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Published on : May 02, 2018

One of the India’s biggest engineering groups is embarking on the sale of non-core assets with an aim to bolstering its returns and improving its stock value at least over the medium term. The strategic move is underpinned by a large merger and acquisition deals across the border. Larsen & Toubro Limited (L&T), a multinational construction and electrical company based in Mumbai, has entered into a definitive deal with Schneider Electric SE, to sell to it almost all its electrical and automation business segments for 140 Bn rupees (or approximately US$2.1 Bn). In one of the biggest merger and acquisition deals in recent years will see the Europe-based giant in energy management and automation partnering with Singapore state investor Temasek Holdings Private Ltd., with the former holding 65% and the latter the remaining of the stake of the combined entity.

According to L&T, the business that it has planned to sell will exclude marine switchgear and servowatch systems. The European buyer will use the stake to consolidate its industrial automation products.

Planned Selling of Core-non Assets by L&T to help it Create more Value within Existing Core Portfolio

In the backdrop of economic downturn, the engineering group L&T has been struggling with a stunted growth. Selling of its core-non assets will enable it to create more value within its existing core portfolio for its stakeholders by streamlining capital allocation, stated the company in the recent filing. The all-cash deal is expected to close by the next 18 months. A few experts closely following the deal consider the move to be in line with the vision of the electrical and automation business for divesting its assets with low value.

Of note, out of the total 140 Bn rupees, the deal will see Schneider committing 34.25 Bn rupees in cash and Temasek contributing 50.75 Bn rupees, while the remaining will be funded by debt that the joint venture will take on.