Market Walk

Buying Ambuja – Race hots upon who will win the bid to buy Holcim’s stake in Ambuja

The big deal for buying out Ambuja is now gathering steam. Holcim, which has a 63% stake in Ambuja, has already taken a call to exit the company. The question is who would be buying it. There are 3 major players already in the fray.

Bidding for Ambuja Cements

The earliest contender for the stake in Ambuja Cements was the Adani group. It was also the front runner. Recently, even the JSW group has put in its bid for taking over Ambuja Cements. Now, the largest cement company, Ultratech, of the Birla group has also joined the fray to buy out Ambuja. Firstly, let us look at how the deal is likely to pan out in terms of the ownership of Ambuja shifting from Holcim to the bidder.

Formalizing an arrangement

Currently, Holcim owns 63% of Ambuja Cements and wants to hive off the full stake. The company that eventually buys this stake also has to make an open offer to the minority shareholders of Ambuja cement to buy out another 26% stake in Ambuja. This will take the stake of the bidder to 89% in Ambuja. Now, Holcim also holds 4% in ACC while it is Ambuja that holds over 50% in ACC. The eventual bidder would, therefore, not only gain control of Ambuja but in the process would gain control of ACC too. It is likely to be a mix of payment for the deal in cash and stock, but more details on the deal will be known soon.

Lateral versus dominance

For JSW and Adani, the buyout of a stake in Ambuja would be more of a lateral expansion of their infrastructure story. Both are a large group with deep pockets and this deal would make them the second-largest cement producer in India with one stroke of the pen. It would be a case of dominance if Ultratech was to be the winning bidder. Ultratech already has 124 MTPA cement capacity out of the total capacity of 381 MTPA. Adding the 65 MTPA capacity of Ambuja and of ACC will give Ultratech 50% of cement capacity in India. It remains to be seen how the CCI would react to the idea.

Consolidation is the key

The cement industry has characteristics that a green business should not have. Cement is polluting, power and water-intensive and it is also transport and freight intensive. That is one reason the global investors are getting averse to staying invested in Indian cement plays. The cement industry is likely to see a big shift towards consolidation as small players will not see the economic sense in operating in a very stringent scenario. It would be a better idea to sell out when the price is right, which is the case now. The cement industry is likely to get focused on about 8-10 large players and the Ambuja deal may be the start of this trend. A lot of M&A action was already seen in small cement. Action shifts to the larger cement manufacturers!

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