Minority Shareholders Hold The Key To Ambuja-Holcim Deal

The Indian equity market is said to be an FII (foreign institutional investors) driven market. This contention is clearly being reflected in the way the Ambuja-Holcim deal is pulling along. After the DIIs (domestic institutional investors) voted against the transaction, Holcim is cleverly managing the FIIs to vote in favour of the transaction. FIIs currently have a stake of a little over 30% in Ambuja Cements, a subsidiary of Holcim.

DIIs maintain that the deal has structured such that there is only one winner – Holcim. The Swiss company has controlling stakes in two leading Indian cement makers – ACC and Ambuja Cements. The Swiss major directly owns 40.76% stake in Ambuja and another 9.75% through Holcim India (HIPL). In ACC, Holcim has 0.29% direct stake and 50.30% through HIPL.

According to the terms of the deal, Ambuja will pay Holcim to buy a stake in ACC, without an actual merger of the two companies (ACC and Ambuja). Ambuja Cements will buy 24% stake in Holcim India, wholly owned by Holcim, for Rs 3500 crore. Holcim India will then be merged with Ambuja. In turn, Ambuja would issue 584 million shares worth Rs 11200 crore to the Swiss parent, which would take its stake up to 61.39% from over 50%. Ambuja will also acquire Holcim's 50.1% stake in ACC.

According to Holcim, its India operations will receive a synergy benefit of Rs 900 crore per annum accrued from logistics and supply chain. This is difficult to understand, especially because the two entities will still remain independent.

As per the new SEBI regulations issued in February this year, listed companies require majority support of minority shareholders in case of restructuring or mergers and acquisitions. LIC, with a 6.1% stake in Ambuja, will wield significant influence once this deal comes for their approval. As per our analysis at this stage, the Ambuja-Holcim deal has been structured primarily move cash from the Indian balance sheet to that of Holcim.