Ambuja Cements-ACC deal likely to propel buyer to No. 2 position

The possible acquisition of Holcim India business will be one of the biggest inbound corporate deals in the country.

Currently, Walmart Inc.’s $16-billion acquisition of Flipkart Online Services in 2018 remains the biggest acquisition of an Indian asset by any acquirer, followed by BP plc acquisition of 30 per cent stake in Reliance Industries’ 23 oil and gas production blocks in 2011 for $7.2 billion.

Bloomberg reported late on Wednesday night that Holcim — the world’s biggest cement maker — is considering a potential sale of its India business and gauging interest in its controlling stake in Ambuja Cement.

Holcim’s 63.19-per cent stake in Ambuja Cement is valued at Rs 46,350 crore, or $6.1 billion, based on the company’s market capitalisation of Rs 72,350 crore on Wednesday.

The mandatory 26 per cent open offer in Ambuja Cement will cost the acquirer another Rs 19,000 crore, or $2.5 billion.

The acquirer will also have to make an open offer for 26 per cent stake in ACC — an Ambuja Cement subsidiary.

Ambuja Cement owned 50.05 per cent stake in ACC, while Holcim owned another 4.48 per cent stake in the company.

The open offer for ACC will cost the acquirer Rs 10,800 crore, or $1.42 billion.

Given this, the total acquisition cost — assuming the full subscription of the two open offers — will work out to around Rs 76,200 crore, or $10 billion.

The cost will further rise if there is a rally in the stock price of Ambuja Cement and ACC — not unusual for companies that are potential acquisition targets.

The share price of Ambuja Cement has shot up by 20 per cent in the past month on hearsay that Holcim planned to sell its India business.

Analysts also say that Holcim could potentially ask for a 20-25 per cent premium on its two subsidiaries’ market price for selling controlling stake in the second-largest player in the world’s second-biggest cement market.

Ambuja Cement and ACC were, however, sitting on cash and equivalents worth Rs 11,600 crore at the end of December 2021.

This will reduce the overall acquisition cost for the acquirer by around $1.5 billion.

The acquisition of Ambuja Cement and ACC will give the acquirer one of the best managed and profitable cement assets in the country, with a combined revenue share of around 17 per cent — second only to Ultratech Cement that leads the industry with 30 per cent revenue share.

Aditya Birla Group-owned UltraTech Cement tops the leaderboard, with a production capacity of 120 million tonnes per annum (mtpa), while Ambuja Cement and ACC have a combined capacity of 64 mtpa.

Ambuja Cement and ACC reported a combined net profit of Rs 3,900 crore on revenues of Rs 30,000 crore during the year ended December 2021.

Both companies are debt-free and cash-free.

The high potential cost, however, means that Holcim’s plans to sell its India assets will attract bidders with deep pockets — either from big business houses or independent cement makers with financial backing from large private equity (PE) players.

Analysts say that the debt-funded acquisition will land the acquirer in financial deep water in the longer term if profitability in the cement industry declines in the future.

The recent rise in interest rates globally has further raised the cost of debt funding.

Bankers said not many Indian companies have the funds to acquire Ambuja Cement and ACC and bidders will have to tie up with PE firms to arrange for funds.

Among potential bidders, JSW Group declined to comment.

Adani Group did not comment on reports.

Prashant Bangur, joint managing director, Shree Cement, said, “We are not interested in Holcim’s India business and are not participating in its acquisition process.”

Swiss firm Holcim said it will not comment on market scuttlebutt.

Adani Group has plans to set up greenfield cement plants in Maharashtra and Gujarat and is considered a top contender to acquire Ambuja Cement.