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• Holcim crosses 50% threshold in both ACC and Ambuja: In what we view
as an important event, Holcim has crossed the 50% holding level in both ACC
and Ambuja. As per the March-11 filing, Holcim stake stood at 49.3% in ACC
and 46.4% in ACEM. Post that in April as per NSE and BSE data, Holcim via
open market purchases and through subsidiaries has bought an additional 1.5mn
shares in ACC taking the stake in ACC to 50.1% and bought additional
54.5mn shares in ACEM taking stake to 50.002% in ACEM. HOLCIM
now has a simple majority in both ACC and ACEM.
• DOES THE IMPLIED HOLCIM PUT STILL EXIST?: Over the last 12
months, ACC and ACEM have traded at significantly above peer group
valuations on the expectations of a potential merger between both the entities
and expectations of Holcim’s continued stake purchases in the open market
(3.9% stake increase in ACC and 4.5% increase in ACEM). The 2 are connected
as HOLCIM till now did not have majority ownership in either of the company
and hence implementing a merger between the 2 entities would have been
difficult without majority ownership of both the companies. The macro cement
market has been volatile, but the implied HOLCIM ‘PUT’ has supported
ACC and ACEM stock price. The key question now is whether HOLCIM
would like to increase stake further in ACC and ACEM from here. We
believe under Indian Company Law, there is no material benefit for a
MAJORITY OWNER from +50% to 75% holding level. Anything above 50%
gives majority ownership and the next level of advantage comes at 75%
holding (as this negates the 26% holders, ability to block ‘special resolution’).
As the majority ownership criteria is satisfied, we believe any further increase of
stake in ACC/ACEM would likely be a capital allocation decision by Holcim.
At current valuations (ACC at $145/MT and ACEM at $170/MT CY11E
EV/MT), building capacity in India would be cheaper than buying capacity (via
stake increases).
• So is now a merger between ACC and ACEM round the corner? This
remains a difficult question to answer. Recently at ACC’s AGM, ACC CEO
commented that’ there are no plans for merger with ACEM as of now’ (please
see our update on ACC dated 13th April 2011, for more details). In our view the
support to ACC and ACEM stock price was driven by expectations of HOLCIM
increasing stake. A merger between ACC and ACEM (legal issues aside in
terms of regulatory approvals required), will not give any material synergies in
the near term. In our view, both ACC and ACEM can see sharp correction to
stock prices, if HOLCIM now does not further increase stake materially
from current levels. Incrementally the cement market has turned weaker
with some price corrections seen in April while costs to remain elevated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• Holcim crosses 50% threshold in both ACC and Ambuja: In what we view
as an important event, Holcim has crossed the 50% holding level in both ACC
and Ambuja. As per the March-11 filing, Holcim stake stood at 49.3% in ACC
and 46.4% in ACEM. Post that in April as per NSE and BSE data, Holcim via
open market purchases and through subsidiaries has bought an additional 1.5mn
shares in ACC taking the stake in ACC to 50.1% and bought additional
54.5mn shares in ACEM taking stake to 50.002% in ACEM. HOLCIM
now has a simple majority in both ACC and ACEM.
• DOES THE IMPLIED HOLCIM PUT STILL EXIST?: Over the last 12
months, ACC and ACEM have traded at significantly above peer group
valuations on the expectations of a potential merger between both the entities
and expectations of Holcim’s continued stake purchases in the open market
(3.9% stake increase in ACC and 4.5% increase in ACEM). The 2 are connected
as HOLCIM till now did not have majority ownership in either of the company
and hence implementing a merger between the 2 entities would have been
difficult without majority ownership of both the companies. The macro cement
market has been volatile, but the implied HOLCIM ‘PUT’ has supported
ACC and ACEM stock price. The key question now is whether HOLCIM
would like to increase stake further in ACC and ACEM from here. We
believe under Indian Company Law, there is no material benefit for a
MAJORITY OWNER from +50% to 75% holding level. Anything above 50%
gives majority ownership and the next level of advantage comes at 75%
holding (as this negates the 26% holders, ability to block ‘special resolution’).
As the majority ownership criteria is satisfied, we believe any further increase of
stake in ACC/ACEM would likely be a capital allocation decision by Holcim.
At current valuations (ACC at $145/MT and ACEM at $170/MT CY11E
EV/MT), building capacity in India would be cheaper than buying capacity (via
stake increases).
• So is now a merger between ACC and ACEM round the corner? This
remains a difficult question to answer. Recently at ACC’s AGM, ACC CEO
commented that’ there are no plans for merger with ACEM as of now’ (please
see our update on ACC dated 13th April 2011, for more details). In our view the
support to ACC and ACEM stock price was driven by expectations of HOLCIM
increasing stake. A merger between ACC and ACEM (legal issues aside in
terms of regulatory approvals required), will not give any material synergies in
the near term. In our view, both ACC and ACEM can see sharp correction to
stock prices, if HOLCIM now does not further increase stake materially
from current levels. Incrementally the cement market has turned weaker
with some price corrections seen in April while costs to remain elevated.
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