Moneycontrol Bureau
Ambuja Cements shares gained 1.5 percent on Thursday after the government approved the proposal of company's acquisition of 24 percent shares in Holcim India Private Limited from Holderind Investment. The stock closed at Rs 266.05 on the Bombay Stock Exchange after hitting fresh 52-week high of Rs 267.70 intraday while ACC was up 4.13 percent at Rs 1,700.90.
Holcim and Ambuja's proposed deal to effectively restructure Holcim's holding structure in India, which was originally proposed in 2013, will allow its parent Swiss giant LafargeHolcim to strengthen India footprint.
The Cabinet Committee on Economic Affairs also allowed the "subsequent reverse merger through a share swap. This would entail outflow of Rs 3,500 crore."
Under the terms of the deal, through a two-step transaction, Ambuja will acquire a around 50 percent stake in ACC (currently with Holcim) through a mix of cash and share issue. As a result, Holcim's stake in Ambuja will increase from around 50 percent to around 61 percent and ACC will become a subsidiary of Ambuja, Morgan Stanley said.
Ambuja Cements and ACC are subsidiaries of world's largest cement maker LafargeHolcim Group that was founded in 2015 following the merger of Lafarge and Holcim.
Promoters Holcim India Private Limited (9.81 percent stake) and Holderind Investments Limited (40.99 percent) together holds 50.8 percent stake in Ambuja Cements as of June 2016. Both promoters also hold 50.34 percent stake in ACC (out of which Holcim India Private Limited holds 50.05 percent stake).
Morgan Stanley said after the deal of acquisition of 24 percent, Holcim India will amalgamate with Ambuja, with Ambuja issuing 58.4 crore shares to the parent of Holcim India (Holcim group company).
"The 9.78 percent stake in Ambuja currently held by Holcim India would then be cancelled. The implied swap ratio will be 6.6 shares of Ambuja for every 1 share of ACC. While Holcim's stake in Ambuja rises to around 61 percent, ACC becomes a subsidiary of Ambuja," the brokerage further explained.
Morgan Stanley estimates the deal to be marginally EPS-dilutive for Ambuja in CY2016 and EPS-neutral in CY2017, without factoring in any cost savings.
The key will be management's outlook on cost savings, and timelines for/achievement of those savings.
"Apart from simplifying Holcim's holding structure in India, management had originally envisaged potential cost savings of USD 130–150 million – this is around 20–22 percent of combined EBITDA of the two companies for CY2016, according to our estimate. Of this, USD 60–70 million was estimated from optimisation of the supply chain and the balance through fixed cost and procurement advantage," the brokerage said.Posted by Sunil Shankar Matkar
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