 "A labourer loads cement bags onto an improvised motorized rickshaw at the construction site of a residential complex on the outskirts of Kolkata")
There are 10-odd suitors for Lafarge India’s 11-million tonne (mt) capacity cement business. This has to be sold, says the Competition Commission of India (CCI), if it is to allow the merger of the French giant with Switzerland-based Holcim as far as operations in this country.
Lafarge India’s cement business is estimated to be valued at Rs 10,000 crore. The bidding criteria could change — the Competition Appellate Tribunal (Compat) will be scrutinising the CCI order, after Dalmia Cement’s appeal against it.
CCI had approved the merger for a second time, in February, after Lafarge had told the regulator it would sell the entire firm. However, Compat issued a stay order on the merger last week; it did so without hearing CCI, which it has given three weeks to respond. Dalmia Cement had appealed to Compat earlier this month, arguing the “terms and condition for divestment in the main order have been wrongly incorporated in the impugned order”.
Dalmia Cement was referring to the threshold on operational capacity in the eastern region that CCI had set for bidders of Lafarge’s 5.15 mt business in Chhattisgarh and Jharkhand in its first order, issued in March 2015. Lafarge India has a total capacity of 7.8 mt in the eastern region and of this, 5.15 mt was originally considered by the CCI for divestment to complete the global merger. Holcim’s ACC and Ambuja, respectively, have 6.1 mt and 4.6 mt capacity in the region.
Cement is considered to be a regional product by the anti-trust regulator, as its transportation beyond a distance doesn’t make economic sense. Hence, the CCI considered the divestment of 5.15 mt capacity of Lafarge sufficient to avoid an 'appreciably adverse effect on competition' (AAEC). For the same purpose it also put a restriction that the eligible bidder should not have operational capacity which is more than five per cent of the total installed capacity in the region. Which comprises the four states of Bihar, Jharkhand, Odisha and Chhattisgarh, with an aggregate capacity of 45 mt.
Birla Corp first emerged as the most eligible suitor and successfully won the bid for 5.15 mt asset. However, the deal fell through as the mining rights for limestone reserves catering to these plants could not be transferred, due to a recentamendment in the Mines and Minerals (Regulation and Development) Act. The amendment prohibited transfer of mining rights in case of an asset sale.
Lafarge then sent a revised proposal, to sell the entire business of close to 11 mt -- about 7.8 mt capacity in the eastern region and another three mt in the north. While CCI approved the complete sell-off in an order this February, it continued with the of five per cent market share threshold for the bidders that it had set in its first order, issued in March 2015.
Dalmia Cement has questioned in its appeal whether CCI has taken into account “the facts specific to the alternative proposal and assessed whether the alternative proposal adequately eliminates AAEC”.
“The cement industry is seeing a lot of consolidation and the market dynamics might quickly change. If Compat directs CCI to look at the deal afresh, it might reconsider the five per cent market share restriction,” says Karan Singh Chandhiok, partner at law agency Chandhiok & Associates. “Moreover, LafargeHolcim might support such a move, as it means more bidders for its assets.”
Adds H M Bangur, managing director at Shree Cement, “We will also bid for it if the five per cent threshold is brought down. But, we'd prefer to go by the rules than take the route of a legal battle.”
Dalmia Cement did not reply to Business Standard's queries, saying the matter was sub judice. Dalmia and Shree Cement have about 20 per cent and 10 per cent market share, respectively, in the region.
HOW IT ALL UNFOLDED
Lafarge India’s cement business is estimated to be valued at Rs 10,000 crore. The bidding criteria could change — the Competition Appellate Tribunal (Compat) will be scrutinising the CCI order, after Dalmia Cement’s appeal against it.
CCI had approved the merger for a second time, in February, after Lafarge had told the regulator it would sell the entire firm. However, Compat issued a stay order on the merger last week; it did so without hearing CCI, which it has given three weeks to respond. Dalmia Cement had appealed to Compat earlier this month, arguing the “terms and condition for divestment in the main order have been wrongly incorporated in the impugned order”.
Dalmia Cement was referring to the threshold on operational capacity in the eastern region that CCI had set for bidders of Lafarge’s 5.15 mt business in Chhattisgarh and Jharkhand in its first order, issued in March 2015. Lafarge India has a total capacity of 7.8 mt in the eastern region and of this, 5.15 mt was originally considered by the CCI for divestment to complete the global merger. Holcim’s ACC and Ambuja, respectively, have 6.1 mt and 4.6 mt capacity in the region.
Cement is considered to be a regional product by the anti-trust regulator, as its transportation beyond a distance doesn’t make economic sense. Hence, the CCI considered the divestment of 5.15 mt capacity of Lafarge sufficient to avoid an 'appreciably adverse effect on competition' (AAEC). For the same purpose it also put a restriction that the eligible bidder should not have operational capacity which is more than five per cent of the total installed capacity in the region. Which comprises the four states of Bihar, Jharkhand, Odisha and Chhattisgarh, with an aggregate capacity of 45 mt.
Birla Corp first emerged as the most eligible suitor and successfully won the bid for 5.15 mt asset. However, the deal fell through as the mining rights for limestone reserves catering to these plants could not be transferred, due to a recentamendment in the Mines and Minerals (Regulation and Development) Act. The amendment prohibited transfer of mining rights in case of an asset sale.
Lafarge then sent a revised proposal, to sell the entire business of close to 11 mt -- about 7.8 mt capacity in the eastern region and another three mt in the north. While CCI approved the complete sell-off in an order this February, it continued with the of five per cent market share threshold for the bidders that it had set in its first order, issued in March 2015.
Dalmia Cement has questioned in its appeal whether CCI has taken into account “the facts specific to the alternative proposal and assessed whether the alternative proposal adequately eliminates AAEC”.
“The cement industry is seeing a lot of consolidation and the market dynamics might quickly change. If Compat directs CCI to look at the deal afresh, it might reconsider the five per cent market share restriction,” says Karan Singh Chandhiok, partner at law agency Chandhiok & Associates. “Moreover, LafargeHolcim might support such a move, as it means more bidders for its assets.”
Adds H M Bangur, managing director at Shree Cement, “We will also bid for it if the five per cent threshold is brought down. But, we'd prefer to go by the rules than take the route of a legal battle.”
Dalmia Cement did not reply to Business Standard's queries, saying the matter was sub judice. Dalmia and Shree Cement have about 20 per cent and 10 per cent market share, respectively, in the region.
HOW IT ALL UNFOLDED
| April 2014 | Lafarge and Holcim announce global merger |
| July 2014 | Lafarge and Holcim notify CCI about merger |
| March 2015 | CCI orders Lafarge to sell 5.15 mt in East region |
| August 2015 | Birla Corp wins bid for Lafarge Asset for Rs 5,000 crore |
| December 2015 | Deal with Birla Corp falls through as mining rights not transferred |
| January 2016 | Lafarge submits proposal to sell entire business of 11 MT |
| February 2016 | CCI approves this with keeping same criteria that it set for first bid |
| April 2016 | 10 bidders submit their bid for Lafarge 11 mt business |
| April 2016 | Dalmia Cement gets interim stay from Compat on sell off |
| May 2016 | COMPAT will hear CCI on this |
