Holcim to take control of ACC

33% for Gujarat Ambuja in holding firm.

The world's second-largest cement producer, Holcim, today said it was investing $800 million (approximately Rs 3,520 crore) in a complex deal, which gives it control over the Associated Cement Companies (ACC).

The Switzerland-based Holcim will own two-thirds of an investment company, which will eventually have 50.01 per cent stake in ACC. The balance one-third holding in the investment company will be with Gujarat Ambuja Cements Ltd (GACL).

The Holcim-GACL combine will make an open offer to the shareholders of ACC at Rs 370 per share.

Disappointed with Holcim's open offer price, investors dumped the stock which finally closed at Rs 341.75, down 6.46 per cent from its previous close of Rs 365.35, and the intra-day high of Rs 369.

The markets were expecting a price upwards of Rs 420 per share. Huge volumes were traded across the bourses today "" more than 5.76 million shares on the Bombay Stock Exchange (BSE) and over 13 million shares on the National Stock Exchange (NSE).

The GACL stock ended 4.91 per cent lower at Rs 423.50, with volumes of over 21 lakh shares on the BSE. Analysts said they were disappointed that GACL was not getting money into its balance sheet.

Holcim will first buy out the 40 per cent stake held by private equity investors "" AIG and the Government of Singapore "" in Ambuja Cement India Ltd (ACIL) for approximately $200 million (about Rs 880 crore). GACL holds the balance 60 per cent in ACIL, which is the holding company for GACL's 13.8 per cent stake in ACC.

Next, Holcim will pump in $600 million towards subscription to fresh equity and preference shares of ACIL, taking its stake in the investment company to 67 per cent.

With the money in the balance sheet, ACIL will then make an open offer at Rs 370 per share to raise its stake in ACC from 13.8 per cent to 50.01 per cent.

In a parallel move, ACIL will also make an open offer to buy out the 6 per cent minority shareholding in Ambuja Cements Eastern Ltd at Rs 70 per share.

The deal is expected to be sewn up by April 2005. Kotak Investment Banking was the advisor to ACIL, while DSP Merrill Lynch advised Holcim.

AK Jain, executive director, ACC, told Business Standard: "Holcim will not disturb the present management structure in ACC and ACEL after the acquisition of a majority stake in both the companies."

He added that according to the model followed by Holcim in the emerging markets, the local partner (here, GACL) will be entrusted with the task of management control while Holcim will bring in money and expertise. According to Jain, Holcim representatives will join the ACEL and ACC boards.

According to an arrangement between GACL and its equity partners in ACIL in February 2000, the equity partners had a put option of exiting the company if it was not listed in five years.

The equity partners -- AIG and the Government of Singapore -- bought 40 per cent of ACIL for $130 million in February 2000. Now, Holcim is taking over the combined stake of AIG and the Government of Singapore for $200 million (approximately Rs 880 crore).

A media release put on the Swiss firm's website said, "Holcim has been evaluating various ways of entering the Indian market for some time. The board of directors and executive committee have now decided to secure a foothold in the sub-continent by means of a long-term strategic alliance with a strong local partner, Gujarat Ambuja Cements." Gujarat Ambuja has a total rated capacity of 12.5 million tonnes per annum.

In a notice to the BSE, Ambuja Cement Eastern Ltd today said its board has given its 'no-objection' to the proposed open offer by Holcim Cements India (the Indian arm of the Holcim group) and Ambuja Cement India for the shares of the company for the limited purposes of applying to the Foreign Investment Promotion Board (FIPB).

Holcim's turnover in 2003 was about $9.4 billion, and the current market capitalisation is $12 billion. ACC has an installed capacity of 18.2 million tonnes per annum with 12 plants and three grinding units across the country, and controls around 13 per cent of India's cement market.

Holcim, in future, intends to use India as a platform for its information technology and R&D procurement. It also has plans to source manpower from India for its international operations.

Currently, the Aditya Birla group, through its Grasim-Ultratech combine, is the market leader in the Indian cement industry. The group has an annual installed capacity of 33 million tonnes per annum.