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April 7, 1998


India Cements acquires Raasi to become #2

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The cement industry witnessed a shakeup with Raasi Cement chairman and chief promoter B V Raju on Sunday night agreeing to offload the promoters' entire holding of 32 per cent to India Cements at Rs 286 a share.

Although, the price struck by the promoters is less than India Cements' open offer price of Rs 300 a share, it still offers a comfortable profit over the current ruling market price of around Rs 180 a share. The deal is worth Rs 1.5 billion involving 5.22 million Raasi shares.

With the acquisition, the Rs 8.25 billion India Cements, which has a commanding position in cement starved southern India, will see its share in Raasi go up from the present 21 per cent to 53 per cent. The acquisition also makes India Cements the second-largest cement company in the country, after ACC.

The total cost of ICL's acquisition is slated at Rs 3.8 billion, the second largest in Indian corporate history after Polysindo's acquisition of JCT's synthetic fibre unit, and the largest by an Indian company.

It is estimated that setting up a new cement plant will cost Rs 9 billion at today's prices. The ICL-Raasi combine will produce 7.5 million tonnes per annum, and there are reportedly plans to expand Raasi's capacity by 0.75 million tonnes per annum. The country's total cement demand is estimated at 96 million tonnes per annum.

B V Raju and his associates agreed to sell their stakes four days after the Andhra Pradesh vacated an interim order on a petition filed by Raasi Cement to prevent the takeover bid. Raju had also tried very hard to rope in saviours to thwart the takeover bid and had supposedly contacted Gujarat Ambuja Cements, Larsen and Toubro, and Indian Rayons, but in vain.

The deal was swung after hectic parleys over the weekend in Hyderabad between B V Raju and India Cements vice-chairman and managing director N Srinivasan. Representatives of DSP Merrill Lynch -- India Cements' advisor -- were also present.

Srinavasan described the move as a friendly takeover and said he looked forward to a complete control of the southern market. He said once all the regulatory approvals are received, the board would be reconstituted.

While Raju will lose the Raasi brand as far as cement is concerned, he will still retain the name for Raasi Refractories, Raasi Ceramics, and Raasi Finances. Raju will also keep Shri Vishnu Cements.

Meanwhile, major Indian financial institution, the Unit Trust of India, which holds 10 per cent of Raasi, might oppose the sale. UTI Chairman G P Gupta has sought legal opinion on the validity of the sale, and the institution might approach the Securities and Exchange Board of India to prevent the sale.

It would appear that the financial institutions were too slow in responding to the offer made by ICL for an increased stake in Raasi. India Cements had made a presentation to all the institutional shareholders of Raasi, as per the law, on March 19 about its plan to acquire Raasi. However, these institutions did respond quickly and Raju by then threw in the towel.

The SEBI approval for the 20 per cent open offer made by India Cements under the takeover code is expected by next week, following which the date of the opening of the public offer will be fixed.

Once that goes through, assuming full subscription to the open offer, the total holding of India Cements in Raasi will be around 73 per cent. It is expected that owing to SEBI's preference in the takeover code for retail investors, financial institutions will almost certainly lose out on the opportunity to cash in on their cheaply-acquired holdings at the offer price of Rs 300.

DSP Merrill Lynch, which handled what is being hailed as corporate India's largest-ever acquisition of Rs 3.8 billion, has thus taken a tremendous lead the booming M&A market in 1998-99 with the first successful case of a hostile takeover now having turned into a friendly deal.

The Raasi group is apparently planning to enter into other areas, including power generation. The group has decided to utilise the hefty fund of Rs 1.5 billion raised through the sale of its shares. Raju is also interested in expanding the capacity of Shri Vishnu Cement.

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