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UltraTech bids for Holcim units as bidders seek more access

Companies seeking to acquire Ambuja Cements and ACC are finding it difficult to price their bids as the Swiss company has allowed them limited access to inspect the assets of the two companiesPremium
Companies seeking to acquire Ambuja Cements and ACC are finding it difficult to price their bids as the Swiss company has allowed them limited access to inspect the assets of the two companies

Companies seeking to acquire Ambuja Cements and ACC are finding it difficult to price their bids as the Swiss company has allowed them limited access to inspect the assets of the two companies, two people aware of the development said, requesting anonymity.

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MUMBAI :  

UltraTech Cement Ltd, India’s largest cement maker, has submitted a non-binding bid for Holcim Ltd’s Indian assets Ambuja Cements Ltd and ACC Ltd, two people aware of the development said.

Details about UltraTech’s bid could not be immediately ascertained. A spokesperson for Aditya Birla Group, which controls the cement maker, declined to comment.

Meanwhile, companies seeking to acquire Ambuja Cements and ACC are finding it difficult to price their bids as the Swiss company has allowed them limited access to inspect the assets of the two companies, the people said, requesting anonymity.

Holcim has asked interested parties to submit their best indicative offer, along with letters of support from lenders or investors for financing the offers, the people said, seeking anonymity. Companies that bid the highest will then be allowed to conduct comprehensive due diligence and submit binding offers, they added.

However, prospective bidders are unsure what value to ascribe to the two Holcim companies with the limited information they have at this stage.

“Given the nature of the business, one needs to conduct proper diligence of the companies’ assets, especially limestone linkages, since they are critical for day-to-day operations and growth. Having significant limestone reserves is critical for any cement business and, thus, the reserves feed significantly into the valuation. New reserves can only be bought through auctions or by acquiring a company. Sourcing limestone from the market increases costs of operations, affecting margins. So, it is a very critical component of valuing a cement company," one of the two people said.

Even some lenders have expressed concern since they have to fund the offer with limited information about the assets they are backing, the people cited above added.

“Some of the large foreign banks have agreed to offer letters of intent but have told the bidders that the final call on underwriting the bid will depend on the valuation that emerges after the bidder undertakes a comprehensive due diligence," the second person said.

A spokesperson for Holcim declined to comment.

Holcim owns a 63.19% stake in Ambuja Cements through Holderind Investments Ltd, while Ambuja Cements holds a 50.05% stake in ACC, and Holderind directly owns 4.48% of ACC. The combined market value of the companies stood at over 1.11 trillion as of Wednesday. A successful stake sale will make it one of the biggest M&A deals in India. Several large corporate groups have shown interest in buying the Holcim companies, including Adani Group, JSW Group and Dalmia Bharat.

Mint reported on Monday that Adani Group had prepared a bid of almost $13.5 billion for the deal. Mint reported that Adani Group entities may invest close to $11 billion in buying Holcim’s stake in Ambuja and ACC, which includes a premium to the market price. Additionally, $2.5-3 billion may be invested in buying the shares of Ambuja Cements and ACC from public shareholders.

Adani Group has already formed a wholly owned subsidiary under Adani Enterprises Ltd called Adani Cement Industries in June last year. In Gujarat, Adani has been planning to set up a fly ash-based cement manufacturing facility and a small 5 million tonnes per annum cement plant in Maharashtra with an initial investment of up to 1,000 crore.

UltraTech has also drawn up a plan to clear the antitrust hurdle. The plan involves the company selling assets in markets where the combined entities may end up with a substantial market share.

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