Ambuja-ACC to unlock synergy

Swiss cement major Holcim has begun a restructuring exercise of its India holdings by transferring its stake in ACC, the country’s second largest cement manufacturer, to Ambuja Cements. Ambuja Cements, in a two-stage process, will acquire the 24% stake in ACC and then through a share-swap arrangement, will increase the holding to 50.01%. Currently, Holcim through its investment arm, Holcim India, holds 50.01% in ACC. The restructuring comes after eight years of Holcim acquiring strategic interest in Ambuja Cements and ACC. Ambuja Cements has a production capacity of more than 27 million tonnes per year while ACC has a capacity of 30 million tonnes. Ambuja Cements will pay Rs.35 billion for a 24% stake in Holcim India followed by a merger of the investment arm into Ambuja. The merger will result in an implied share swap of 6.6 Ambuja shares for each share of ACC. Ambuja Cements will shell out Rs.30 billion to acquire an additional 10% stake taking its overall shareholding to more than 60%. Holcim’s holding in Ambuja Cements will rise to 61.39% from the current 50.55% after the restructuring exercise. According to Holcim’s India head Onne Van Der Weijde, the two companies will remain separate and both the brands will continue to function separately under their current management.
“The transaction will unlock synergies for the companies in supply chain, logistics and fixed cost optimization which will help to save Rs.9 billion over two years once the transaction is completed,” said Weijde. The two Indian cement companies had net sales of Rs.210.88 billion during the calendar year 2012, just short of AV Birla’s Ultratech Cement, which closed its 12-month period ended March 31, 2013, with net sales of Rs.213.19 billion. 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 tonnen. All the three firms are in the process of expanding their capacity and this equation may change in the future.