Aditya Birla Group company UltraTech Cement Ltd has agreed to buy the cement business of Century Textiles & Industries Ltd in an all-stock deal, making it one of the top global producers of the building material.
Shareholders of Century Textiles will get one share of UltraTech for eight shares held, the two companies said in stock-exchange filings on Sunday.
The transaction, which is valued at enterprise value of Rs 8,621 crore (including about Rs 3,000 crore in debt), will be profit accretive from the first year, UltraTech said.
Billionaire Kumar Mangalam Birla-led UltraTech is India's biggest cement maker and has rapidly expanded in recent years by taking over debt-laden peers. Its annual capacity will rise to 109.9 million tonnes, including overseas operations, after the latest deal completes. This will make it the third-largest cement firm globally, excluding China, the company said.
The transaction will also help UltraTech strengthen its presence in the highly fragmented and fast-growing markets of eastern and central India and extend its footprint in the western and southern markets, the company said.
Century’s cement division constitutes three integrated units with a total capacity of 11.4 million tonnes a year and one grinding unit of 2 million tonnes a year. For the year ended March 2018, it reported revenue of Rs 4,306 crore and earnings before interest, tax, depreciation and amortisation of Rs 544 crore, including a net one-time gain of Rs 51 crore.
The deal will help BK Birla Group firm Century Textiles to reduce debt and focus on its real estate business.
Besides cement, Century Textiles has interests in textiles, pulp and paper and real estate, which require significant capital to upgrade and grow these businesses. The sale of the cement division will help cut debt and unlock value for shareholders, Century Textiles said.
Century Textiles said some of its cement plants are old and require significant capital expenditure for modernisation, enhancing product quality and upkeep. Also, it has acquired additional mines to make up for limited limestone reserves at existing mines. It bought land for the mines at an additional cost of Rs 150 crore to be now paid by UltraTech.
Walker Chandiok & Co LLP and Bansi S Mehta & Co were the independent joint valuers to the transaction. Axis Capital provided the fairness opinion while Khaitan & Co and Trilegal were the legal advisers for UltraTech. JM Financial provided fairness opinion for Century Textiles while Vaish Associates Advocates were the legal advisers.
Shares of Century Textiles fell 5.8% in Monday morning trade to Rs 1,005 apiece on the BSE while those of UltraTech were up 3.1% to Rs 3,978 each. The benchmark Sensex was down a tad.
Cement M&As on the rise
India’s cement sector has seen some large deal activity in recent years.
In 2016, UltraTech bought six integrated cement plants and five grinding units with total capacity of 21.2 million tonnes from Jaiprakash Associates Ltd’s cement unit, Jaypee Cement, for about $2.5 billion – making it the largest transaction in the cement sector.
In 2013, it had acquired the Gujarat cement unit from Jaypee Cement for about Rs 3,800 crore.
UltraTech is now in the race for the takeover of bankrupt cement firm Binani Cement Ltd, suggesting its appetite for acquisitions has not abated this year.
In 2016, LafargeHolcim Ltd had agreed to sell Lafarge India Pvt. Ltd to Nirma Ltd for $1.4 billion (Rs 9,400 crore) including debt, in a deal that completed the India leg of the global merger of French cement giant Lafarge and Swiss building materials group Holcim.
In February this year, LafargeHolcim – the parent of Ambuja Cement Ltd and ACC Ltd – said it will strengthen its presence in India with the construction of a new plant in Rajasthan at an investment of 200 million Swiss franc.