Ambuja-Holcim-ACC restructuring may not be so bad after all

Moneycontrol Bureau

The proposed Holcim-Ambuja-ACC restructuring has drawn protests from minority shareholders, analysts and shareholder activists. There are reports that Sebi will examine the deal to ensure that minority shareholders are not shortchanged.
And while Ambuja Cements investors may be justified in feeling sore about the company’s cash reserves being drained to fund Holcim’s stake hike in their company, the deal is not as bad as it is being made out to be, argues financial blog indiabusinessview.com. And certainly not a fraud, as some experts claim it to be since Ambuja has not appear to have overpaid for its 50 percent stake purchase in ACC through a mix of stock and cash.
Analysts have slammed Holcim for not opting for a straightforward merger between Ambuja and ACC. Indiabusinessview feels there could have been three reasons for it:
1. A merger of ACC with Ambuja would have caused a 78 percent dilution in Ambuja’s equity base, without adding much to the combined entity’s earnings per share.
2. It would have necessitated clearance from the Competition Commission of India, which could have delayed the process. The unsaid part here is that the cement industry and the CCI have been at loggerheads for a while on the thorny issue of cartelization.
3. It would not have helped Holcim automatically raise its stake in the combined entity to 60 percent, if that was the level the parent company was looking for.
Based on calendar 2012 earnings of both companies, the proposed restructuring would lift Ambuja’s consolidated EPS to Rs 11.5 (standalone: Rs 10.2), after taking into account its 50 percent stake in ACC. This is much better than what a direct merger would have yielded.
The key here is the Rs 900 crore in savings that Holcim claims the proposed recast will help achieve by way of synergies between Ambuja Cements and ACC.
“If we take the promised cost-savings of Rs 900 crore as a given, and we apportion three-fourths of it to Ambuja Cements (half of its own cost savings plus half of the half that will go to ACC), then the EPS actually goes up to Rs 14 a share,” says Indiabusinessview. (Read the full analysis here)
Posted by Santosh Nair
Twitter handle: @sant0nair