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Eight years after entering India, Swiss cement giant Holcim is seeking to simplify the ownership structure of its two Indian subsidiaries — Ambuja Cements and ACC.
In a two-phased deal, Holcim will increase its stake in Ambuja Cements from 50.55 per cent to 61.39 per cent. Ambuja, in turn, will 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.
Under the current deal, Ambuja will first acquire 24 per cent stake in Holcim India Pvt Ltd (HIPL) for a cash consideration of Rs 3,500 crore, 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 will stand cancelled and Ambuja will own 50.01 per cent stake in ACC.
The swap ratio for the merger will 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 will issue 584 million new equity shares to Holcim, as consideration for the merger. After the merger, the expanded capital base of Ambuja will increase 28 per cent and comprise 1,977.5 million shares.
On the BSE, shares of Ambuja and ACC traded weak and closed at Rs 191.10 and Rs 1,231 —2.92 per cent and 1.16 per cent lower than their respective previous closing prices — on Wednesday. The transaction was announced after stock exchanges’ trading hours.
“The transaction is expected to be neutral on Holcim’s earnings per share in the first full year following the completion of the transaction and accretive thereafter,” Holcim CEO Bernard Fontana said.
Holcim said both Ambuja and ACC would continue to operate as separate entities with their own brands and go-to-market strategies.
However, the restructuring would allow closer back-end cooperation between the companies, as well as simplify the group structure, resulting in a saving of up to Rs 900 crore over two years after the merger is effected.
Citibank was the sole advisor to Holcim for the transaction. Ambuja Cements Managing Director Onne Van Der Weijde said the deal would strengthen Holcim Group’s India platform to increase profitability and facilitate more flexible use of capital.
However, some market participants believe Holcim is going for such a complex ownership structure because it wants to extract money from its Indian subsidiaries. ACC and Ambuja together have close to Rs 6,500 crore of surplus cash on their books.
Anil Singhvi, former managing director of Ambuja Cements, said in a TV interview: “This deal is nothing but a fraud by Holcim. It will not have gone for the deal if it did not need cash. This deal is structured to facilitate cash movement to Holcim. It is done at a premium on current valuations to simply take money out from Ambuja.”
Holcim currently owns about 50 per cent stake in both companies. In a statement, Holcim said it intended to streamline the ownership structure of its operations to strengthen the existing platform and create value for all stakeholders.
Holcim currently controls 58 million tonnes of the Indian market’s 350-mt cement capacity.
