Holcim reaps `3,500 crore restructuring windfall

Mumbai: Swiss cement maker Holcim Ltd said on Wednesday that it would restructure its Indian operations so as to get its Indian subsidiaries Ambuja Cements Ltd and ACC Ltd to work better together—saving around ₹ 900 crore, according to a statement—although the process will also leave it richer by ₹ 3,500 crore.

add_main_imageThe restructuring has been in the air for some time.

In a complex deal, Holcim will raise its stake in its Indian unit Ambuja Cements to 61.39% from the current level of just over 50%, and Ambuja will, in turn, acquire Holcim’s stake of 50.01% in ACC held through its Indian subsidiary Holcim (India) Pvt. Ltd.NextMAds

The deal was approved by the Ambuja board on Wednesday and would be “neutral on Holcim’s earnings per share in the first full year following the completion of the transaction”’ chief executive officer Bernard Fontana told Reuters.

Ambuja Cements approved an intra-group restructuring wherein it will first acquire a 24% stake in Holcim India for ₹ 3,500 crore, followed by a merger of Holcim India into Ambuja.

The restructuring is being touted as part of the Swiss cement maker’s decision to effectively merge (without really doing so), its Indian subsidiaries ACC and Ambuja Cements to optimize capacity utilization without much additional investment. ACC and Ambuja together contribute nearly 20% of Holcim’s consolidated earnings before interest, tax, depreciation and amortization.

Analysts, however, point out that the reason why this had to be done in a roundabout way, as opposed to a simple merger, lies in the ₹ 3500 crore the parent gains.

Ambuja will acquire the stake in Holcim India from Holderind Investments Ltd, Mauritius, a subsidiary of Holcim Ltd.

The merger swap ratio is one Ambuja share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share, the company said in a statement.sixthMAds

Holcim will also continue to own a 0.29% stake in ACC (again through Holderind Investments).

The swap ratio was proposed by two independent accounting firms, validated through a fairness opinion from an independent merchant banker and approved by Ambuja’s board on the recommendation of its audit committee.

“Based on the approved merger swap ratio, Ambuja will issue 584 million new equity shares of Ambuja to Holcim, as consideration for the merger,” the company said. “Post the merger, the expanded capital base of Ambuja (post cancellation of the shares held by Holcim India in Ambuja and the issuance of new shares as aforesaid) will increase by 28% and comprise of 19775 million shares. Holcim will then own 61.39% of Ambuja and Ambuja will in turn own 50.01% of ACC.”

The transaction is subject to shareholder and regulatory approvals.

In addition, Ambuja’s board approved a proposal for the company to make commercially reasonable efforts to invest up to ₹ 3,000 crore to acquire an economic ownership in ACC of up to 10%. without triggering a mandatory open offer.

“This transaction allows us to capitalise on the prevailing Holcim Group platform, promotes greater co-operation between the group companies, and unlocks significant synergies over time,” Narotam Sekhsaria, non-executive chairman, Ambuja and ACC, said. “Investment in the expansion project at Marwar Mundwa is a positive and big next step forward and shows Holcim’s commitment (to India).”

The combined entity’s profit will go up by nearly 10% due to efficient utilization of capacity and resources without fresh investments, keeping the $1.2 billion cash reserves at Holcim’s subsidiaries intact, brokerage Credit Suisse said in a 2 July report.

“There are two specific areas of synergies. Firstly, in the area of logistics including the movement of raw materials, linkages and warehousing. Secondly, on fixed cost lines including IT and human resources functions,” Onne Van Der Weijde, managing director, Ambuja Cements said in a conference call.

He added that there were no plans to delist ACC. “We want to keep both companies as separate brands,” Weijde added, explaining the rationale for not going in for a merger.

Ambuja Cement also said its net profit for the June quarter fell 30.9% from a year ago to ₹ 324 crore because of subdued demand for cement in a slowing economy. Revenue fell 8.6% to ₹ 2,346 crore as sales volume shrank 2.9% to 5.38 million tonnes.

Shares of Ambuja closed at ₹ 191.1 on BSE on Wednesday, down 2.99% on a day the exchange’s benchmark index fell 1.04%. Shares of ACC closed at ₹ 1231, down 1.16%.