Mumbai: The diversified Aditya Birla Group has acquired Swedish speciality pulp maker and bio-refiner Domsjö Fabriker AB in a bid to gain control over inputs for its viscose staple fibre (VSF) business at a time when prices of pulp have rocketed amid a global rally in resources.
The acquisition was made through two subsidiaries— Thai Rayon Public Co. Ltd and Indonesia-based PT Indo Bharat Rayon—for $340 million (around Rs1,500 crore) from a Swedish consortium, the group said on Monday.
Aditya Birla is the world’s largest producer of VSF, with a 21% global share and the acquisition is part of plans to further boost capacity. Most of the capacity is operated by group firm Grasim Industries Ltd. Speciality pulp finds primary use in the textile segment as an alternative to cotton and synthetic textile fibres in the form of VSF and viscose filament yarn. Other products include bioethanol and lignosulfonates. Based on renewable raw materials, lignosulfonates are additives used to cut energy costs.
Domsjö’s “cutting-edge technology and production process, coupled with a state-of-the-art bio-refinery add significant value to our pulp and fibre operations”, group chairman Kumar Mangalam Birla said at a press conference. As a large-quality manufacturer of speciality pulp, “Domsjo has a synergestic fit with us.”
The group currently sources 52%, or 390,000 tonnes, of its requirement for pulp from captive sources, but following the acquisition, this is expected to go up to 80% (600,000 tonnes) immediately, but fall to 64% on an expanded base of one million tonne (mt) by June 2013.
Graphic on acquisitions made by Aditya Birla Group.
In keeping with its string-of-pearls acquisition strategy, the Aditya Birla Group is looking to tie up global resources through the acquisition. This is the group’s second acquisition in the space of a week, after it announced on Saturday that it had agreed to buy the chloro chemicals unit of Kanoria Chemicals and Industries Ltd for Rs830 crore in an all-cash deal. The Domsjö buy is the 24th acquisition for the group in the past 15 years, since Birla took over its reins.
“For natural resources like pulp, it is produced across the globe, but most of it is directed towards manufacturing of paper. There is not much of capacity left for use of the dissolving rate pulp that we use for our business. So the kind of competition that we face from the Chinese and others from the region, the race for natural resources is hotting up,” said Dev Bhattacharya, the group’s executive president for corporate strategy and business development.
“Our quest will continue. We will continue to look at long-term sustainable resources,” he added.
The Aditya Birla Group aims to raise its VSF capacity to 1 mt by June 2013 from 750,000 tonnes currently.
Domsjö is currently in the process of hiking its own capacity of speciality pulp to 255,000 tonnes by 2012 from 210,000 tonnes with a capital investment of $75 million.
Including the capital expenditure taken on its books, the Aditya Birla Group will pay $415 million for the acquisition. Birla said that the buy is funded through a mix of internal cash flows and debt in the ratio of 30:70.
While the two overseas subsidiaries of the group have paid $180 million, $160 million has been raised through a special purpose vehicle and $75 million has been raised on Domsjö’s books.
ABG Sundal Collier AB, a Swedish investment bank, was mandated by the group to advise on the acquisition.
“The company has raised $160 million from Standard Chartered Bank at fine pricing from overseas markets,” said K.K. Maheshwari, director and business head of the group’s pulp and fibre business. “The money has been raised through a special purpose vehicle formed in Sweden by the two group companies.”
With revenue of $390 million in 2010 for Domsjö and zero debt, the acquisition is effectively cheaper than a year’s revenue, Maheshwari said.
Apart from raising margins and profits, the purchase will also lift the technological prowess of the group.
“This gives us cutting-edge technology in the pulp business and also access to research capabilities. We are well-endowed on the development side, but are somewhat limited on the research side,” Birla said.
Domsjö employs about 400 and the group will leverage its strong brand name, Birla said. He said that the group has been tracking the firm for almost a year, but was actively involved in talks only in the past three months.
On the specific strategy of why the group’s listed firms’ books weren’t used for the buy, Birla said, “There are other growth plans that these individual companies have charted and hence it made sense to acquire Domsjö through other group companies.”
Bhattacharya said it was also easier to make acquisitions through overseas companies as there would be no time lag when it came to approvals from regulatory bodies. “It’s nimbler this way,” he added.
Jaspreet Singh Arora, an analyst with Mumbai-based brokerage Anand Rathi, said that the group could possibly look at eventually bringing the acquisition under the listed Grasim, the core business of which is VSF and is also the largest user of the fibre.
“There could be issues like capital gains tax and taking approval from shareholders from the two overseas companies through which it made this acquisition, but it makes sense to do that and it’s something that would have been factored in by Aditya Birla Group,” he said.