Goldman Sachs, Ambuja to acquire 50% stake in ACC from Holcim

Ambuja to acquire 50% stake in ACC from Holcim
Proposed transaction wherein Ambuja will acquire ACC
In a proposed transaction announced July 24, the holding co. (HIPL)
between Holcim and Ambuja/ACC will effectively be removed and Ambuja
will acquire 50.01% in ACC from Holcim. The deal will be funded part cash
and part via stock issuance. Now: Holcim owns: i) 50.3% in ACC via 50.01%
in Holcim India (P) Ltd (HIPL), 0.29% via HolderInd Investment ii) 50.55% in
Ambuja through 40.79% in HolderInd, 9.76% via HIPL. Post deal: i) Holcim
will own 61.39% in Ambuja and a 0.3% direct stake in ACC. Holcim's
economic interest in ACC will fall to 31%. Holcim will also receive cash of
Rs35bn. The deal has been approved by Ambuja and HPIL’s boards but still
requires 75% Ambuja shareholder approval and regulatory approval.
Ambuja pays Rs35bn in cash; balance in new stock issue to Holcim
Under the terms of the deal, Ambuja will: 1) Buy out a 24% stake in HIPL
for Rs35bn (from HolderInd Investment). 2) Issue 584mn shares to Holcim
for the remaining 76% in HIPL. HIPL's 9.76% stake in Ambuja will be
cancelled (150.7mn shares); net equity dilution of Ambuja will be 443mn
shares (from 1.544bn to 1.9775bn).
Under the terms, we calculate a consideration of Rs117.7bn
Based on the market close of July 24, the implied total consideration of the
transaction is Rs117.7bn: Rs35bn in cash and Rs82.7bn via new net share
issuance (433mn at July 24 close Rs191.1/share for Ambuja). Based on
July 24th closing price of Rs1,231/share (market cap of Rs231bn), the
current value of 50.01% of ACC is Rs115.6bn.
Other points: Use of cash; Holdco structure; tax implications
1) The Rs35bn cash is paid only to Holcim, not to Ambuja minorities; 2)
Ambuja will become a holding co. of ACC; which may affect the way
investors perceive it. We note Grasim’s cement assets (Ultratech) have
traded at a discount to Ultratech share price; 3) The tax impact from the
deal Ambuja’s tax impact will be Rs250mn, according to Ambuja.
Maintain cautious view on Ambuja (Sell); ACC (Neutral)
We retain Sell on Ambuja and Neutral on ACC. Ambuja 2QCY13 earnings
were largely in line – PAT/EBITDA at Rs3.2bn/Rs4.9bn (-31% yoy/-32% yoy)
vs our est of Rs3.2bn/4.8bn. We do not factor the deal into our valuations

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