Aditya Birla group masters art of bringing down acquisition cost

Suresh P Iyengar Mumbai | Updated on November 14, 2019

Aditya Birla Group seems to have been gained acumen of bringing down acquisition cost in its recent acquisitions even while the deal is in progress and after it.

Last November, UltraTech Cement had acquired 6.25 million tonnes per annum cement and 4.59 mtpa clinker in Rajasthan of Binani Cement for ₹7,900 crore and renamed it as Nathdwara Cement. Post the deal, UltraTech's capacity in the North region enhanced to 24 mtpa and emerged a strong player.

As part of the deal, UltraTech also acquired two mtpa clinker and 0.3 mtpa cement capacity in China and 2 mtpa cement capacity in UAE. Thus, UltraTech currently owns 90 per cent stake in the Chinese joint venture and 49 per cent in the UAE venture.

This apart, UltraTech also got exposure to Binani 3B, a fibre glass company which has plants in Europe and Goa.

In 2012, erstwhile Binani Cement had given a corporate guarantee for Binani 3B to raise ₹1,600 crore from IDBI Bank. As part of the Binani Cement insolvency process, UltraTech cleared the corporate loan in full and taken over the exposure from IDBI Bank. Ultimately, UltraTech can now sell the ₹1,600 crore loan book separately and recover its money.

As market estimates, UltraTech can recover significant money paid for acquiring Binani Cement by selling of these overseas assets.

Similarly, in the case of yet-to-be closed deal with Aleris Corp, one of the world’s largest aluminium producers, Novelis Inc, a subsidiary of Hindalco Industries, may be able to reduce the overall acquisition cost below $2.68 billion.

Though the sale of assets in EU may reduce Novelis chances of gaining exposure to high-margin automotive body sheet business, it will bring down the acquisition cost by $150 million. Novelis which already has a significant presence in auto body sheet business, will gain access to aero sector after the deal.

Novelis is planning to sell part of Aleris’ assets at Duffel in Belgium and a unit in the US to get regulatory approval. There are good offers from two European buyers for the Duffel plant and may have to sell Lewisport Rolling Mill in the US, if the anti-competition body rules against the company.

Explaining the deal, Satish Pai, Managing Director, Hindalco Industries said the company has already tied up bridge loan of $1.5 billion for one year and equity of $775 million.

The European unit has to be sold by end of this month to get regulatory approval for the Aleris deal while the US asset can be sold at a later stage.

Published on November 14, 2019

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