When your stock price tanks by 17% there is no room for misinterpretation in terms of market sentiment. The idea of merging Aditya Birla Nuvo (AB Nuvo) with Grasim Industries has met with widespread criticism as there is very little synergy among the businesses being merged. Rather than simplifying the structure, the merger will end up increasing complexity.
While Grasim's share price closed flat on Friday, AB Nuvo's stock nosedived to Rs.1,290 after the announcement. Even though a major part of this correction was due to the price differential created by the proposed swap ratio, the effect of the announcement cannot be discounted. The recommended swap ratio of three shares of Grasim for every 10 shares of AB Nuvo creates a price differential of only 14% as compared to the 17% slide.(Based on previous day closing price at Rs.1,566, the value of 10 shares of AB Nuvo comes to Rs.15,660 as a