A raw deal for Ambuja’s minority shareholders

‘Certainly there was more that could have been done to increase benefit to ACL shareholders’

Swiss cement major Holcim’s proposed restructuring of its Indian companies, Ambuja Cement Ltd. (ACL) and ACC Ltd. (ACC), is unlikely to benefit the smaller or minority shareholders of ACL as the parent Holcim will take out Rs. 3,500 crore from ACL.

ACL, with around Rs. 3,700 crore cash on its books, is to acquire a 24 per cent stake in Holcim India from Holderind International, Mauritius, which is part of the Holcim group, for Rs. 3,500 crore. This will be followed by merger of ACL and Holcim India through a share swap, and this combine will control 50.01 per cent in ACC. The swap ratio values ACC at Rs. 1,260 per share.

There is a feeling among market watchers that the benefits of the proposed deal, which is likely to see significant cash on Ambuja’s books go to the parent Holcim, will not percolate to ACL’s minority shareholders. It is also being perceived as a negative development for Ambuja Cements, with parent Holcim continuing to manage the holding through Ambuja Cement but increasing stake in ACC using cash flows from Ambuja Cements.

Jinesh Gandhi, analyst, Motilal Oswal Securities, felt the deal “came out of nowhere. It is primarily cash going out of Ambuja, and reducing the benefit to its minority shareholders.”

Questionable method

He also felt that the method adopted for the deal was questionable. “There were many options available like an all-share swap or even a 100 per cent acquisition. Certainly there was more that could have been done to increase benefit to ACL shareholders.”

V. Srinivasan, a cement sector analyst with Angel Broking, felt that the deal favoured Holcim.

“It is Rs. 3,500 crore from Ambuja Cement going to the parent to monetize its holding in its Indian subsidiaries. It is a case which, in its contours, seems to be fine for ACC but Ambuja Cements minority shareholders seem to be losing out.”

The market did not react favourably to the development. On Thursday, Ambuja Cements closed 10.5 per cent down at Rs. 171, and the ACC scrip closed three per cent lower at Rs. 1,194.1 on BSE.

“There are unlikely to be any significant synergy benefits arising in the short-term. While there is a neutral impact on ACC, more clarity is required on the deal. Ambuja’s earning multiples could come down as they cannot be justified,” said Rajesh Kumar Ravi, of Karvy Stock Broking