Holcim to restructure India operations and raise stake in Ambuja Cements to over 61%

Swiss cement maker Holcim is restructuring its holdings in India in a move which will see it encashing a large sum while retaining majority stake in both its cement companies in the country. The restructuring will increase its stake in the local unit, Ambuja Cements Ltd, to 61.39 per cent from its current stake of just over 50 per cent while making ACC Ltd a direct subsidiary of Ambuja Cements.

Since the restructuring does not change the overall control of either of the firms, which would remain with Holcim, it will not trigger an open offer.

In the first leg of the transaction, Ambuja Cements will acquire 24 per cent stake in the Swiss firm's privately held holding arm Holcim (India) Pvt Ltd from another Holcim arm, Holderind Investments Ltd, Mauritius, for Rs 3,500 crore ($585 million). Next, Holcim (India) will be amalgamated with Ambuja Cements through an all-stock merger.

Holcim (India) holds 50.01 per cent stake in ACC Ltd, which will be owned by Ambuja Cements, and the restructuring will allow Ambuja Cements to consolidate ACC’s financials with itself. Holcim can continue to consolidate the financials of both its arms in India. The restructuring will not change operational control of either Ambuja Cements or ACC, but will effectively allow Holcim to cash out a chunk, around $585 million, as part of the restructuring.

This makes it a sweetheart transaction for Holcim as against a more conventional merger of the two firms which may not have generated cash for the Swiss parent.

In a subsequent move, Ambuja Cements also intends to put in Rs 3,000 crore ($500 million) more to raise its holding in ACC by another 10 per cent.

The two Indian cement companies had net sales of Rs 21,088 crore during the calendar year 2012. AV Birla’s Ultratech Cement closed its 12-month period ended March 31, 2013, with net sales of Rs 21,319 crore.

The Ambuja-ACC combine will be neck and neck with Ultratech in terms of revenues but will be a tad short in terms of profits. The two firms, however, will have a total capacity of around 58 million tonnes as against Ultratech’s 54 milion tonnes. All the three firms are in the process of expanding their capacity and this equation may change in the future.

“This transaction is a natural and an important next step towards further strengthening Holcim Group’s India platform to increase profitability and facilitate more flexible use of capital. ACC has a

strong heritage and its brands have great value in the market. So both companies will significantly benefit from a closer collaboration to be ready to embark on the next phase of growth and optimisation," said Onne Van Der Weijde, managing director of Ambuja.

The firm said the restructuring would bring in synergy worth Rs 900 crore annually in terms of supply chain management and fixed cost optimisation.

(Edited by Sanghamitra Mandal)

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