PERSPECTIVE: Holcim at war with Ambuja shareholders...again

Santosh Nair
moneycontrol.com

Holcim has infuriated minority shareholders of Ambuja Cements for the second time in eight months, with its proposed restructuring plan which will drain Ambuja of the cash on its books without adding anything to its earnings per share. Ambuja shares are down nearly 13 percent, with ex-CEO and now shareholder activist Anil Singhvi going as far as to call the deal a 'fraud' on minority shareholders.

In a complex restructuring deal, Ambuja Cements will pay Rs 3500 crore (90 percent of 2012 cash on balance sheet), and issue shares to Holcim India—parent Holcim's 100 percent subsidiary—to merge the company with itself.

By virtue of this merger, Ambuja Cements will get to own 50 percent in ACC which is currently being held by Holcim India. Also, Holcim's stake in Ambuja will increase from the current 50.55 percent to 61.39 percent.

Holcim's claim is that the restructuring will help unlock synergies, but critics of the deal claim the recast only transfers cash out of Ambuja's books into Holcim's.

Also Read: See no advantage in Holcim-Ambuja merger: Anil Singhvi

If synergy was main objective, it could have even been achieved even by merging the Ambuja Cements and ACC through a transparent share swap deal, they say.

Already, Ambuja Cements has been hit by a wave of analyst downgrades following the proposed deal.

Analysts fret that the deal results in a holding company structure for Ambuja Cement and that will result in the Ambuja getting the low valuation multiple typical of holding companies.

Brokerage house Emkay points out that Grasim's current market price implies nearly a 50 percent discount to the market value of its investment in UltraTech.

In addition, analysts feel there is enough ground for an additional de-rating of the stock for poor corporate governance.

That could partly explain the 4 percent decline in shares of ACC today, though the realignment does not affect the financials of the company.

In December last year, Holcim drew the ire of shareholders in ACC and Ambuja Cements for raising the annual royalty that the two companies pay it, to 1 percent of net sales.

"No disclosure has been made on how the exact amount of the fee was derived at. No justification has been provided by the board of directors on why they believe that the 1 percent of the net sales is an Arms Length Price for the transaction and which of the methods prescribed for valuation of transfer pricing used," proxy advisory firm SES had written its report in January this year.

Doubtless, there is huge opposition to the latest deal from minority shareholders and the Street. Remains to be seen if Holcim decides to press ahead full steam, regardless of the protests.