ACC-Ambuja Cements Merger Put On Hold
Merger remains the ultimate goal, both ACC and Ambuja Cements said.
ACC Ltd. and Ambuja Cements Ltd. announced that they aren’t proceeding with the merger proposed in May last year.
“There are certain constraints to implementing the merger at present,” said the cement majors in separate stock exchange filings without elaborating on what the constraints were. The merger, however, remains the ultimate goal, the companies maintained.
The boards of both companies have approved an arrangement for sale and purchase of materials and services on mutually agreed terms in a bid to “maximise synergies and unlock additional value for shareholders,” the statements added. ACC and Ambuja Cements will disclose the details of the arrangement to its shareholders when it seeks their nod via postal ballot.
Sentiment Negative
The merger delay could prove to be negative for ACC, Rohit Natrajan, an analyst at IDBI Capital Markets wrote in a note to clients.
ACC was cheaper than Ambuja Cements. Though the exchange ratio was not decided, lot of investors pinned up hope for a favourable exchange ratio, implying a merger arbitrage. That may not be the case, as of now.Rohit Natrajan, Analyst - Institutional Equities, IDBI Capital Markets
The market was expecting a full merger and therefore higher synergies than the current form of reduced material swap will realise, according to Credit Suisse.
Ambuja had presented synergies of Rs 900 crore through the merger in 2013 and out of that less than half of the synergies were to come from the material swaps. Therefore, the development is weaker than market expected.Credit Suisse Report
Merger Proposal
On May 5, the firms had set up a special committee of directors to study the merger proposal, which would have led to the creation of India's second-largest cement company by market capitalisation.
Ambuja Cements and ACC are both owned by LafargeHolcim Ltd., one of the world’s largest manufacturers of building material. LafargeHolcim owns 63.56 percent stake in Ambuja through its investment arm Holderind Investments Ltd. It holds 50.5 percent stake in ACC through Ambuja Cements, and an additional 4.5 percent through its investment arm.