Acc- Holcim Merger & Acquisition Case Study

7/5/2015
Acquisition of ACC by Holcim
Case Study M&A India Cement Sector
Sarkar, Snigdha (8026)
SCIT EXEC. MBA- 3RD SEM.

M&A – Case StudyHolcimM&A ACC & Ambuja SnigdhaSarkar-8026
1 | P a g e
Abstract
Mergersand acquisitionscontinue tobe highlypopularformof corporate strategy,corporate finance andits
developmentdealingwithbuying,sellingandcombiningof differentcompanies.Itisone of the bestprocessesof
corporate restructuringthathas gainedsubstantial prominence inthe presentdaycorporate world.The majorinterests
of the companieslie inhavinganedge overitscompetitorsinthe market.Thiscanbe accomplishedeitherbymaking
huge amountsof profitor by expandingtheirbusinesses.Expansioncantake place internallythroughthe introductionof
newtechnologies,establishingnew linesof productsandservicesandenhancingthe overall efficiencyof the
management.Throughthisthe expansiontakesplace ata gradual pace but inthe moderneraa completelynew formof
external expansionhascome intoexistence whichtakesplace inthe formof mergers,acquisitions, takeoversand
amalgamations.Inthe presentdaybusinessworld,these proceduresare takingplace acrossdifferentfieldsof industries
includingpharmaceuticals,hospitality,FMCGproducts,telecommunicationsandinformationtechnology.
A mergerisconsideredtobe a legal consolidationof twoormore companiesintoone entitywhere the separate
identitiesof boththe companiesare lostwiththe consequencesresultingintonotjustaccumulationof assetsand
liabilitiesof differentcompaniesbutgaining several otherbenefits.Surprisingly,the termmergerisnotmentioned
underthe CompaniesAct,1956, the Income Tax Act,1961 (the „ITA‟) or anyotherIndianlaw.
An acquisitionistakingoverof one companybyanotherwhere the targetcompanystill existsasa separate entity
controlledbythe acquirer.Inthe processalmostall the assetsand liabilitiesof the acquiredcompanythenbelongtothe
acquirerone.Furtherthiskindof takeovercanbe friendlyorhostiledependingonhow itisperceivedbythe members
involvedinthe targetcompany.
MotivationbehindM&A
In a paradox to theirpopularity,achievingacquisitionsuccesshasproventobe verydifficultandhasprovidedmixed
performance tothe variousstakeholdersinvolved.Resultshave shownthatthe managersof the acquirerfirmreport
that only56% of theiracquisitionscanbe termedas successful whencomparedtothe original goalssetbythem.Also
the resultssuggeststhatfollowingthe yearsof anacquisitionthe shareholdersof the acquiredfirmrealizepositive
abnormal returnswhereasthere isadipin returnsor at mosttheyare not statisticallydifferentfromzeroforthe
acquiringfirm.Althoughstill the overalleffectof M&A transactionsseemstocreate a netpositive economicvalue for
boththe partiesinvolved.Sowhatisthe motivationforthese acquirerstocome up withsuchacquisitions?The major
thinkingbehind these M&A activitiesisthe improvementinthe financial healthof the companyoverall whichcanbe
accomplishedinanumberof ways.

2 | P a g e
Acquisition of ACC by Holcim - Case Study
Holcim's strategy in recent years has also changed in the areas of aggregates mining and the production of
ready mix concrete. In the face of globalization and increased competition, the importance of having your own
sources of aggregates and freshly produced concrete has dramatically increased.1
- Radovan Voda, Regional Manager, Aggregates and Ready Mix Division, Holcim.
This strategic alliance (between ACC and Holcim) is a landmark in the Indian cement industry as it will bring
significant advantages to the shareholders of both the partners and their commitments to the growth of cement
markets in India2.
- Paul Hugentobler, Whole-Time Director & Executive Committee Member, Holcim.
What we've observed is that over time, when markets get more and more mature, some other products, activities
and segments are creating value - namely aggregates, ready-mix, and maybe even asphalt, paving, concrete
blocks etc. In India, it's clearly emerging, so there is a focus on cement. In the case of Aggregate Industries,
which is active in the UK and the US, it's clearly a mature market, so we follow the aggregate line.3
Introduction
On January 20, 2005,HolcimIndiaand/or Holcim Mauritiusentered into each of the following agreements, which are
related to the indirect acquisitionof shares in ACC, with the objective of allowing Holcim India and Holcim Mauritiusto
take managementcontrolof ACC throughACIL. The acquisition of shares in ACC would be consummatedonly provided
the compositeFIPBapprovalis received. For the avoidanceof doubt, itis clarified that the Offer hasbeen voluntarily
triggered under the SEBI-SASTRegulationsby these agreements.
The Acquirer, Holcim made a voluntary Offer to the Public Shareholdersof ACC to acquire up-to69,298,452 fully paid
equity shares (“Share(s)”) of Rs. 10/each, representing in the aggregate 38.84% ofthefully paidup equity votingcapital
(36.88% ofthe fully diluted equity votingcapital) of ACC at a price of Rs. 370 per share, payablein cash andsubject to
some termsand conditions. OtherthanACIL which held 2,46,70,000 equity sharesinACC constituting13.83% ofthefully
paid upequity votingcapital (13.13% ofthe fully diluted equity votingcapital) of ACC, noneof the Acquirer and the PACs
held any shares of ACC asof the date of this PublicAnnouncement(20stJanuary 2005).
It was the intentionof Holcim Indiaand Holcim Mauritiusto acquire managementcontrolof ACIL by:-
• Holcim Mauritiusbuyingexisting equity shares of ACIL
• Subscribingtoadditionalequity sharesissued toHolcim Indiaon preferential basis.
As a consequence of the abovesteps, the Acquirer indirectly gained managementcontrolof ACCL, andhence a separate
Public Announcementfor acquiringequity sharesof ACCL was being made. Further, pursuanttothisPublic
Announcement, theAcquirer intendsto acquire managementcontrolof ACC throughACIL. The Sharesof ACC are listed
on the NationalStock Exchange of India Limited (NSE), The Stock Exchange, Mumbai(BSE) and the stock exchange at
Kolkata. Basedon the informationavailable from NSEand BSE, the Shares of ACC are frequently tradedon NSEand BSE
exchanges. The following agreements were made between acquirers and the target company:

3 | P a g e
1. A Share Purchase Agreement (SPA) entered into by Holcim MauritiuswithGACL, AsianInfrastructureGaneshaCement
Holdings, Inc., a company establishedunderthe laws of Mauritiusandan affiliate of AIG Asian InfrastructureFundII L.P.
(“Ganesha”), KnightInvestmentsLimited, a company establishedunderthe laws of Mauritiusand an affiliate of AIG Asian
Opportunity Fund(“Knight”)andIndivestPteLtd, a company establishedunderthe laws of Singaporeandan affiliate of
GIC InfrastructurePte Ltd (“Indivest”)whereby Holcim Mauritiuswill acquire all the 190,746,666 equity sharesheldby
Ganesha, KnightandIndivest(with Ganesha, KnightandIndivesteach holding105,969,311 shares, 31,792,700 shares,and
52,984,655 sharesrespectively)in ACIL constituting40% of ACIL’sexisting equity capital for Rs. 8,965.09 millionata price
of Rs. 47 per equity shareof ACIL.
2. A Share Subscription Agreement (SSA) withACIL and GACL with respect to investment by
• Holcim Indiain the equity share capital of ACIL by subscriptionandallotmenton a preferential basis of 390,163,637
equity shares in the expandedequity capital of ACIL at a price of Rs. 47 per equity share of ACIL for a total consideration
of Rs. 18,337.69millionresultingin the combined holdingof Holcim Mauritiusand Holcim India in ACIL increasing from
40% to67%.
• Holcim Mauritiussubscribingto andbeing allotted 81,003 cumulativeredeemablepreference sharesof Rs. 100,000
each for a total considerationof Rs. 8,100.31 million. Themoniesreceived by ACIL shall be utilized, inter-alia, for the
purposesof this voluntary Offer by Holcim India with a view to reaching in excess of 50% of the votingsharesof ACC, as
well as for the openoffer for sharesof Ambuja Cement Eastern Limited(ACEL), a subsidiary of ACIL thatwould be
triggered under Sec 12 of the SEBI-SASTRegulationsas a result of the indirect changein controlof ACEL on Holcim India
andHolcim Mauritius’ acquiringa majority equity stake in ACIL.
3. A Shareholders Agreement with GACL and ACIL setting out the business co-operation and financial collaborationbetween
the parties in relation to andthroughACIL, regulating their inter se relationshipas shareholdersof ACIL. Underthe
ShareholdersAgreement, Holcim shall be in sole managementcontrolof ACIL includinghavingthe right to nominate
majority members (2/3) on the Boardof Directors of ACIL including the Chief Executive Officer of ACIL and otherexecutive
managementpersonnelof ACIL. The Agreement providesthat, in the event of ACIL acquiring control overACC pursuantto
this voluntary Offer, 2/3 of the ACIL nominees onthe board of directors of ACC shall be proposedby Holcim andthe
remaining 1/3 of the ACIL nomineesshall be proposedby GACL. The Agreement providesthatthe rightsand obligationsof
the parties to the agreement are subject to Holcim India receiving a compositeapprovalof the FIPB, nolater than April
30, 2005, forthe purposesof the investmentby Holcim India in ACIL andfurther downstreaminvestmentin ACC and
ACEL. The affirmative vote of GACL will be required for the decisionsof the boardof ACIL, as also the decisionsof theACIL
nomineeson the Boardsof ACC andACEL, only with respect to the following limited matters:
• Any sale of shares presently held as well as to be acquired by ACIL in ACEL or ACC
• Any transfer (including by way of demerger or scheme of arrangement)of all or substantially allof the business, assets
or undertakingsofACIL or ACEL or to the extent underACIL’scontrol, ACC
• Any merger, consolidationor amalgamation
• Any change in the authorizedor paid up sharecapital of ACIL or ACEL or to the extent under ACIL’scontrol, ACC
• Windingup or liquidationof ACIL or ACEL or to the extent under ACIL’scontrol, ACC.
4. A Put andCall OptionAgreementbetween GACL and Holcim Mauritius, withrespect tothe rights granted by each party
to the other with respect to the 286,120,000equity sharesheldby GACL in ACIL andconstituting33% of the post
expandedequity share capital of ACIL (in terms of the Share SubscriptionAgreement), whereby GACL shall have theright
to putall or part of the 33% sharesheld by it to Holcim Mauritiusanda matchingright to Holcim Mauritiusto call all or
part of the 33% held by GACL in ACIL. Partial putsandpartial calls are only permitted in incrementsof 11% ormore of the

4 | P a g e
shares held by GACL in ACIL. GACL has the right to putthe shares anytimeonor after June 30, 2005, andincase GACL
does notputall the shares thenHolcim Mauritiushasthe right to call the remainingshares anytimeon or after January 1,
2008. Pursuanttotheexercise of the Put or Call optionin full as aforesaid, Holcim Indiaand Holcim Mauritius’ holdingin
ACIL, directly or throughits subsidiarieswill increase toup to 100% ofthe total paid upequity sharecapital of ACIL. No
openoffers will be madeby Holcim for either ACC or ACEL uponits acquisitionof the all or part of the 33% heldby GACL
in ACIL as a result of the exercise of the Putor Call optionas such acquisitionwill not result in any change of control of
ACIL.
AboutACC
In a historic merger of 10 cement companies, ACC (formerly knownas Associated CementCompanies) was incorporated
in 1936. Thecompany is the largest cement producer in Indiawith a total installed capacity of 20 million tonesandhaving
a market shareof around12 %. The company is mainly engaged in the manufacture of ordinary Portlandcement and
blended cement, with the latter's share in total productionincreasingfrom 57 % to 83 % in the last decade. The company
is also the largest manufacturer of ready--mixconcrete (RMC) in India. It also offers consultancy services to the cement
industry in Greenfield and Brownfield expansions, raw material assessment, mineplanningand upgradationof oldcement
plants.
It is the only cement company havinga pan--Indiapresence, with 14 cement factories situatedacrossthe country. Ithas
the largest distributionnetwork of 170 warehousesandover 8,000 dealersin India. Someof the company'spopular
cement brandsinclude ÀCC Samrat', ÀCC Suraksha', ÀCC Super', etc. The company alsoexpanded throughthe
acquisitionroute. Cementcompaniesacquired include Cement MarketingCo, Bulk Cement Corporation, Damodhar
Cement andBargarh Cement (the latter two being merged with ACC in March 2006). Thecompany recently boughta12 %
stakein East IndiabasedShivaCement for Rs.16 crorethrougha preferential allotment deal.
AboutHolcim
Holcim, earlier knownas Holderbank, hasa cement productioncapacity of 141.9 milliontones. Itis a key player in
aggregates, concrete andconstructionrelated services. Holcim was foundedin 1912 inthe village of Holderbank in
Switzerland, and in a decade it expandedto other Europeanmarketsby investing in a numberof cement companies. It
investedin African countries like SouthAfrica, and Egyptin the 1930s. Inthe1950sand1960s, Holciminvestedinthe
NorthAmerican markets. The following decades saw the company enteringthe Asia Pacific region.
It hasa strongmarket presence in over 70 countries andis a marketleader in SouthAmerica andin a number of European
andoverseas markets. Holcim entered Indiaby meansof a long-termstrategic alliance with Gujarat Ambuja CementsLtd
(GACL). The alliance aims to strengthentheir clinker andcement trading activities in SouthAsia, the MiddleEast andthe
region adjoiningthe IndianOcean. Holcim also intendsto use Indiaas an additionalbase for its IT operations, R&D
projects as well as a procurementsourcing hubto generate additionalsynergies andvalue for the group.
In a major consolidationdeal in 2005, Swisscementmajor, Holcim in strategic partnershipwith GACL acquired a 35 %
stakein ACC throughAmbujaCement India(ACIL), the holdingcompany. Subsequently, Holcimfurther consolidatedits
stakein ACIL takingits aggregate ownership in ACC to 41.6 %.

5 | P a g e
OpenOffer Price
The Offer price of Rs. 370 per equity share was justified in termsof Regulation20(4) of SEBI (SAST) Regulationsin view of
the following:
1 The negotiatedprice If the Acquirer has entered into any agreement for acquisitionof sharesor votingrights or
Deciding to acquire shares or votingrights exceeding the prescribed percentage NotApplicable
2 Price paid by the Acquirer Price paidby the Acquirer or the PACfor any acquisitionincluding by way of allotmentin
public or rights issueor preferential issue by ACC duringthe 26-week period prior to the date of this Public
AnnouncementNotApplicable
3 Higher of (1) or (2):
Share price dataof ACC onNSE, where it is mostfrequently traded, is as under:
1. The average of the weekly high andlow of the closing prices of the sharesof ACC duringthe 26 weeks preceding the
date of the announcement
2. The average of the daily highand low of the closing prices of the shares of ACC duringthe 2 weeks preceding the date
of the announcement.
Rs. 282.94
Rs. 350.61
Holcim and GACL agreed to an Offer Price of Rs. 370 per share, which was higher thanthe price pursuanttoabove.
The Acquirers and the Persons Acting in Concert (PACs)
Holdcem CementsIndia PrivateLimited (Holcim India)
Holcim India is a private company incorporatedonSeptember5, 2002 undertheCompaniesAct, 1956. HolcimIndiais a
wholly owned subsidiary ofHolcim Mauritius, formedto act as a holdingcompany for makingdownstreaminvestmentsin
cement manufacturingventures. Holcim Mauritiusitself is a wholly owned subsidiary of Holderfin B.V., a private limited
liability company registered in Amsterdam, The Netherlands, which is a fully ownedsubsidiary of Holcim Ltd.
Holcim Mauritiushas access to adequatefundsand shall makesuch fundsavailable to Holcim India immediately upon
receipt of FIPBapprovalfor the downstreaminvestmentstobe made by Holcim Indiain ACIL andfurther ACIL makingthe
required downstreaminvestmentsinACC and ACEL.
Holcim India hasnot yetcommenced any businessactivities in India. Holcim Indiais currently an unlistedcompany and
hence P/E ratio is notapplicable and notconsidered.
HolderindInvestments Ltd(Holcim Mauritius)
Holcim Mauritiusis a company incorporatedonApril 20, 1993, underthelaws of Mauritiushavingits registered office in
Mauritius. Holderfin BV is the holdingcompany of Holcim Mauritius. Holcim Mauritiusis an indirect subsidiary of Holcim
Ltd, oneof the world’sleading suppliers of cement as well as aggregates (gravel and sand), concrete and construction
related services. It was establishedto undertakeoffshore businessactivities as a corporate investmentvehicle.

6 | P a g e
Holcim Mauritiusis anunlisted company inIndia andhence P/E ratio is notapplicable. The Holcim Ltd sharesare listed on
the SWX Swiss Exchange and tradedon Virt-x. The sharesare also tradedon the FrankfurtStock Exchange and in the form
of ADRs (which are equivalentto 0.5 equity shares) in the US.
Ambuja Cement India Limited (ACIL)
ACIL is at present a subsidiary of GACL, which holds286,120,000equity sharesconstituting60% ofits paidup equity share
capital while 190,746,666 equity sharesconstituting40% ofthepaid upequity sharecapital are held by Ganesha, Knight
andIndivest(with Ganesha, KnightandIndivesteach holding105,969,311 shares, 31,792,700 shares, and52,984,655
shares respectively). ACIL is engaged in the businessof investingin companiesin the field of cement manufactureand
marketing. ACIL is pursuingandhas the rightsto set up a Greenfield cement manufacturingproject in the State of Andhra
Pradesh, for which it hasentered into agreements for the transfer of mining leases and land from GACL in its favor. Shares
of ACIL are notlisted onany stock exchange andhence P/E ratio is not applicable.
Gujarat Ambuja CementsLimited (GACL)
GACL being the holdingcompany of ACIL is deemed to be a personacting in concert. GACL was incorporatedon October
20,1981 andhasitsregistered office at P.O. Ambujanagar, TalukaKodinar, DistrictJunagadh, Gujarat362 715. GACLdoes
notbelong to any group. Itskey shareholdersare the Promoters, includingRKBK Financial Services Pvt. Ltd. and Radha
Madhav InvestmentLtd., whohold23.66 % ofthe paid up equity share capital of GACL.
GACL, with its subsidiariesis amongthe largest players in the Indiancement industry, witha total installed capacity of
14.86 mtpaofcement (including ACEL). It is one of the mostprofitable andefficient companiesin the Indiancement
industry. GACL hasa marketcapitalization of approximately Rs. 80,000 million. Ithassubsidiarieslocated in India as well
as in MauritiusandSri Lanka.
The shares of GACL are listed onNSE, BSE, andthe stock exchange at Kolkata. Theclosing price of the shares of GACL on
NSEas on January 19, 2005 wasRs. 445.25 andontheBSE as on January 19, 2005 were445.35. Basedontheclosingprice
of the shares of GACL as on January 19, 2005 onNSEandtheEPS for year ended June 30, 2004, theP/Eratio is 21 times.
Synergies Claimed
Indian Scenario at that time
The Indianeconomy is experiencing a major turnaroundinrecent times. India is the fastest growing economy fuelled by a
strongGDP growth led by resoundingperformance in manufacturingandservice sectors. The performance on the overall
export front is also creditable. The IndianRupee has provedtobe a strongreliable currency onaccount of improvedFDI
inflow andhealthy foreign exchange reserves. Duringthe year the Indiancapital marketdid well, in concert with global
markets. All these trendsare anindicator that the Indianeconomy is finding animportantplace in the global context.
Indiais the secondlargest producer of cement in the world. The cement industry witnesseda significant growth of 11.3 %
in calendar year 2006 against9.4 % in 2005. Duringthe year, mostcement companiesoperatedat high capacity utilization
levels to meet increasing demand. While the pricing environmentwas favorableduring the year, there were significant
increases in costs particularly in energy, transportationandotherinputs. The year was a commendableone considering
the massiveincrease in the productionof blendedcement, especially fly ashbased. With rapidly growing housing,
infrastructure andreal estate sectors andthe ambitiousplansfor developingSpecial Economic Zones, the cement
industry is expected to enjoy double-digitgrowth.

7 | P a g e
Benefits to the Acquirer
Holcim's moveto buy a stakein GACL andACC as expected, hada positive effect on ACC as well as Holcim. The synergies
claimed by Holcim are:
1. Holcim is the largest cement producingcompany in the world andhas been lookingto builda presence in India. This
merger will enable Holcim to pursuefurther acquisition opportunitiesinIndiausing the robustcashflows of the ACC and
GACL.
2. This merger will make Holcim, the biggestplayer in Asia Pacific region. This is one of the mainobjectives of the Holcim.
3. For GACL this globalcement partnershipwill consolidatetheir presence in the IndianCementIndustry. Thisis a win-win
situationfor boththe companies andtheir shareholders. This partnershipwith Holcim will notonly help GACL further
strengthentheir relationship with ACC, butalso give them access to many of Holcim’s strengthslike R&D, fuel sourcing,
InformationTechnology, etc.
Benefits to the Target
Cement stocksacross-the-boardpostedhighgainsduringthe next three monthsofthe announcement. ACC hasbeen at
the forefront with a 40 per cent gain since Holcim acquired a footholdin Gujarat Ambuja. The synergies claimed by ACC
are:
1. Under Holcim managementACC has launcheda series of initiatives to reduce costsand improveefficiency, including
exploring the use of alternative fuels as energy sources at its plants. Itis rolling outSAP currently with the assistanceof
Holcim.
2. Due to close andcontinuousinteractionwith the Holcim GroupACC gained many mutualSynergies andimbibe valuable
expertise andknowledge. The mostcritical initiative has been in the area of InformationTechnology. TheCompany's
Project "CONNECTIndia" for implementationof SAP will providevital connectivity across key businessfunctionsbetween
all businessestablishmentsofthe Company.
3. In yet anotherinitiative, ACC undertook anassignmentonplant tomarket benchmarkingwhich involveda close
examinationof delivered costsof cement to all micro-marketsservedby the Company'snetwork witha view to optimizing
the shortand longterm supply patternsto these marketsanddeveloping strategiesfor future linkages. Amongother
initiatives takenup were AFR, productportfoliomanagementand endto end logistics, with considerableinputsfrom
Holcim. Mostof these studieshave been completed andthe benefits are being accrued in ACC’s operations.
Other Synergies
1. Stability in Cement Prices: The Holcim-ACC deal will also bring stability in cement prices. Consolidationinthe industry
has a positiveimpact onthe pricing rather thanin the case of fragmented players. Cement, being a demand-drivensector,
will continue tosee robustdemandin the next two years. Cement prices in the next couple of years will be firm with a
positivebias and will be a function of costsand regional demand. The consortiumof Holcim-ACC-GujaratAmbuja andthe
Aditya Birla grouptogether commandingmorethan 50% of the marketshare will result in price stability.
2. The Holcim-Ambujadeal is a positivestep for the cement industry. The fact that Holcim paid $220 pertonnefor Gujarat
Ambuja stakeshowsthat foreign players are hell bent togain groundsin the Indianmarkets
3. The Holcim deal will surely put the Indiancement industry onthe radar of internationalplayers. It will surely garner
attentionfrom other foreign players, thoughthe focus will be to acquire mid-capcompanies or maybethe cement
divisionof companies which are lookingat exiting non-corebusinessesasin the case of L&T. ACC exiting out of its other

8 | P a g e
non-corebusinessandGujarat Ambuja will soonfollow suit. Thus Holcim - ACC - Gujarat Ambuja will have sheer focuson
cement.
EventsSubsequent to the Announcement
21-Jan-05 Mediafirstannouncementfor takeover
21-Jan-05 Openoffer announcement
Jan2005 Holcim acquired 67% stakein Ambuja CementsIndiaLimited (ACIL), the investmentarm of GACL, which hada
34% holdingin ACC. Subsequently, Holcim’s stakeinACC increased to 24.4% fromexisting 22.8%.
23-Mar-05Openoffer openingdate
Holderind InvestmentsLimited(‘Holcim Mauritius’)acquired the 40% stakeheld by the other investorsin ACIL. ACIL
issuedon a preferential basis 39, 01, 63, 637 equity sharestoHoldcem Cements Pvt. Ltd., India.
11-Apr-05 Openofferclosing date
Apr-2005 ACILincreased its shareholdingin The Associated CementCompaniesLimited ('ACC') andAmbuja Cement
Eastern Limited ('ACEL') throughopenoffers, consequentto which, ACIL's shareholdingstandsat34.71% inACC and
96.94% inACEL.
Holcim entered in a licensing agreement with GACL to retain the name of ACIL, which holds 34.7% stakeinACC and isa
special purposevehicle (SPV) of the Holcim. Holcim’sstrategy to stick to the Ambuja brandnameinstead of buildingits
own brandpresence in India is in line with its global strategy to strengthenits presence in the new marketsand tocash in
on the establishedbrandsof its subsidiary companies.
ACC proposesto merge its subsidiaries, BargarhCement Limited (capacity of 0.96 milliontonnes) andDamodharCement
(grinding capacity of 0.53 milliontonnes) with itself with effect from April 01, 2005. Themerger wouldresult in better
operatingefficiencies, productivity andeconomiesof scale that would help reinforce the company’spresencein Eastern
India
6-May-05Mediaannouncementofmerger
July-2005DivestmentofNon-Corebusiness:ACCdecided to exit completely from its non-corebusinessand concentrate
on its core businessi.e. cement. The company decidedto sell its Refractory Businessto ICICI Venture Fundsfor a sumof
Rs257cr. Itis expected to exit its remaining three subsidiariesviz., AMCL (machinery), ACC NihonCasting(castings) and
Almatis ACC (specialty alumina). The company hasalready putits constructionsubsidiary, EverestIndustriesonthe block.
ACC has decided to sell 50% stake in its subsidiary EverestIndustriesLimited. Ithas entered into a Share Purchase
Agreement with Everest Finvest(India) PvtLimited for sale andtransfer of 74 lakh Equity Sharesof Everest Industries
Limited for a total considerationof over Rs99cr. Thisrepresents around50% of the Equity Share Capital of Everest
IndustriesLimited
25-Dec-05 Highcourtapprovalfor merger
24-Jan-05 MergerProcessCompleted(Transfer of managementcontrolto Holcim)

9 | P a g e
Structureand Financing of the Deal
Following are the significant structuralaspectsof the deal:
1. The deal was a taxable transactionasthe paymentswere to be madein cashform.
2. The Acquisitionprocess was carried outwith stock purchase.
3. The form of paymentwas cash.
The total fund requirementfor the acquisitionof up to 69,298,452 sharesatRs. 370 pershare is Rs. 25,640 million.
Holcim India will contributeRs. 18,337.69 millionfor subscribingtoequity sharesof ACIL, and Holcim Mauritiuswill
contributeRs. 8,100.3millionfor subscribingto preference sharesof ACIL as partof the Share Subscriptionagreement.
Underthe Share Subscription Agreement, a sumof USD530,476,429 million(equivalenttoRs. 23,184.47million)is
currently held in an escrow account with HSBC Guyerzeller Bank, Zurich, Switzerlandto be jointly operated by Holcim
MauritiusandGACL. These fundswill be transferred to ACIL throughHolcim Indiafor capitalization andthese funds in
turnwould be used for makingpaymentstothe tenderers in the OpenOffers for ACC and ACEL.
The Manager tothe Offer is satisfied aboutthe ability of the Acquirer toimplement the Offer in accordance with theSEBI-
SAST Regulationsas firm financial arrangementsare in place to fulfill the obligationsunderthe SEBI-SASTRegulations.
Further, Holcim Mauritiushas made a cash depositof US$ 6,024,185million(equivalentto Rs. 263.3 milliononly)with
HSBC Guyerzeller Bank AG, Zurich, Switzerlandand provideda bank guaranteefor Rs. 2,782.87millionby HSBC Mumbai,
with an aggregate commitmentof Rs. 3,046.16 milliononly, beingin excess of the amountrequired underRegulation
28(2)of the SEBI-SASTRegulationsi.e. 25% for the first Rs. 100 crores and 10% thereafter. DSPMLhasbeen authorizedto
realize the value of the aforesaid bank account andbank guarantee. UponFIPBapprovalbeingreceived by Holcim for all
the transactionsabove, theamountin the aforesaid bank account andthe bank guarantee will be released toHolcim
Mauritius, subjectto alternate security arrangementsacceptable toDSPMLbeing putin place in India by ACIL.
Certain financial details containedin the Public Announcementare denominatedin USD, EURand CHF. The Rupee
equivalentquotedin case of USDand EURis calculated in accordance with the RBI Reference rates as onJanuary 18,
2005, namely 1USD=Rs. 43.74 and1EUR= Rs. 57.06, whilethe Rupee equivalentof CHF numbersis calculated by first
convertingCHF into USDusingthe NY Fed NoonBuyingRate onJanuary 18, 2005, namely 1USD=1.1839 CHF, andthen
usingthe RBI Reference Rate to convert USDto Rupeesleading to an effective rate of 1 CHF = Rs. 36.95
11. Subsequentperformance
ACC Limited contributednetincome of CHF 244 million tothe Group for the period from January 24, 2006 toDecember
31, 2006. Ifthe acquisitionof control hadoccurred on January 1,
2006, Groupnetsales and net income wouldhave been CHF 117 million andCHF 6 million higher, respectively.
ACC took a string of decisions to retain its leadership positionsince Holcim became the single largest shareholderin the
company. Theseinclude exit from non-corebusinesses, enhancedfocus onRMC unitand installationof SAP based
software to ensure connectivity acrossdifferent businessfunctions. Holcim is also working closely with ACC to create
mutualsynergies in the area of logistics andalternate fuel technology. Inthe latter case, it is exploring alternate options
like grass, agrowastes and petroleumcoke in some of the captive plantsto contain power costs.
As per the Holcim Annual Report2006,
“2006 wasa milestone on the way toadditional growth. InIndia, the world’s fastest-growingcement market, we
strengthenedourinvestmentsandsimplified the structurethroughthe merger of AmbujaCement Eastern with Gujarat

10 | P a g e
Ambuja Cements. Together with ACC, we nowhave an annualcapacity of 38.2 million tonnesof cement. As India’s
second-biggestcementmanufacturer, we aim to continueto grow in thismarket throughtargetedexpansions. ACC and
Gujarat Ambuja Cementscurrently have cost-efficient capacity extension projects underway ona scale of around15
million tonnes. Together with all otherplant expansionprojects in the implementationor planningstage, the Groupwill
be commissioninga totalof some25 million tonnesof cement capacity between now and 2010.”
The report further states:
“In India, where the past two yearshave seen Holcim establish a footholdthroughmajoracquisitions, we are facing a
special challenge in the humanresources sector andon the training front. Each year, the two IndianGroupcompanies
need to recruit hundredsof employees andintegrate them intothe organizationsimply tokeep up with marketgrowth.
To this end, special trainingpackages havebeen developed andmade available for all hierarchical levels. These also
include technical simulationprogramsthatenable broad-based, risk-freetrainingin realistic conditions. We have already
trained 90 percent of the ACC managementin the Holcim-specific Project ManagementApproach. Thismeans thatsome
70 major projects are currently being managedaccording to standardparameters.”
As a result, Cement sales in Group region Asia Pacific rose by 90.3 percent to 55 million tonnes. Groupregion Asia Pacific
recorded the largest volumeincrease of 26.1 million tones. This was mainly due to the first-time consolidationofthe new
Groupcompanies in India – ACC from February and Gujarat AmbujaCements from May.
On future investments, thereporthighlights:
“The newly acquired companiesin India, Gujarat AmbujaCements andACC, have madea starton two major investment
projects in the east of the country which will be completed in 2009. Thisis intendedto strengthenthe two companies’
marketpositionin an area which is expected to see stronggrowth thankstoinvestmentin the miningand the metal-
workingindustries, increased industrial constructionactivity andinfrastructure projects. Gujarat Ambuja Cementsis
planninga second kiln line in Bhatapara(federal state of Chhattisgarh)which will boostproductioncapacity by 3 million
tonnes. InBargarh (federal state of Orissa), ACC is investingin a comprehensivemodernizationprogramwhichwill create
additionalproductioncapacity amountingto 1.1 milliontonnes. Bothsites will alsobenefit from new power plants which
will provide a more reliable electricity supply andreduce energy costs. The planned investmentsamountto aroundUSD
300 million.”
Holcim’s AnnualReport for Q1 CY07 read,
“The sharprise in consolidatedcement sales by 57.4 percentto 15.9 milliontonnesis primarily due to the two Indian
Groupcompanies. Shipmentsof aggregates increased substantially by 14.3 percentto 0.8 million tonnes. Deliveries of
ready-mixconcrete increased by 20 percent to1.2 million cubic meters.”
“Capacity is being selectively expanded, particularly in the growthmarket of India. Ambuja Cementswill be constructing
five further grindingplantsand two kiln lines in the coming years. ACC will also substantially expanditsproduction
capacity. Major work onextending two existing plants hasalready started, supplementedby two new grinding plants. By
the end of 2010, productioncapacity inthis growth marketwill expand by about15 million tonnesin totalto well over 50
million tonnes. This capacity expansionwill allow the two Group companiesto profit from the anticipated marketgrowth
andgenerate additionaladdedvalue.”

11 | P a g e
Further Developments:Holcim’sconstraints => time ripe for Ambuja and ACC merger
During the periodQ1 CY07, Holcim increased its participation(voting right) in ACC andAmbuja Cementsin India to38
percent and 28 percent, respectively, throughopenmarket purchases.
With effect from June30, 2007, Holcimholds43 percent of the share capital (votingrights) of ACC and32 percent of
Ambuja Cements.
Holcim is currently selectively expandingcapacity in the growth marketof India. By the end of 2010, productioncapacity
is expected to grow by about15 million tonsin totalto well over50 million tons.
Holcim moves ahead with strategy:
ACC-Ambuja merger would solve capacity constraints and save freight
Source:Company data,CreditSuisseestimates
Holcim’sfocusondeleveragingimpactsexpansionsatAmbujaandACC.However,we thinkamergerof the twowould
addresscapacity constraints,andsynergiescouldbe 10% of the combinedprofit.We staypositive onAmbujaandACC.
 AmbujaandACC are not expandingenoughdespite beingnetcash. InvestmentsatIndiansubsidiariesare closely
controlledbyHolcim,with investments>SFr20mn requiringapproval of Holcim’sexecutivecommittee.
AmbujaandACC are not expandinginwesternandnorthernIndia, respectively,despitehigh utilizations.A thirdof the
newcapex at ACCjust replacesoldplants.US$1.2 bn cash at itsIndiansubsidiariesmaynotbe utilized inthe nearterm
as it helpsHolcimretainthe ‘investmentgrade’ ratingandlowerinterestcost.
 Holcim’shighleverage explainsproductiondiscipline byACCand Ambuja.Indiansubsidiariesaccountfor20% of
Holcim’sEBITDA.After2008, Holcim’s dependence onEMsubsidiarieshasincreasedforitsdividend payout
thoughinterestpaymentscontinue tobe servicedthroughEurope and the US.Holcim’sleverage isstill highand
thisexplainsthe keennessof the grouptomaintainproductiondiscipline inthe Indiancementsector.
 A mergerof AmbujaandACC couldaddresscapacityconstraints.ACC’shighutilization innorthernIndiacouldbe
addressedbyAmbuja’snorthernIndia plants.Ambuja’sGujaratcapacitycouldbe freedupbyusing ACC’sWadi plant

12 | P a g e
to supplytoMumbai.The combinedentitywouldbecomethe 11thlargest globallybyvolume and7thlargestby
marketcap. By marketestimates,synergies couldincreasethe combinedentity’sprofitby10%.
Holcim: Shift froman aggressiveto a cautious strategy
The last tenyearsof Holcimcan be dividedintotwophases:
(1) The expansionphase until CY07whenHolcimexpandedaggressivelybothorganicallyandthroughseveral large
acquisitions;and
(2) The consolidationphase post2008 markedby equity dilutiontoreduce leverage,sale of treasuryshares, and
stake sale inThailandandAustraliansubsidiariesandmoderationincapex.Whatchangeddramaticallybetweenthe
twophaseswas the compositionof Holcim’sprofitabilityandthe control oncash. Holcim’stotal EBITDA has declined
by 40% since CY07 withEBITDA of 100%-ownedEU+US subsidiariesdecliningby67%.The profitcentre hasshifted
outside the developedmarketswithminorityinteresttoprofitsincreasingfrom15% in CY07 to 40% inCY12.
Cash generationatEU+US issufficienttoservice the interestcostbutHolcim’sdividendpayoutdependsonitsEM
subsidiaries(ACC/Ambujadividendpayoutincreasedfrom30% to 40%-plus).Holcimiscurrentlyindeleveraging
mode withall regionsbeingFCFpositive, i.e.,expansionsare limitedtointernal accruals.However,announced
expansionsinACC/Ambujaare notsufficient(onhighutilizationsof 80%) to meeta possible reboundindemand
and do notdo justice toexistingresources.Indiaaccountsfor20% of Holcim’sEBITDA.
AmbujaandACC are not expandingenough,Holcim’smanagementtogetitsviewson:
1. The freedomgiventoACC/Ambujaboardwithregardto investmentdecisions,
2. The potential use of cashat Indiansubsidiariesandwhy30% of ACCexpansionjustreplacesoldplants,and
3. Whetherthe benefitsof beingapart of HolcimGroup extendbeyondroyaltypayments.
Holcim’sdecisionsonexpansionsare basedonlong-termforecastsof demandinaregionandthe utilization.Indian
subsidiariesare at80% utilizationbutthe currentdemandgrowthisat 5% vs an 8% long-termtrend,andthe current
returnsare notadequate forexpansionsinIndia.We highlightthe Indonesiacase studywhere demandhas
surprisedinthe pasttwo yearsand Holcimisrunningcapacityconstrained.Inourview,royaltycharge offsetsalarge
part of the benefitsHolcimprovidestoitssubsidiaries.Indiansubsidiariespay1% royaltyvs 2-5% byother
subsidiariesbutprocurementsavingsforIndiansubsidiariesare lower(75% coal sourceddomestically) andIndian
subsidiariesuse theirownbrandsaswell.
Merger addressescapacityconstraintsatACC/AmbujaACCisoperatingat90%-plusutilizationinnorthernIndiaand
Ambuja'splantsinnorthernIndiacouldaddressACC’sconstraints.Likewise,AmbujahashighutilizationsinGujarat
but part of the capacitycouldbe freedupby supplyingtoMumbai/Punefromthe ACCplant.The combinedentity
becomes11th largestgloballybyvolumeand7th largestbymarketcap. By our estimates, synergiescouldincrease
the combinedentity’sprofitby10%.Mergingthe twobrandsor creationof a new brand isnot optimal asACCand
Ambujahave complementarygeographical footprints.We believesavingsfromthe twoentitiesworkingtogether
but as legallyseparateunitshave beenrealizedandthe time isripe fora mergernow.We stay positive onACCand
Ambujaandexpectmarginstoexpandasdemandpicksup in2H FY14.

13 | P a g e
Synergies of an ACC and Ambuja merger
In addition to the benefits highlighted above, the combined entity should be able to reduce the average freight
distance. We expect about 4-5% savings in the freight cost for the combined entity and we highlight some of
the instances where freight could be saved in Figure 56. The combined entity would also benefit from higher
volumes as some of the capacity constraints get addressed. We also expect some benefits on pricing as some of
the volumes could be shifted towards higher pricing regions (like East from non-East). Thus, we expect a
potential merger to add about 10% to the profit of the combined entity (Figure 57). The merger process does
involve a transaction cost (stamp duty) but the recurring benefit is much higher and is therefore positive.
Figure 1: Combined ACC and Ambuja bigger than Ultratech in all regions except South Capacity market share
ACC (CY12) Ambuja
(CY12)
ACC +
Ambuja
Ultratech
post
expansion
North 8% 12% 20% 15%
Central 10% 3% 13% 12%
East 11% 12% 23% 21%
West 8% 23% 32% 29%
South 6% 0% 6% 11%
Total market share 8% 8% 16% 16%
Total India capacity (mt) 30.1 28.1 58.2 59.0
Figure 2: Synergy benefits in a merger of ACC and Ambuja could be about 10%

14 | P a g e
Examples of freight cost savings in a combined entity Plants
Freight savings
Gagal ACC sells 20% ofGagal output to Uttarakhand and Haryana which is better addressed
through Ambuja's North plants
Lakheri 20% of outputto Delhi and 10% to Haryana could be supplied from Ambuja's North
plants
Dadri (G) Clinker to Dadri unit could be supplied from combo ofLakheri and Kymore rather than
Rabriyawas
Tikaria (G) Dadri (G) of Ambuja frees up part of Tikaria capacity to supplyto Bihar which in turn
free up Chaibasa and Bargarh capacityto supplyto West Bengal
Chaibasa 20% shipmentgoes to Assam which could now be broken into two parts:(1) clinker
shipmentto Farakka and (2) cementshipmentto Assam
Jamul and Bhatapara Combined approach to Chhattisgarh and Orissa markets save freightcosts
2013 Holcim poles apartfrom 2007 Holcim
In lastten years of Holcim could be dividedinto two phases:
(1) The expansionphaseuntil CY07 when Holcim expandedaggressively bothorganically andthroughseveral large
acquisitionssuchas Aggregate Industries, ACC, Ambuja, Foster YeomanandMeyer Material and
(2) The consolidationphasepost2008 wasmarkedby equity dilutionto reduce leverage, sale of treasury shares, andtake
sale in Thailandand Australiansubsidiariesand cut downin plannedcapex or moderationin new capex.
Holcim:Aggressive expansion + acquisitions pre-2007 buthas been in a cautious mode post2008

15 | P a g e
What changed dramatically between the two phases was the composition of Holcim’s profitability (Figure 16).
Holcim’s total EBITDA has declined by 40% since CY07 with combined profitability in Europe and the US
declining by 67% since 2007. Holcim has 100% stake in the European and US entities while it is only the majority
shareholder in the Asian and African franchise. With profitability center shifting outside EU and the US, Holcim’s
share of profit generation has reduced significantly. Minority interest accounted for 15% of total profits in CY07
but in CY12 the proportion of minority interest to profits has increased to 40%!
This signifies two things: (1) growing importance of Asian franchise within Holcim Group and (2) shift from an
aggressive expansion strategy for Holcim to a cautious approach with focus on deleveraging.
Indian subs have low freedom in investment decisions
Holcim has a Board representation at both ACC and Ambuja and also have an influence at the operational level
to have a feel on the ground too. In terms of investment decisions, there are three level of hierarchies: (1)
decisions up to a certain level could be taken by the local board—this will involve investment decisions less than
SFr20 mn; (2) decisions requiring investments higher than SFr20 mn goes to the executive committee of Holcim
and (3) decisions requiring investments above SFr200 mn goes to the Holcim board. Effectively, any investment
decision to expand capacity (capex for cement capacity is $150/t) has to be approved outside of the Indian
subs. This hierarchical structure is one of the main reasons why we believe the current situation of Holcim is an
important element in investment decision at ACC and Ambuja.
Time ripe for a merger of ACC and Ambuja now
Although ACC and Ambuja operate as separate legal entities, Holcim has been able to realize several benefits of
combined operations of ACC and Ambuja so far. Two examples of ACC and Ambuja working together are
Central Procurement team and Techport.
■ Central Procurement Organization (CPO) team is a group sourcing set up which integrates the procurement
team from both ACC and Ambuja to benefit from economies of scale from central pooling and procurement.
The objective is to procure raw materials (Gypsum, slag), coal, packaging materials, refractories, electrodes,
grinding media, stores and spares and explosives, etc., together. Cost saving from central procurement have
been more than 5%.
■ Techport team started as collaboration between the technical teams of ACC and Ambuja in 2006 and operate
from Thane, Mumbai. The objective of the team is to enhance efficiency and productivity in all operating units
of ACC and Ambuja and contribute technical expertise in new capex projects. The team is also responsible for
standardization across operation, maintenance and capex projects.
Therefore, part of the synergies from combined operations of the entities is already being realized. However, in
our view, the time is ripe for a merger of ACC and Ambuja as most of the benefits which could be achieved with
ACC and Ambuja operating as separate legal entities have already been achieved.

16 | P a g e
Merging the brands or creation of a new brand not optimal
It would be in best of interest for Holcim to not push for merging the two brands into one or creating a separate
new brand as the overlap between geographical footprint of ACC and Ambuja is low. The flip side is that
possible synergies from reduction in promotion expenses and distribution cost may not be realized. During the
discussions, management mentioned that as Holcim has a controlling stake in both the entities, both brands
could co-exist within a single legal entity as well. However, cultural differences between the two companies
need to be evaluated against financial benefits of merging the two companies.
Merger synergies could increase the combined profit by 10%
In our view, a merger of the two entities should have the following three benefits:
■ Merger would address capacity constraints at ACC and Ambuja. As we have discussed above, capacity
expansion plans of ACC and Ambuja are not adequate versus the resources the two entities have. However,
several of the capacity constraints could be addressed through a merger of the two entities. For instance, ACC is
running at high utilizations in North (90% plus) but is not expanding; however, Ambuja is running at 84%
utilizations in North and is further expanding North capacity by 50%. Therefore, if ACC cement bags could be
packaged at Ambuja’s North plant, ACC’s capacity constraint issue could be addressed.
Likewise, Ambuja is running at high utilizations in Gujarat (Ambujanagar). Overall utilizations in West is 75%
given the lower utilizations at Maratha Cement Works in Maharashtra. Ambuja is not expanding in Gujarat but
part of Ambuja’s capacity in Gujarat could be freed up (which supplies to Mumbai and Pune) by packaging
Ambuja’s cement bags in ACC’s Wadi plant (say).
ACC’s high utilizations in North could get addressed by Ambuja’s North plants.
Ambuja’s Gujarat capacity could be freed up by using ACC’s Wadi plant to supply to Mumbai.

17 | P a g e
■ Combinedentity wouldemerge as secondlargestin India and#11 globally
A combined entity of ACC and Ambuja would be larger than Ultratech in all regions except South, refer to fig,
below and overall would be the second largest entity in India after factoring in the new expansions at Ultratech
in South and East. Globally, post the potential merger, ACC + Ambuja would be the 13th largest company by
capacity, 11th largest by sales volume and 8th largest in terms of exposure to Emerging markets. Ex-China,the
combined entity would be in the top 10 on all three parameters.
CombinedACC andAmbuja bigger thanUltratech in all regions except South
■ Merger couldincrease cross mobility of employeesacross ACC and Ambuja.
ACC and Ambuja teams have been working together in Central Procurement Organization and Techport, but
outside that there has been little cross movement of employees across the two companies. Our interactions
during the interviews suggested that this is due to the cultural difference between the two companies: ACC is
much older of the two, and Ambuja before Holcim’s acquisition was run by a promoter group. A creation of one
entity, in our view, should increase more interaction between ACC and Ambuja.

18 | P a g e
Global cement valuations
Conclusion:
A win-win
"Holcimisnot reallygettingthe cashforfree.Ithas to give shares.Holcimwaspayingmoneyforshares(tobuystake in
ACCand Ambuja).Andnowitisthe reverse,thoughHolcimmaintainscontrol,itownseconomicallyless.Holcimisjust
gettingthe moneyitpaid,that'sit,"he emphasises.Holcimhadpaid$200 a tonne whenitbought13.8 per centin
AmbujaCementsfromthe Seksharia-Neotiafamilyin2006 foraround Rs 2,100 crore.
The newstructure allowsforconsolidationof balance sheetsof the twocompanies,makingitstrongerinthe process.
Accordingto Weijde,if one consolidatesthe balance sheets(ACCandAmbuja),everythingisdoubled."They,still,have
overRs 4,000 crore consolidatedcashonthe balance sheet.Evenif we lookat the standalone basis,Ambujawillhave Rs
600-Rs 700 crore of cash on itsbalance sheetmakingitprobablythe bestonthe planet(inthe cementspace
Afterthe merger,HolcimIndia'sstake inAmbujawill standcancelledandAmbujawill own50.01 percent stake inACC.
Withthis,Holcim'sstake inAmbujaCementswill risefrom50.55 per centto 61.39 per cent.Ambuja,inturn,will buy
Holcim'sstake inACC.In otherwords,once the deal is done, ACCwill become asubsidiaryof AmbujaCements.
The swap ratiofor the mergerwill be one Ambujashare for7.4 HolcimIndiashares,translatingintoanimpliedswap
ratioof 6.6 AmbujasharesforeveryACCshare.Ambujawill issue 584 millionnew equitysharestoHolcimas
considerationforthe merger.Afterthe merger,the expandedcapital base of Ambujawill increase 28per centand
comprise 1.97 billionshares.

19 | P a g e
As pergiventrackrecord, Holcimhasdone nothingtodeserve the special cashpaymentof Rs.35 bn.Cash inthe
companyismeantfor all shareholders,andnottothe shareholderincontrol.There are alsootherissueswiththe
transactionincludingcompliance withRBIguidelines.The argumentforsynergiesisnotveryconvincingbecausemere
capital restructuringcannotresultina gainof Rs. 9.0 bn. – and if it could,the companywouldhave done soearlier.
Holcim propose structure:
IiAS’[Institutional Investor AdvisoryServices]proposedstructure:
Do the synergies really exist?
The company promises Rs. 9.0 bn of synergies on the basis of a capital restructuring and the formation of a few
committees.
 Easy pickings have already been taken: Ambuja and ACC operating under same management since 2000
when Ambuja bought into ACC. Most of the promised synergies like clinker swaps, procurement savings,
are already being achieved. Central Procurement Unit and Technical Support Services – to streamline
operations between Ambuja and ACC already exist.
 The merger is not accretive: Ambuja’s other income will fall due to depletion in its cash balance.
Assuming an interest rate of 10% Ambuja’s other income would decline by Rs. 3.5 bn. Borrowing of Rs.
30 bn to increase its stake in ACC would lead to an additional interest cost of Rs. 3.6 bn (assuming a 12%
borrowing rate). The combined effect of the above items would offset the gain of Rs. 3.4 bn accruing as
dividend from ACC. There would in fact, be a net reduction of Rs. 3.7 bn in PAT.

20 | P a g e
Per IiAS’ [Institutional Investor Advisory Services] opinion, the only transaction that will make sense is a full
merger between Ambuja and ACC. Benefits of a full merger with Ambuja and ACC:
 Cash would remain on Ambuja’s balance sheet.
 Cement produced at Ambuja plant could be sold under ACC’s brand name and vice versa.
 Both brands, ACC and Ambuja could co-exist – Ambuja as a premium brand, and ACC as a mass-market
brand.
 The transaction would be beneficial to all shareholders, and not just the promoters.
 The transaction would be compliant with RBI requirements.
While the minority shareholders claim to have got a raw deal, Holcim is the prime beneficiary at this juncture.
One thing is clear at this juncture. While the minority shareholders claim to have got a raw deal, the parent
Holcim is the prime beneficiary. It has used funds from the cash-rich Ambuja to take care of its interests in the
operationally weaker ACC. What’s glaring is that Rs.3,500 crore gets wiped out of Ambuja’s balance sheet,
which is almost the entire cash and bank balance in the company. According to analysts, the amount is routed
through the Mauritius entity and hence entails no tax for Holcim. In turn, the parent gives Ambuja a 24% equity
stake in Holcim India, which eventually will be merged with Ambuja.
Another point that emanates from the deal is that the operationally stronger Ambuja is preferred over its sibling
ACC. The parent Holcim will now hold a 61.4% stake in Ambuja. It’s interest in the less-preferred ACC will be
managed through Ambuja, which will, post the deal, hold a 50.01% stake in ACC.
This is not surprising given that in spite of ACC being touted as a pan-India low-cost producer of cement, going
by the June-quarter numbers, Ambuja’s operating profit per tonne at Rs.900 is higher than ACC’s at about
Rs.700 per tonne. While analysts say the deal, although complex, has been at fair valuations of both Holcim
India and ACC, the flip side is that ACC has got no premium for its size and geographic market reach. Analysts’
estimates of ACC’s valuation vary between $110 and $120 per tonne, in line with replacement costs and lower
than the greenfield plant cost of around $150 per tonne.
Further, ACC now becomes only a step-down subsidiary of Holcim. ACC’s stock fell by 3% to Rs.1,194.1 a share
even before the results were announced on Thursday. In fact, the firm’s operating performance continued to
remain weak although on anticipated lines for the June quarter. Net profit fell by about 38% from the year-ago
period to Rs.261.8 crore on weak realizations and rising costs, as faced by its sibling Ambuja, whose net profit
plummeted by 31% to Rs.324.2 crore.
The deal raises another question: If Ambuja is the preferred sibling why did its stock fall harder than that of
ACC? Analysts say this is because Ambuja’s cash resources, which could have been utilized more productively
for expansions, now get locked into an investment in ACC. Further, Ambuja’s holding company status would
entail a discounted valuation (10-20%) to the mean. Earlier, an investor could decide to invest in Ambuja alone.
Now, a shareholder of Ambuja gets saddled with an indirect ownership in ACC too.
Worse, the Holcim board has expressed its intent to hike Ambuja’s stake in ACC by another 10% over the next
couple of years, which is likely to entail some cash outflow again. In a nutshell, the deal is a classic example of

21 | P a g e
how the Swiss parent has effortlessly retained control over both its Indian units, while having direct control over
the operationally stronger one and monetizing its stake in the other.
The board’s view on synergistic benefits from the deal did nothing to enthuse investors, although the
management guides for a Rs.900 crore synergy benefit, this is hazy as the two companies will remain separate
entities.
Meanwhile, the cement sector outlook is grim given the economic slowdown and tight liquidity that has
plugged industrial, infrastructure and retail housing construction activity in the country—critical to cement
consumption and price movements.

Acc- Holcim Merger & Acquisition Case Study

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (12)

Ähnlich wie Acc- Holcim Merger & Acquisition Case Study

Ähnlich wie Acc- Holcim Merger & Acquisition Case Study (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Acc- Holcim Merger & Acquisition Case Study