Ultatech launches formal bid for Holcim’s Indian assets

Aditya Birla Group, which owns the country’s biggest cement company, Ultratech, has officially joined the race to buy out Swiss cement giant Holcim’s stake in Ambuja Cement and ACC, a person familiar with the development said.

JSW Group, which is already present in the sector and Adani Group, which is not present, are also said to be in the race for the prized assets.

Steel leader ArcelorMittal has also expressed interest and could join the race to acquire the two companies.

The Birlas have officially made a bid for the Holcim assets. The acquisition will be through Ultratech, a source familiar with the development told PTI.

The source insisted it was not a binding offer.

The source also said his proposal includes divesting 10-15 tonnes of capacity from Holcim so the deal doesn’t get stuck with fair trade body CCI.

“We are quite confident of obtaining ICC approval as we are prepared to divest some of the target companies’ assets,” the source said.

When contacted, the spokesperson for the Aditya Birla group company declined to comment, saying it was not responding to market speculation.

There are a few examples of CCI mergers and acquisitions where the acquirer’s stake exceeded a limit, the source said and pointed out that when Vodafone and Idea merged, the two operators had to step out of a few circles.

Last month, the world’s largest cement maker, Holcim, announced its exit from the country after a long struggle here. The company, through two publicly traded entities, ACC and Ambuja, has a capacity of 66 million tonnes per annum (MTPA).

The group entered the market 17 years ago and the outlet will put its listed arms, Ambuja and ACC, up for sale. Holcim holds a 63.19% stake in Ambuja and 4.48% in ACC, while Ambuja holds a 50.05% stake in ACC.

The exit of Holcim is part of the group’s “2025 strategy” which aims for sustainable solutions for the building materials sector. The importance of cement across the group is already declining compared to ready-mixed concrete, aggregates, roofing and green building solutions.

The sale of the stake in Ambuja will trigger an open offer on both ACC and Ambuja.

Since Holcim owns a large stake in Ambuja and only owns a small fraction directly in ACC, the buyer can only buy out Holcim’s 63% stake in Ambuja and then trigger an open offer for an additional 26% in Ambuja.

If fully subscribed, a new owner may end up owning 89% of the company. This could represent an $8.7 billion transaction at the current market price.

Ultratech is by far the largest cement producer in the country with an installed capacity of 117 MT, giving it around 25% of the national cement market of just over 500 MT, and if the deal is successful it will have to divest 10 15 MT of Holcim’s ability to meet CII standards.

Ultratech is cash-rich and can easily go into debt for the buyout. In the December quarter, its debt to equity was at a low of 0.32x.

Ultratech is the world’s third-largest cement maker outside of China and the deal with Holcim will further cement that, but it is unlikely to make it the world’s second-largest, the source said.

In the past, it has acquired assets from competitors such as the cement assets of the Jaypee Group, Binani Cement and the cement business of Century Textiles.

Sources said Holcim was also in talks with energy steel conglomerate JSW Group and the Financial Times had on Tuesday, quoting its chairman Sajjan Jindal said it would make a $7 billion bid. for the Indian subsidiaries of Holcim.

JSW is reportedly offering $4.5 billion in equity and $2.5 billion in undisclosed private equity partners for the Indian assets of Holcim, Ambuja Cement and ACC, according to the report.

According to industry insiders, Adani Group, which is getting into the cement segment, is also in the running to acquire Holcim’s Indian assets.

The group headed by the richest Indian, Gautam Adani, plans to get into cement. It is already setting up two cement units at Dahej in Gujarat and Raigarh in Maharashtra and aspires to be a segment leader, sources said.

Holcim is seeking a quick sale of the Indian assets. Control of both companies will give the winning bidder a huge head start, and Holcim’s move has generated huge interest from potential suitors.

The Birla Group will get huge control of the industry if its bid is accepted. Therefore, he appears to have opted for a deal hoping he will make the cut with the Competition Commission.

India is one of the most attractive cement markets in the world, as evidenced by the presence of names such as Heidelberg Cement (formed by the acquisition of Italcementi in 2015) but with a capacity of 12.6 MT.

In 2014, French Holcim and Swiss Lafarge merged their global operations to form LafargeHolcim, leading to Lafarge India putting its 11 MTs on the block (it entered India in the late 1990s) to be taken over by the Nirma group. Lafarge grew in India through acquisitions and had also bought DLF’s cement business in 1999 and then taken over Ambuja.

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