Holcim, through its complex rejig deal, has restricted minority shareholders' choice by using Ambuja Cement’s cash for transferring stake in ACC

The multi-layered deal announced by Swiss cement maker Holcim to rejig its Indian operations by way of merger and acquisition between ACC, Ambuja Cement and Holcim India is detrimental to minority shareholder of Ambuja Cement, feels analysts.

Several experts are also slamming the complex deal. In an interview to CNBC-TV18, Anil Singhvi, former managing director and chief executive of Ambuja Cement and chairman of Ican Investment Advisors, has criticised the rejig of Indian operation by Holcim. "The Rs3,500-crore reserve of cash sitting out on the balance sheet of Ambuja has been taken out by paying a premium. This is not a merger, there is no synergy and there is no advantage. In fact, Ambuja will dilute its shareholding by almost 30% and it cannot be earnings per share (EPS) accretive. According to me, this is nothing short of a fraud played out on the minority shareholders in India," he said.

In a research report, Emkay Global Financial Services said, "Prima facie the restructuring is detrimental to minority shareholder of Ambuja Cement as Ambuja Cement will be parting away with its huge cash balance of Rs3,500 crore, which is more than 90% of its CY12 cash on books, without any EPS accretion."

While downgrading Ambuja Cement to 'sell' with a reduced target price of Rs175 (from Rs195) Religare Capital Markets Ltd, in a research note, said, "We believe the acquisition would put Ambuja Cement's minority shareholders at risk as they would now be stakeholders in a less-efficient company, ACC."

As per the rejig plan, Holcim India would be merged with Ambuja Cement. Holcim India then transfers its 50.01% stake in ACC to Ambuja Cement. This would make Ambuja Cement the holding company of ACC. Post the complex merger plan, Holcim (the parent) would hold 61.39% stake in Ambuja Cement while Ambuja Cement would hold 50.01% stake in ACC.
 

In the first step, Ambuja Cement would acquire 24% stake in Holcim India for Rs3,500 crore cash. Ambuja Cement then would issue its 584 million shares to its parent for the balance 76% stake in Holcim India. Eventually, Holcim India’s 9.8% stake in Ambuja Cement will be cancelled.

According to Motilal Oswal Securities Ltd, the deal is marginally earning per share (EPS) and return on capital employed (RoCE) accretive for Ambuja Cement. "The merger will be EPS/RoCE accretive for shareholders of Ambuja Cement as the company would deploy the idle cash of Rs3,500 crore (earning 6-8% yield), on acquiring ACC’s assets at attractive valuations of about $110 per ton, which is at a steep discount to current market transaction value (recent M&A) and Greenfield capex cost," the brokerage said in a report.

Shares of ACC Ltd and Ambuja Cement fell sharply on Thursday following major restructuring announcement by Holcim, the parent company of both these cement producers. Ambuja was the worst hit as its shares fell over 10.5% to an intra-day low of Rs163.2 narrowly missing its 52-week low of Rs162.5 on the BSE. Ambuja Cement ended the day 10.5% down at Rs171 on the BSE. ACC, on the other hand, hit an intra-day low of Rs1,155. Despite making a recovery later, ACC closed the day 3% down at Rs1,194 on the BSE, while the benchmark Sensex ended 1.42% down At 19,804.7.