nuvo rejig? A: I do not think that this is something which has been done from the perspective of trying to fund Idea Cellular or something which is necessary for funding Idea. Idea has multiple options of its own. What this does is yes, it combines a number of different businesses and that is because the group genuinely believes that a combination of cash flow generating and growth businesses creates more value for shareholders and that is borne out by the group.Q: There is an allegation coming in from many shareholders and also proxy advisory firm and representative, Anil Singhvi who came on CNBC-TV18 and he said that promoters share increases to about 40 percent from earlier 31 percent and this seems to be the only focus for doing this entire restructuring. A: That is absolutely not correct. There are two companies over here, both of which are large listed companies. The promoters held 58.8 percent in Aditya Birla Nuvo. They held 31 percent roughly in Grasim. When you put the two companies together as a function of the swap ratio, if you own 58 in one and 31 in the other, it obvious that you will own somewhere between 31 and 58 in the combined entity. If the promoters were very focused and one thing which people do not seem to have picked up is that Grasim 2.5 percent holding that it has in AB Nuvo is being cancelled as part of the scheme. As a result, the promoter holding is getting to 38.8 percent as opposed to 39.3 if that had not been cancelled. So, if the promoters were focused on boosting their shareholding, they would not have cancelled that holding, so clearly, this is not a function of that, this is a function of doing something which promoters believe will create value for all shareholders.Q: AB Nuvo shareholders are also feeling cheated here because they were waiting for the financial services growth opportunity and that value unlocking there. Now net-net what they land up holding is 13 percent directly and 18 percent odd indirectly because 57 percent will be held by Grasim. Isn't this in a way not in favour of AB Nuvo shareholders? A: One of the key drivers for this entire restructuring has been to try and provide the right platform for the future growth of the financial services business. As you know in financial services, capital is virtually a raw material and AB Nuvo has funded the financial services business and brought it today’s level where it is a large attractive company with leadership positions in a number of sectors. Our belief is that by putting these two companies together, it provides the right kind of parentage which would facilitate the ability to deploy capital into financial services over a period of time. Could you have done a complete spin-off of financial services? You could have done that but in that case the promoters would have got 58 percent directly in financial services but there would have been no single entity above the financial services business which was in a position to provide that parentage and support to take it forward.