ACCAmbuja merger put on hold over mines constraints

MAIN GOAL Cement companies maintain that a merger remains the ‘ultimate objective’ MUMBAI:

ACC Ltd and Ambuja Cements Ltd, both controlled by LafargeHolcim Ltd, said they were putting on hold their proposed merger, citing constraints related to transfer of mines under current laws.

The merger that would have potentially created India’s second largest cement maker still remains the “ultimate objective”, the companies said

“The current regime on transfer of mineral concessions is still evolving and does not provide for a merger currently,” a spokesperson for ACC said in an emailed response to a query. “Given the challenges of achieving such transfers across 18 to 20 states, it was found prudent not to pursue the same at this point of time.”For now, ACC and Ambuja said that their boards have approved an arrangement to work with each other for mutual purchase and sale of services to maximise synergies and unlock value for shareholders.

In May 2017, the boards of the two companies agreed to evaluate a potential merger between the two “with a view to combine the strengths of both businesses”.

A special committee, comprising largely of independent directors, was formed to begin the evaluation, ACC and Ambuja Cements had said. Net sales* (Rs cr) Net profit*(Rs cr) Production capacity (mtpa) Market cap (Rs cr)

HOLDING STRUCTURE

ACC 12,930.95 LafargeHolcim's unit Holderind Investments holds in Ambuja Cements

*For calendar year 2017

924.51 32 31,234.66

“On the basis of a comprehensive evaluation carried out by both the Special Committee and the board of directors of the company, the company is of the opinion that there are at present certain constraints in implementing a merger between the company and ACL,” ACC said in a filing on Monday.

“The company is therefore not proceeding with the merger at this juncture, though this remains the ultimate objective,” ACC added in the filing.

ACC also said that it will come out with details about maximising synergies and unlock value Ambuja Cements 10,446.85

1,249.57 29 52,083.47 Ambuja Cements holds in ACC and Holderind holds

Source: BSE, Bloomberg

for investors through a notice for postal ballot.

Ambuja Cement holds about a 50% stake in ACC , while LafargeHolcim owns a 4.48% stake through its unit Holderind Investments Ltd, according to data from Bloomberg. Holderind holds about 63.11% in Ambuja Cement.According to Rohit Natarajan, an analyst with Mumbai-based IDBI Capital, investors were not convinced about the rationale of the proposed merger of ACC and Ambuja Cements.

“If EV/tonne is any benchmark to go by, ACC was cheaper than Ambuja. There are two perspectives to play the spread here: first, there will be a favourable exchange ratio; implying a merger arbitrage for ACC holders. Second, Ambuja could buy ACC at a less favourable rate, implying a gain for Ambuja holders. Either ways, both trades knock off with the latest event. However, with ACC management maintaining, merger as the ultimate objective, we will be revisit the script again,” Natarajan said.

An email sent to an Ambuja spokesperson for further comments remained unanswered. An email sent to the spokesperson for LafargeHolcim remained unanswered.

The cement sector in India has witnessed several mergers and acquisitions in the past two years, signalling consolidation in the space.

In July 2016, Gujarat-based soap and detergent maker Nirma Ltd announced the acquisition of Lafarge India’s cement assets for $1.4 billion. In August that year, Reliance Infrastructure Ltd sold its cement business to Kolkatabased Birla Corp. Ltd, the flagship company of the MP Birla Group for ₹4,800 crore. Last year, UltraTech Cement paid ₹16,189 crore to acquire the cement business of Jaiprakash Associates.

Opting for inorganic growth or a brownfield expansion is both time and cost efficient for cement makers.