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  • Why the Ambuja-Holcim deal has caused a stir

    The announcement of the restructuring by Swiss cement supplier Holcim of its two Indian subsidiaries - ACC and Ambuja Cements has caused a stir. It has invited the wrath of small investors and negative opinion of many analysts.

Here are some pointers about the Ambuja-Holcim deal:

  • What the deal is about In a complex deal, Ambuja will pay Holcim to buy a stake in ACC without actually merging the two companies. Ambuja Cements will buy 24% stake in Holcim India, which is the Swiss cement company's local holding company, for Rs. 3500 crore. Holcim India will then be merged with Ambuja. In turn, Ambuja would issue 584 million shares worth Rs. 11,200 crore to the Swiss parent, which would take up its stake to 61.39% from over 50%. The Indian cement major will also acquire Holcim's 50.1% stake in ACC.

  • What it means to the companies involvedAmbuja and ACC: Ambuja Cements is buying out Holcim's stake in ACC. Ambuja becomes a holding company in India for Holcim. It will have a stronger balance sheet. Furthermore, Holcim claims that the deal will save Rs. 900 crore by way of synergies between Ambuja Cements and ACC, although the two will still remain independent. Holcim: Holcim gets Rs. 3,500 crore from Ambuja. But, since this would be paid to Holcim's Mauritius entity (Read here), the amount will not be eligible for capital gains tax. It also gets hold of most of Ambuja's cash reserves, which could have been distributed to all shareholders as dividend. However, since this is not dividend payment, Ambuja is not eligible to pay any dividend distribution tax.

  • Why investors complained Ambuja Cement shares plunged 16% while the Sensex shed about 3% since the announcement. With a transaction between majority owners of both companies, minority shareholders unwittingly get to be a shareholder of ACC. Many analysts tout ACC to be a less efficient company. Holcim also announced that Ambuja will buy 10% more stake in ACC later for Rs. 3,000 crore. This means total cash outflow of Rs. 6,500 crore from Ambuja Cements to Holcim. This money could have been utilised to pay dividends or for expansion. Ambuja has not only lost significant amount of cash, but also gets the tag of a holding company, which often get a discounted valuation in the market.

    • Why the Holcim-Ambuja deal is a milestone:Read more

    • 5 reasons why the Holcim-Ambuja transaction stinks:Read more

  • Rs. 1150 crore

    According to a report by Mint, the translated deal value of Holcim's 50% stake in ACC is Rs. 1,150 crore. This means Holcim is making Ambuja pay Rs. 1150 crore, in exchange for cutting costs to the tune of Rs. 900 crore, that too in a phased manner over 2 years.