The proposed merger of Grasim Industries and Aditya Birla Nuvo(ABNL) is the group’s long-term strategy to shore up promoter holding to 40 per cent in all listed entities. In May 2004, group chairman Kumar Mangalam Birla had said he wanted to shore up the promoter holding to 30 per cent. This was accomplished by December 2010 through a series of restructurings, creeping acquisitions and preferential allotments. After this threshold was raised, in October 2011, Birla stated he wanted to increase promoter holding to 40 per cent. This has also largely been achieved, except in Grasim where the promoter stake is currently 31.3 per cent.

The proposed merger will increase the promoter holding to 39 per cent, not much far away from the 40 per cent target. Across the group, the promoter family’s control over listed companies has been higher than its direct shareholding – an arrangement typically seen in the Indian markets of the 1970s.

A look at how the shareholding has been increased reveals that between 2000 and 2007, the preferred mode was creeping acquisitions. From 2008 onwards, the stake increased, mostly through preferential allotments of shares and warrants. In 2015-16, and with the proposed transaction, the preferred mode to increase shareholding is through corporate restructurings. The scheme is likely to give the promoter group a higher holding of almost 74 per cent effective ownership of the financial services business once it lists.