Holcim-Ambuja merger nothing short of fraud: Anil Singhvi

After Swiss cement manufacturer Holcim announced a rejig in its operations in Indian firms Ambuja Cement and ACC, India Inc has been pouring in mixed reactions on the merger.

Anil Singhvi, former MD & CEO, Ambuja Cements and chairman, Ican Investment Advisors believes there is no synergy and there is no advantage of the merger. In fact, he adds that Ambuja will dilute its shareholding by almost 30 percent and this will not be earnings per share (EPS) accretive.

"In my opinion, this is nothing short of a fraud played out on the minority shareholders in India,” he says in an interview to CNBC-TV18.

Below is the edited transcript of Anil Singhvi's interview on CNBC-TV18

Q: What did you make of this transaction? Do you think it will result in higher synergies as the Holcim management or the Ambuja management seems to be telling us or is it simply a capital restructuring to facilitate the unlocking of cash for the parent company that is Holcim?

A: Holcim India owned ACC and that was approved by the Foreign Investment Promotion Board (FIPB). So, they are merging that entire thing into Ambuja and Ambuja was a cash cow.

This cash was only consolidating, but real, physical cash was not coming in. Holcim needs this Rs 3,500 crore, which is USD 600 million cash. The total of 58.4 crore shares at Rs 192 works out Rs 11,500 crore and Rs 3,500 crore is cash. You are valuing ACC 50 percent for Rs 15,000 crore whereas the market cap today of ACC is Rs 23,000 crore. So, what are you paying this Rs 7,000 crore for?

The entire cash is extra. Infact the 58.4 crore shares would have exactly matched the market cap of 50 percent ACC. So, Rs 3,500 crore is the only cash sitting out on the balance sheet of Ambuja which has been accumulated for the last five years.

Q:  If the entire purpose of this restructuring was to extract more synergies from the operation of the two companies, why didn’t they prefer a merger of the two companies and instead have done this Holcim owns Ambuja which in turn owns ACC kind of structure?

A: It is a simple exercise of taking Rs 3500 crore out of the company and a similar thing is on the premium, so, it is not at par. It is not at the market cap of ACC today. Secondly, synergy potential of approximately Rs 900 crore through supply chain and fixed cost optimisation to be realised in a phased manner over a period of time.

Q: How is this new structure any better in terms of creating more synergies than the existing one?

A: They talk about not only buying 50 percent stake, but the board has approved Rs 3000 crore more to buy 10 percent which means they are valuing ACC today  at Rs 30000 crore. They can't deny this as there is board statement that they will buy another 10 percent in ACC for Rs 3000 crore. We will setup Marwar Mundwa Rs 4500 crore. In the past five years, Ambuja, which was known for growth for 25 years has not added a single million tonne capacity and vacated the market share.

Q: Will your proxy advisory firm Ican Investments Advisors (IIAS) advise the minority share holders vote against this transaction?

A: I don’t think we need to do any work. Every shareholder tomorrow morning will see it clearly. The Rs 3,500-crore reserve of cash sitting out on the balance sheet of Ambuja has been taken out by paying a premium. This is not a merger, there is no synergy and there is no advantage. In fact Ambuja will dilute its shareholding by almost 30 percent and it cannot be earnings per share (EPS) accretive. According to me, this is nothing short of a fraud played out on the minority share holders in India.