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Updated: July 26, 2013 00:08 IST
news analysis

Holcim, the lone winner

Raghuvir Srinivasan
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Make no mistake. The motive behind the complex restructuring of its India holdings by Swiss cement multinational, Holcim, is to enrich itself by $600 million (Rs.3,500 crore) that is now locked up in the balance sheet of its subsidiary, Ambuja Cements. It is not about “unlocking synergies” that will benefit Ambuja Cements and ACC, as Holcim claims.

The restructuring exercise involving acquisition of equity, merger and share swap is only an elaborate cloak under which the cash will flow out of Ambuja’s, coffers and on to the Swiss bank accounts of Holcim. Any synergies to be had from the deal will be wholly incidental.

One layer

The restructuring exercise will knock off one layer from the shareholding structure — Holcim India will cease to exist as it will be merged with Ambuja (see graphic). But what is the logic behind Ambuja acquiring 24 per cent in Holcim India for Rs.3,500 crore before merging the company with itself? Surely, the objective of “unlocking synergies” could have been achieved by a plain merger of Ambuja and Holcim India.

But that is the crux of the story. Ambuja, as per the latest audited statements dated December, 2012, had a cash balance of Rs.2,253.72 crore and liquid investments of Rs.1,655.84 crore, adding up to a mouth-watering Rs.3,909.56 crore.

As the dominant shareholder (50.55 per cent equity in Ambuja), Holcim had the option of tapping this money as dividends but the problem is that it would have had to share the benefit with the remaining 49.45 per cent equity holders. Besides, considering the impact of dividend distribution tax, it wasn’t such a smart option.

No capital gains tax

The best part of the route that Holcim has now taken is that there will be no capital gains tax to pay because the company that hold’s Holcim’s stake in the Indian subsidiary, Holderind Investments, is headquartered in Mauritius.

As for the minority shareholders of Ambuja, in addition to losing cash, they will suffer an earnings dilution because the company will issue 58.4 crore fresh shares to Holcim as part of the merger with Holcim India.

And that’s not all. Ambuja will spend another Rs.3,000 crore to acquire 10 per cent equity in ACC where it already owns 50.01 per cent. What’s the logic? Once the first part of the deal is put through, Holcim’s effective stake in ACC will fall from 50.30 per cent (including 0.29 per cent it holds directly in ACC), to 31 per cent, held indirectly through Ambuja. This will be just about the same as what public shareholders own in ACC (30.21 per cent). The additional 10 per cent acquisition by Ambuja will help push Holcim’s indirect stake to 36.83 per cent, well above the public. Clearly, there is only one winner from it all — Holcim. What remains to be seen is if the minority shareholders will approve the deal in the EGM.

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I think CCI n MCA n other relevant competent ministries & authorities should look into this complex deal and protect the interests of minority shareholders
At the face value, the deal looks murky.

from:  Mihir
Posted on: Jul 26, 2013 at 00:29 IST
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