 "Holcim, Ambuja prove pundits wrong")
Shares of Ambuja Cements are trading close to the levels they had declined after Swiss cement giant Holcim’s India restructuring six weeks earlier. ACC, its sister-concern, is still struggling at the Rs 1,000-mark.
On Tuesday, stocks of Ambuja jumped to close at Rs 185.80, up 7.9 per cent. This is diametrically opposite to what market participants had predicted earlier, on the deal wherein Holcim’s stake in Ambuja would rise to 61.39 per cent. The restructuring had also involved a straight cash outgo of Rs 3,500 crore from Ambuja’s balance sheet to the Swiss parent. That had invited wrath from brokerage houses and a thumbs-down from institutional investors.
In that two-phased deal announcement, Holcim was to raise its stake in Ambuja from 50.55 per cent to 61.39 per cent. Ambuja, in turn, would buy Holcim’s stake in ACC. At a later date, Ambuja intends to further increase its stake in ACC by 10 percentage points for an investment of up to Rs 3,000 crore through open-market purchases.
Ambuja was to first acquire 24 per cent stake in Holcim India Pvt Ltd (HIPL) for Rs 3,500 crore in cash, followed by a stock merger between the two. HIPL is a wholly-owned financial holding company of Holcim. At present, HIPL directly holds a 9.76 per cent stake in Ambuja and a 50.01 per cent stake in ACC.
After the merger, Holcim India’s stake in Ambuja would stand cancelled and Ambuja own 50.01 per cent stake in ACC. The swap ratio for the merger was to be one Ambuja share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share. Ambuja was to issue 584 million new equity shares to Holcim as consideration for the merger. After the merger, the expanded capital base of Ambuja was to rise 28 per cent and comprise 1,977.5 million shares.
In the next day’s trade, Ambuja stocks were thrashed and the counter lost a little over 10 per cent in the session, to close at Rs 171 against the previous closing of Rs 191.1. ACC took a nominal hit of three per cent to close at Rs 1,194.
However, what followed was beyond expectation. Instead of Ambuja, it was the counter of ACC which was hit hard and fell all the way down to Rs 912, a decline of 26 per cent since the deal’s announcement on July 24. Ambuja, though, at one point had slipped about 22 per cent but smartly recovered and was seen consolidating for most of the time between Rs 160 and Rs 170. It did not go anywhere close to what market participants had projected.
So, was Onne Van Der Weijde, managing director of Ambuja Cements, right when he had told Business Standard “markets did not have an immediate understanding and there were a lot of emotional reactions and quick judgements?”
It appears so. Analysts who had been worried about the transaction seem to have agreed with Holcim. Onne had said he’d, sooner or later, be able to take people on board. That's what has happened.
At a time when merger and acquisition activities in the cement sector had taken a back seat for long, upon mismatch of bid and ask prices, the proposed deal has helped Ambuja acquire quality assets at a discount of almost 35 per cent when it comes to enterprise value (EV) per tonne.
Currently, sellers do not want to sell cement plants at less than $160-180 (EV/tonne) in most regions (barring the southern market). Ambuja gets an asset at $105-115 through these two separate transactions.
One deal stuck for long is of Jaiprakash Associates and UltraTech Cement. Sources suggest the mismatch in what JP is asking for its Gujarat plant and what UltraTech proposes to pay is not letting the deal go through.
On Tuesday, stocks of Ambuja jumped to close at Rs 185.80, up 7.9 per cent. This is diametrically opposite to what market participants had predicted earlier, on the deal wherein Holcim’s stake in Ambuja would rise to 61.39 per cent. The restructuring had also involved a straight cash outgo of Rs 3,500 crore from Ambuja’s balance sheet to the Swiss parent. That had invited wrath from brokerage houses and a thumbs-down from institutional investors.
In that two-phased deal announcement, Holcim was to raise its stake in Ambuja from 50.55 per cent to 61.39 per cent. Ambuja, in turn, would buy Holcim’s stake in ACC. At a later date, Ambuja intends to further increase its stake in ACC by 10 percentage points for an investment of up to Rs 3,000 crore through open-market purchases.
Ambuja was to first acquire 24 per cent stake in Holcim India Pvt Ltd (HIPL) for Rs 3,500 crore in cash, followed by a stock merger between the two. HIPL is a wholly-owned financial holding company of Holcim. At present, HIPL directly holds a 9.76 per cent stake in Ambuja and a 50.01 per cent stake in ACC.
After the merger, Holcim India’s stake in Ambuja would stand cancelled and Ambuja own 50.01 per cent stake in ACC. The swap ratio for the merger was to be one Ambuja share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share. Ambuja was to issue 584 million new equity shares to Holcim as consideration for the merger. After the merger, the expanded capital base of Ambuja was to rise 28 per cent and comprise 1,977.5 million shares.
In the next day’s trade, Ambuja stocks were thrashed and the counter lost a little over 10 per cent in the session, to close at Rs 171 against the previous closing of Rs 191.1. ACC took a nominal hit of three per cent to close at Rs 1,194.
However, what followed was beyond expectation. Instead of Ambuja, it was the counter of ACC which was hit hard and fell all the way down to Rs 912, a decline of 26 per cent since the deal’s announcement on July 24. Ambuja, though, at one point had slipped about 22 per cent but smartly recovered and was seen consolidating for most of the time between Rs 160 and Rs 170. It did not go anywhere close to what market participants had projected.
So, was Onne Van Der Weijde, managing director of Ambuja Cements, right when he had told Business Standard “markets did not have an immediate understanding and there were a lot of emotional reactions and quick judgements?”
It appears so. Analysts who had been worried about the transaction seem to have agreed with Holcim. Onne had said he’d, sooner or later, be able to take people on board. That's what has happened.
At a time when merger and acquisition activities in the cement sector had taken a back seat for long, upon mismatch of bid and ask prices, the proposed deal has helped Ambuja acquire quality assets at a discount of almost 35 per cent when it comes to enterprise value (EV) per tonne.
Currently, sellers do not want to sell cement plants at less than $160-180 (EV/tonne) in most regions (barring the southern market). Ambuja gets an asset at $105-115 through these two separate transactions.
One deal stuck for long is of Jaiprakash Associates and UltraTech Cement. Sources suggest the mismatch in what JP is asking for its Gujarat plant and what UltraTech proposes to pay is not letting the deal go through.