The amalgamation process involving ACC and Ambuja Cement has kicked off a storm. The complex deal initiated by Holcim resulted in the share prices of both companies falling sharply last week. Though no questions are being raised over the valuation, investors have reservations over the cash outflow from Ambuja. Dismissing investor concerns as emotional, Onne Van Der Weijde , Managing Director, Ambuja Cement said “the deal is simple. Ambuja is acquiring ACC, and it is acquiring it at market rate. It is not paying any premium. For a rational investor, for a minority shareholder, this is the best deal that could happen”. The restructuring process will lead to better shareholder structure, a better balance sheet and is EPS-accretive, he said in an interaction with Business Line . Excerpts from the interview:
Did you expect this kind of opposition? Was there a plan B?
Yes, of course we expected some opposition. But not the level as is panning out now. When I went to the independent directors on the board with this proposal they were wild. They asked ‘what is happening here?’ The plan is absolutely against minority shareholders, they said. After we explained the rationale and the economic benefits, they approved it. If you leave aside the emotional part and do the math, shareholders will understand the logic and benefits behind this deal. As we were confident of seeing this deal through, we did not have a plan B.
Yes. It is going to be tough, but it will be done. If we were not confident we would have not started it. For me, the easy part would be to do a share-swap at an exchange ratio of 6.6, not just for the 76 per cent but for 100 per cent of my holding. If I had done that, 80 per cent of the noise would not have been there. But this is not in the interest of minority shareholders. Interestingly, the first part of the deal involving cash payment does not need shareholders’ (nod) and the second part, of issuing shares, needs their approval. But we thought it fit to put both proposals up for their approval. It is now for them to decide. I will be holding a series of meeting with institutional investors and shareholders to make them understand the deal.
Why this deal when the cement industry is not doing well?
I have worked in both ACC and Ambuja for quite some time now. We have been working on the integration process to get the best technology, cost reduction and best practices in both companies. We have achieved most of our targets and, to achieve the next level, we have to optimise synergies. So, after we have done what we have done, we thought we must align the ownership structure to further these synergies. If you have two different companies without an owning company on top, it is difficult at the operation level to coordinate and move forward.
Why not a complete merger?
By doing a merger we would have diluted the brand value of one company and disturbed the sentiments of distributors, dealers and management staff. For a merger, you have to spend a lot of management bandwidth, not only to realise the synergies but also to integrate other administrative functions, which are cumbersome and not necessarily value-accretive. We have done lot of study on this front and concluded that a merger is not the best way to go about. If we had done a merger, the Holcim holding in Ambuja would have gone to 65-66 per cent, instead of 61 per cent now. From the Holcim point of view, they could have taken the shares and sold them back.
Do you think Ambuja can build a business like ACC on its own?
No. To put up a cement plant of ACC’s size today is next to impossible. If you put up a plant at $150 (a tonne) it takes three to four years to complete an acquisition at $160 or $180 a tonne with issues over title and quality of asset. If you get to control 60 per cent in ACC for $115 a tonne, it is fantastic. Then there is the benefit of synergies on the table.
Why should Ambuja investors pay for Holcim consolidation?
Everyone is talking of the cash outflow without considering the asset being transferred. The cheapest asset today is cash. It earns just 6-8 per cent. Instead, you put this to better use and earn a better return. Ambuja shareholders get 100 per cent of ACC and 50 per cent of economic interest. Look at the consolidated balance-sheet. It will have Rs 4,000 crore free cash on its books. Ambuja spends Rs 3,500 crore on this deal and gets over Rs 4,000 crore (including ACC reserves) back in its consolidated book. Ambuja investors are paying for the best cement asset. If you look at the consolidated balance-sheet with 60 million tonnes capacity, it would probably be one of the best cement companies in the world.
Do you see a difficulty in getting Sebi approval?
No. Sebi has sent us a letter seeking some information. At the moment we have received a few questions and will be responding to them soon.
What is the tax liability?
We will be paying Rs 25 crore. The expenses relate to registration and stamp duty. Not for transferring cash.
Will there be any job loss in the integration process?
No. In fact, we will require more talent as we will be growing in size. In the past, we have integrated the IT operation. Before we started doing this, we had a one per cent cost on IT services. Now, we have halved this. We plan to replicate this model to other services such as HR, administration, logistics and supply chain.