People most upset about payment to Holcim: Onne Van Der Weijde

Interview with Managing Director, Ambuja Cements

Onne Van Der Weijde, managing director of Ambuja Cements, tells Chandan Kishore Kant it is difficult to explain such a good transaction but is relieved people now understand it to a large degree. Edited excerpts:

You had a hectic schedule of meetings with investors after the Ambuja-ACC deal announcement. Do you have a respite now?
It is a very good transaction but very difficult to explain. I could understand the commotion. Especially in the beginning, there was confusion about technical aspects of the transaction. It wasn't clearly understood how many shares were issued and cancelled. What was the real deal value and why a two-step process, among others? The markets did not have an immediate understanding and there were a lot of emotional reactions and quick judgements. I spent a lot of time making sure everybody understands the transaction. We're now at a point where people understand the transaction to a large degree and I am much more relaxed in telling the key benefits.

Are you convinced that minority shareholders will be on board?
It will be a shame if minority shareholders do not understand the benefits of this transaction for them. If people hear me and go through the logic, it makes a lot more sense to them. I think people were expecting something completely different. We have a fantastic story to tell. I can blame myself for something if I'm not clear enough in making the minority shareholders of Ambuja understand what the benefits are. You can see I am relatively convinced that it is good for them.

 
Didn't Ambuja's independent directors have reservations?
There were probing questions about what's happening. There was a good dialogue with them. It did not take a long time to convince them. I wanted to make sure they really understood the transaction and its benefits. I wanted to make sure they had the right advice and time to ask questions. I think it was a very appealing business case I had to present. I had to convince and demonstrate to the independent directors that this was for good value. Ultimately, I did it and they approved the deal unanimously.

Then, what do you think really upset the investors?
People are most upset about the cash payment to Holcim. I acknowledge there is an emotional issue. The money (Rs 3,500 crore) is going to Holcim -- it is absolutely true. But it (Ambuja) gets something in return. It gets a fantastic investment (in ACC). There is nothing wrong with it. But people focused on that part of the transaction (only).

You had been scouting for acquisition opportunities but ended up buying stake in your sister company.
Ambuja, basically, has the opportunity to integrate (with) ACC, one of the top cement brands in India. It has a good geographical spread. Here is an opportunity for Ambuja's shareholders to basically combine yourself with ACC and double in size. You can do that effectively via these separate transactions at a market price of $105-115 a tonne. There is no premium, no payment for synergy. You get a fantastic asset at a good price.

Earlier, every time I came up with proposals for acquisitions, there were talks of $160-180 a tonne to acquire a cement asset. If we do it, very often the plan is not complete as we have to spend some more on it. If you do the due-diligence, it is not going to have the same governance as ACC has. You have to run up for mining licences, buy some land, settle a lot of disputes, among other hurdles. But still I have to pay $160-180. And, here is an opportunity (in  ACC). Can we miss this? I want minority shareholders to understand. Whatever we do, we have to make it interesting for minority shareholders. Otherwise, they will say no.

Holcim, clearly, emerges as the key beneficiary.
Holcim is giving up economic ownership. The company is not really getting the cash for free. It has to give shares. It is the shares which Holcim bought themselves some time ago and paid for it when the currency was a little bit more. My estimate is Holcim will not even make any money on it. Holcim is just getting the money it paid, that's it. First, Holcim was paying money for shares. Now, it is the reverse, though Holcim maintains control but owns economically less.

For Ambuja's minority shareholders, if you consolidate the balance sheets, everything is doubled. They still, have over Rs 4,000 crore consolidated cash on the balance sheet. Even if you look at a standalone basis, Ambuja will have Rs 600-700 crore of cash on its balance sheet, making it probably the best on the planet (in the cement sector).