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Mumbai, Jan. 20

THE story of the giants in the Indian cement sector being impregnable to foreign invaders is now truly over, with the second largest cement manufacturer in the world, the Swiss company Holcim, on the threshold of control of the oldest and currently second largest cement manufacturing capacity in India, Associated Cement Companies.

Gujarat Ambuja Cement Ltd and Holcim Ltd today announced a strategic alliance that will see Holcim get 67 per cent stake in Ambuja Cements India Ltd (ACIL), with Gujarat Ambuja holding 33 per cent. Through ACIL - which already holds 13.8 per cent in ACC and 94 per cent in ACEL - Holcim will make open offers for ACC as well as Ambuja Cement Eastern Ltd.

Overall, Holcim will spend $800 million (Rs 3,502 crore), which according to Mr Anil Singhvi, whole-time Director with Gujarat Ambuja Cements Ltd, would account for 20 per cent of the foreign direct investment of $4 billion recently in the country

On the unexpected entry of the foreign cement major, Mr Singhvi said: "At GACL we have never resisted the entry of MNCs into the sector, we welcome competition. In fact, we have brought in the competition in collaboration with us."

After the open offer, ACIL, which owns 13.8 per cent in ACC, will increase its shareholding up to 50.01 per cent. The open offer is at Rs 370 per share. (This happens to be the same price at which ACIL acquired its original stake in ACC from the Tata group five years ago).

The open offer for ACEL will be at Rs 70 per share, for the entire public shareholding from the minority shareholders. ACIL, which owns 94 per cent of ACEL, aims to own 100 per cent of ACEL.

If the deal proceeds according to the plan, Holcim itself will effectively have a 33 per cent stake in ACC and a 67 per cent stake in ACEL, and would clearly be the single largest shareholder in both these companies.

Highest ever valuation: Valuation-wise, this transaction could have fetched the highest ever in the Indian cement industry. "The valuation of ACC shares is based on the internal factors. The cost per tonne for the deal works out to $90 per tonne. This is higher than the previous transactions in the cement sector. The previous deal where cement division of L&T was de-merged was valued at $80 per tonne," said Mr Promeet Ghosh, Senior Vice-President, DSP Merrill Lynch.

Holcim has entered into an agreement with private equity investors American International Group and Government of Singapore Investment Corp to acquire their entire 40 per cent shareholding in ACIL for $200 million (Rs 875 crore).

Holcim has also entered into a share subscription arrangement with ACIL for investing $600 million towards capital.

This will eventually go towards the open offers to be made for ACC and ACEL. After this, the paid up capital of ACIL will increase from Rs 475 crore to Rs 850 crore, said Mr Singhvi. Both these acquisitions are being made at Rs 47 per ACIL share, at a premium of Rs 37 per share of face value Rs 10, and are subject to regulatory approvals.

ACIL Board to be reconstituted: The board of directors of ACIL will be reconstituted to reflect the shareholding pattern with two-thirds of the members to be nominees of Holcim, the rest to be nominees of Gujarat Ambuja.

The members of the board of Associated Cement Companies Ltd today accorded their `no-objection' to the proposed open offer by Holcim group for the limited purposes of the application to the Foreign Investment Promotion Board by the foreign company for its proposed offer.

Share prices fall: Both Gujarat Ambuja and ACC today ended lower on the bourses. Gujarat Ambuja closed at Rs. 423.5 on BSE, down by Rs 21.85, losing 4.91 per cent from yesterday's close.

ACC lost 6.46 per cent, losing Rs 23.6, to close at Rs 341.75. The market apparently expected higher valuations for ACC, said brokers.

(This article was published in the Business Line print edition dated January 21, 2005)
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