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Corporate Jul 24, 2013

Holcim recasts India operations, Ambuja to hold 50.01% in ACC post-rejig

By Sourav Majumdar

Signalling a major restructuring of its India operations, global cement major Holcim on Wednesday initiated moves which would eventually result in Ambuja Cements, ending up with a 50.01 percent stake in cement major ACC, in phases. Holcim has just over 50 percent in both these companies currently.

This consolidation also sets the stage for what the company calls a 'further optimisation of the group structure' in the future. Corporate and market circles have, for long, been speculating about whether a merger of Ambuja and ACC was in the offing.

The Ambuja Cements board, at a meeting on Wednesday, kicked off the restructuring process by approving a proposal whereby Ambuja will first acquire from Holderind Investments Ltd., Mauritius (Holcim), a 24 percent stake in Holcim India for a cash consideration of Rs 3,500 crore, followed by a merger of Holcim India into Ambuja. These intra-group transactions will result in Ambuja holding 50.01 percent stake in ACC, a statement issued on behalf of Ambuja Cements said.

A Holcim factory. Reuters

A Holcim factory. Reuters

The merger swap ratio proposed by two independent accounting firms and validated through a fairness opinion from an independent merchant banker, and approved by Ambuja's board on recommendation of the Audit Committee, is one Ambuja share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share.

Based on the approved merger swap ratio, Ambuja will issue 58.4 crore new equity shares of Ambuja to Holcim, as consideration for the merger. Post the merger, the expanded capital base of Ambuja (post cancellation of the shares held by Holcim India in Ambuja and the issuance of new shares as aforesaid) will increase by 28 percent and comprise of 197.75 crore shares.

Holcim will then own 61.39 percent of Ambuja and Ambuja will in turn own 50.01 percent of ACC. The transaction is subject to shareholder and regulatory approvals.

In addition to the immediate recast, the Ambuja board has also provided its approval for Ambuja to make commercially reasonable efforts to invest upto Rs 3,000 crore to acquire an economic ownership in ACC of up to 10 percent without triggering a mandatory open offer, subject to shareholders and regulatory approvals as applicable.

Narotam Sekhsaria, non-executive chairman, Ambuja and ACC, said, "This transaction allows us to capitalise on the prevailing Holcim Group platform, promotes greater co-operation between the group companies, and unlocks significant synergies over time. Investment in the expansion project at Marwar Mundwa is a positive and big next step forward and shows Holcim's commitment."

Onne Van Der Weijde, managing director, Ambuja, said, "This transaction is a natural and an important next step towards further strengthening Holcim Group's India platform to increase profitability and facilitate more flexible use of capital. ACC has a strong heritage and its brands have great value in the market - both companies will significantly benefit from a closer collaboration to be ready to embark on the next phase of growth and optimization."

The deal, the company says, is aimed at creating opportunities for value creation and improving the financial structure by reinvesting into the business. It claims a more efficient capital structure will be created as a result, and the deal will be EPS accretive from year one itself.

The reinvesting of cash, it says, lowers the dilution for minority shareholders of Ambuja. An India Management Committee structure will also seek to drive increased collaboration and synergies between Ambuja and ACC.

Synergy potential of approximately Rs 900 crore ($150 million) could be had through supply chain and fixed cost optimization to be realised in a phased manner over two years post completion of the transaction, Ambuja says. The deal, which will aim to combine the Ambuja and ACC best practices into competitive advantages and synergies will be equally beneficial to both entities, it says.

Among the clear advantages will be a consolidated pan-India footprint with 58 million tpa capacity. A confirmed expansion of over 10 million tpa is under way in both companies, with additional projects in the pipeline. The combined financial position will give the entities flexibility for further growth.

The two companies have established premium brands which can complement each other and would continue to co-exist. They would continue to have independent market strategies with strong dealer networks and distribution in their markets.

Ambuja expects to hold an EGM to approve the transaction in Q4 CY 2013 and to complete the process of merger by Q2/Q3 CY 2014, subject to shareholder and regulatory approval processes.

by Sourav Majumdar

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