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Call it a proxy war. International proxy advisory firm ISS Proxy Advisory Services has recommended shareholders vote in favour of the Holcim-Ambuja Cements restructuring deal. This is in contrast to the recommendations of three local proxy advisory firms that had termed the deal an “anti-minority investor move”.
In July, the board of Ambuja Cements, a Holcim subsidiary, had unanimously approved a proposal through which it would first acquire 24 per cent stake in Holcim India from Holderind Investments Ltd, Mauritius, for Rs 3,500 crore in cash, followed by a merger of Holcim India into Ambuja. These intra-group transactions will result in Ambuja holding 50.01 per cent stake in ACC Ltd.
Ambuja Cements is seeking shareholder approval for the enabling resolutions in an extraordinary general meeting to be held on November 19.
In a shareholder recommendation issued last week, ISS, an MSCI unit, said, “The transaction merits shareholders’ support.” ISS said it had met the Holcim management in September and listened to the explanation of the company’s rationale behind the move. It found the restructuring strategically advantageous and economically reasonable. It added the restructuring wasn’t harmful to minority shareholder interests, as projected by analysts and India-based proxy firms.
The ISS note said, “The deal is structured with certain safeguards to minority shareholders, as both the proposed acquisition and the proposed merger require a ‘majority of minority’ vote, which is not required under the relevant laws in India. ACEM (Ambuja Cements) and Holcim representatives explained to ISS they had voluntarily decided to allow minority shareholders to determine the outcome of these resolutions. Given the above considerations, the transaction merits shareholders’ support.”
The note added, “The company’s shares fell as much as 10.6 percent after a full trading day, after the announcement. A number of analysts have viewed the deal structure as disadvantageous to minority shareholders, considering the substantial cash outflow from the company to the promoter group and the increased stake in the company by the promoter group, after the merger. However, the investors’ concerns over the deal may have been allayed following the company’s road show with shareholders and confirmation that the two-part transaction would both require majority votes of minority shareholders to be passed.
From the announcement to the time of this analysis (October 31), the company’s share price has recovered its loss, closing at Rs 192.9, up 12.8 per cent since the announcement and two per cent since the day before the announcement.”
On the contentious issue of cash outflow of Rs 3,500 crore from Ambuja Cements, ISS said, “While the transaction would entail cash outflow of Rs 3,500 crore (about 90 per cent of the company’s cash reserves), the balance sheet of the enlarged group would remain sound. The enlarged group will remain in net-cash position, with no long-term borrowings, given ACC’s own cash balances of Rs 3,000 crore as of FY12.”
It added, “Based on the three-year average dividend payout of ACC at Rs 30 a share, the company’s potential dividend income from 50.01 per cent stake in ACC would amount to Rs 280 crore, and ACEM, on a stand-alone basis, has healthy cash flow from operations as well.”
Unexpected boost
At present, Holcim controls Ambuja Cements, ACC
In both companies it holds stakes directly and through Indian arm Holcim India
Ambuja, Holcim, ACC announced three-way deal in July; Ambuja to buy stake in Holcim India for Rs 3,500 crore
Local proxies oppose deal; argue Holcim doesn't deserve one time payment
Local Proxies Question arguments of cost-savings through sysnergies
ISS recommends voting in favour of deal
