Holcim Revamp Triggers Biggest Drop in 21 Years at Ambuja

Ambuja Cements Ltd. fell the most in more than two decades as analysts cut recommendations for the stock after parent Holcim Ltd. asked the Indian company to pay $593 million to buy its stake in a subsidiary.

Ambuja plunged 12.7 percent to 167 rupees at 11:28 a.m. in Mumbai, the sharpest slump since April 1992, before ending the day at Rs 170.90. Ambuja will buy Holcim’s 50.01 percent stake in ACC Ltd. by paying 35 billion rupees ($593 million) to the world’s biggest cement maker and a share swap. ACC tumbled 4.3 percent to 1,178 rupees.

Brokerages including Bank of America Corp. and Religare Capital Markets cut their recommendation on Ambuja, saying the transaction won’t benefit minority shareholders. The value of the deal equals 92 percent of Ambuja’s cash and short-term investments, data compiled by Bloomberg show.

“Ambuja Cements will be parting away with its huge cash balance without any earnings per share accretion,” said Ajit Motwani, an analyst with Emkay Global Financial Services Ltd., who pared his recommendation on the stock to reduce from hold. The transaction “dilutes standards of corporate governance that could further impact its valuation.”

Ambuja held 38 billion rupees in cash and short-term investments as of March 31, the data show.
The transaction will have a “synergy potential” of 9 billion rupees to be got over two years after the deal is completed, Ambuja said in a statement yesterday. The benefits will be almost equally shared between ACC and Ambuja, according Onne Van Der Weijde, managing director of Ambuja Cements.

Mumbai-based Ambuja will first acquire a 24 percent stake in Holcim India Pvt. for 35 billion rupees. Holcim India will then be folded into Ambuja. That will enable Ambuja to control Holcim India’s 50.01 percent stake in ACC. Holcim India also owns 9.76 percent of Ambuja. Jona, Switzerland-based Holcim will control 61.39 percent of Ambuja after the merger.

Separate Brands

Ambuja will spend as much as 30 billion rupees to boost its stake in ACC by 10 percent without triggering an open offer for the remainder of the stock, according to the statement.

“ACC and Ambuja will remain separate brands with their separate management teams,” Der Weijde said in a conference call yesterday. “We have no plans to delist ACC and I want to be very clear about this.”

Holcim paid 21 billion rupees for a 14.8 percent stake in Gujarat Ambuja Cements Ltd. in January 2006. The holding was raised later by 20 percent following an open offer. Holcim bought shares in ACC a year earlier.

Bank of America lowered its rating on Ambuja “despite expected industry-wide earnings improvement,” Reena Verma and Amit Rathi, analysts at the brokerage, wrote in a report. “The upside potential from Ambuja’s earnings per share recovery may be dulled by potential concerns over the treatment of minority shareholders vis-a-vis its controlling shareholder.”

Source : Bloomberg


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