Indo Gulf, Birla Global to merge into Indian

Rayon to form Aditya Birla Nuvonews

The Aditya Birla group companies, Indo Gulf Fertilisers Ltd and
Birla Global Finance Ltd merged with Indian Rayon and
Industries Ltd, another group company. The new restructured
entity would be known as ``Aditya Birla Nuvo.'' This
restructuring, valued at over Rs. 5,000 crores, is one of the
major consolidations of its kind in India.
Under two separate restructuring schemes, Indian Rayon will
issue to Indo Gulf shareholders 1 equity share of Indian Rayon
for every 3 shares of Indo Gulf held. Indian Rayon will also issue
to Birla Global Finance shareholders 1 equity share for every
three equity shares of Birla Global Finance held. The swap ratio
is expected to translate into a reasonable premium to both Indo
Gulf and Birla Global Finance shareholders, based on the current
Indian Rayon share price.
``This restructuring is an important step in shareholder value
creation for all the three companies,'' said Kumar Mangalam
Birla, Chairman, Aditya Birla Group, while addressing a press
conference here on Sunday. He said it creates a company that
captured opportunities in the economy.
Placing this in the context of similar value unlocking initiatives
by the group in the past, Mr. Birla said, ``through consolidation
of metals three years ago, we created value for shareholders
together with market out-performance. We aim to achieve the
same through this transaction.''
On this restructuring Mr. Birla said, ``even though the fertilizer
business has seen steady profits, regulatory uncertainties
constrain growth avenues, making accelerated value creation
difficult. Becoming a part of the Indian Rayon shareholder
fraternity should provide Indo Gulf shareholders broader canvas
to participate in enhanced value creation. For the Birla Global
shareholders, they extend their participation in financial services

beyond mutual funds into life insurance, as the financial services

business of the group gets consolidated under Indian Rayon.''
Indian Rayon would benefit from cash flows of fertilizer business
that would spur growth across its business. According to him the
group was making efforts to use profitable cash generated from
companies such as Indo-Gulf to promote high-growth
businesses like IT and IT-enabled services, garments, financial
services and telecom.
Mr. Birla said that in the area of financial services, the company
was looking for entry into the pension fund sector as and when
it was opened up for private sector apart from focus on life
insurance and mutual funds. Birla Global Finance has assets
under management of more than Rs. 16,000 crores.
Speaking to the media here after the board meetings, Kumar Mangalam Birla,
chairman, Aditya Birla Group, said the main reason behind the proposed merger
was that the fertiliser business had not lived up to expectations and the group did
not think that the sector would be deregulated in the future. He also said the
employees of Indo Gulf and Birla Global Finance would be absorbed by the new
entity. The promoters' holdings in the merged entity will be 38 per cent.
He said Indian Rayon would be able to use the cash reserve of Indo Gulf
Fetiliser. Indo Gulf's net worth stood at Rs 628 crore on September 1 and cash
and investments were to the tune of Rs 442 crore. He said that from the Birla
Global perspective, it made better sense to create an integrated financial sector
entity.
He said that as Indian Rayon held 74 per cent stake in Birla Sun Life, there
seemed to be a complementary fit in the merger. In the case of Indo Gulf, in
2003, the idea was to make it a fertiliser major.
The Rs 72 crore Birla Global Finance is involved in the business of asset-based
finance, corporate finance, investment banking, capital market and treasury.
According to Kumar Mangalam Birla the merger would create two sets of
businesses - the first would be the brick and mortar businesses of fertilisers,
carbon black, viscose filament yarn and textiles that would be the focused value
segment; and the second, the high growth segment comprising garments,
financial services, IT and IT-enabled services and telecom.
"The restructuring is an important step towards shareholders' value creation. It
creates a company that captures opportunities in the evolving Indian economy
through leadership in businesses like carbon black, viscose filament yarn, textiles
and fertilisers, and driving high-growth businesses namely garments, IT and
ITES, financial services and telecom," he said.

Sanjeev Aga, managing director of Indian Rayon, will be the managing director
of Aditya Birla Nuvo. The board will include SK Mitra, managing director of
Birla Global Finance; Rakesh Jain, managing director of Indo Gulf; KK
Maheswari, group executive president in charge of its chemical business; and
Adesh Gupta, chief finance officer of Indian Rayon.
Jain would continue to head the carbon black business of the group and along
with Mitra would report to Birla. The existing Indo Gulf unit in Uttar Pradesh
will report to Aga. The 11-member Indian Rayon board now includes Kumar
Mangalam Birla and Rajashree Birla.
According to the consolidated accounts of 2004-05, the new entity will have
sales of Rs 3,980 crore, 25 per cent higher than that of Indian Rayon; net profit of
Rs 150 crore (150 per cent growth) and a net worth of Rs 1825 crore (60 per cent
growth).
Aditya Birla Nuvo will have, after restructuring, a revenue of Rs 5800 crore, Rs
4,500 crore of capital employed and a debt-equity ratio of 1:0.99.
With the merger Aditya Birla Nuvo will become the third largest Birla group
company, focusing on textiles, carbon black, fertiliser, information technology,
IT-enabled services and financial services. Two larger group companies Hindalco and Grasim - are focused on copper and aluminium, and viscose staple
fibre and cement, respectively.
Indian Rayon has been restructured a number of times earlier. In 1998 its cement
business was demerged and its seawater magnesia project closed. It also hived off
the insulators business into a joint venture with NGK Japan. In 1999, it bought
back the equity shares in the venture.
Indian Rayon acquired Madura Garments in 2000, PSI Data System in 2001 and
a BPO company, Transworks in 2003. In 2001 the company formed a life
insurance joint venture with Sun Life of Canada in 2001 and acquired a
substantial stake in Idea Cellular this year.

Project by Akshay Javkhedkar,Devendra Tandel,Saurabh Rana and Bhushan

Dalvi.