Demerger , case study of Larsen

and Toubro limited

Demerger under companies act ,1956
` Clause (B) of sec 390 ² ´arrangementµ includes a
reorganization of the share capital of the company by the
consolidation of shares of different classes OR by the
decision of shares into shares of different classes OR , by
both these methods . Such divisions may take place for
various reasons internal or external .
Procedural aspect in respect of demerger
` Scheme must be within company·s powers
- court will not sanction a scheme of compromise or
arrangement which is beyond powers of company ² 
defined in MOA .
- company may alter relevant clauses in its MOA to get
sanctioned .
Res Judicata ² rejected proposed scheme again proposing
,will be declined according to this principle second time
as well.
Rulesand forms in respect of scheme of 
demerger
` Form no. 33 summons for directions to convene a class
meeting under section 391 ² rule 67 .
` From no.34 affidavit in support of summons ² rule 67
` From no.35 order on summons for directions ² rule 69
` Form no36 notice convening meeting ² rule 73
` From no.37 form of proxy ² rule 73
` Form no. 38 advertisement of notice convening meeting
of creditors / shareholders.
` Form no. 39 report by chairman of the meeting ²rule 78
` Formno. 40 petition to sanction the scheme of 
compromise or arrangement ² rule 79 .
` From no. 41 order on petition ² rule 81 .
Case ² larsen & toubro ltd
intro«..
` L&T est. 1942 . Leading in manufacturer and engineer in
turnkey projects
` Diversified activities such as electrical , construction,
cement manufacturing ,medical equipments ,shipping
,heavy engineering nad IT.
` By 2000, planned to demerge and concentrate on more
infrastructure business .
Why demerger ?
` GIL (Grasim Industries) flagship of Aditya Birla Group
wanted control over L&T management ,
` Firstacquired 15% stake and made open offer to L&T
shareholders to increase it .
` Later
the shareholders approved the demerger of L&T·s
cement division ²Ultra Tech CemCo Ltd(UCL).
3phases of demerger.
` First
² L&T spin off the cement business into new
company ,Ultra Tech Cemco Ltd, L&T hold 20% and bal.
80% would be existing shareholders of L&T.
` Second- GIL buy 8.5%UCL from L&T for 342.60 per
share and make open offer to other shareholders of 
another 30% at the same price.
` Third- L&T Employee Welfare foundation would acquire
the GIL·s 15.3% stake .
Demerger ratio .
` For every 2 shares (FV-10) held in L&T, shareholder was
given 1 share in new L&T.
` At the same time for every 5 shares held in L&T the
shareholder was given 2 shares in the demerged cement
company- Ultra Tech Cemco.
Benefits of Demerger to L&T 
` Lead to immediate realization of value from cement
business
` Create 2 distinct listed entities for -
engineering
- cement
Enable L&T to become focused Engineering ,Construction
     

and Technology Company.

Benefits of Demerger to Grasim
` Economies of scale and overall competitiveness .
` Access domestic and international markets .
` Increased capacity .