Deal Valued At `5K Cr, Set To Be A Stronger Rival To UltraTech Cement
Harsh Lodha-led Birla Corporation has agreed to acquire Lafarge India's two cement units in the eastern region in a deal valued at `5,000 crore. It will mark the biggest M&A play in the Kolkata-based company's nearly century-old history and make it a stronger rival to Kumar Mangalam Birla's UltraTech Cement.
Birla Corporation pipped several bulge-bracket private equity funds and strategic players to acquire Lafarge's Jojobera plant in Jharkhand and Sonadih in Chhattisgarh as the French MNC was forced to divest certain assets to conclude its global merger with Swiss major Holcim.
Birla Corp's ownership is locked in a legal dispute between Lodha and Birla families, something industry observers say could create obstacles for the big-ticket deal as it requires shareholder and court approvals. The ownership is under dis pute after Priyamvada Birla, the widow of M P Birla, named Harsh Lodha's chartered accountant father R S Lodha as the heir to her entire estate.
The Lafarge acquisition, subject to regulatory approvals, will cement Birla Corporation's rank among the top 10 players in the country with an annual capacity of 15 million tons. Lafarge's two cement units have a total capacity of 5.5 million tonnes with mineral rights over adequate reserves of limestone, while Birla Corporation has a capacity of 10 million tonnes with units in Rajasthan, Madhya Pradesh, Uttar Pradesh and West Bengal. The deal will be funded via a combination of internal accruals and debt. Birla Corporation currently has cash and cash-equivalents worth `2,200 crore on its books.
Birla Corporation, in a statement to the bourses, said the deal will consolidate its position in the eastern India cement market, where the demand supply scenario and outlook continue to remain buoyant. Harsh Lodha, chairman, Birla Corporation, said: “The acquisition business (of Lafarge India), together with the Concreto and PSC brands, perfectly fits into our strategic vision and ambition of enhancing our competitiveness in our chosen markets.“
“The acquisition business has a demonstrated track record of operational and commercial excellence with profitability amongst the highest in the industry aided by raw material linkages, strong distribution networks and excellent brand loyalty in the attractive Eastern India cement market,“ the statement said.
Birla Corporation posted a revenue of `3,200 crore in 201415. It has two major divisions -cement and jute. Cement comprises almost 90% of its turnover. Birla Corp stock went up by 19.27% to close at `540.25 on BSE on Monday .
Kishor P Ostwal, CMD, CNI Research, said, “Birla Corporation acquiring two Lafarge units is a right step as the cement sector is consolidating.Even UltraTech is looking to acquire Century's cement business.“
In April 2014, Holcim and Lafarge announced a $44 billion merger, creating the biggest cement company in the world. As part of the regulatory requirements, the companies had to sell certain assets from the portfolio in some geographies. In India, the Competition Commission of India (CCI) directed Lafarge to dispose of a couple of its cement plants to eliminate competition concerns.
Holcim and Lafarge were assessed for possible impact on competition in two regions--north-west and eastern India. CCI found that the merger was not impacting competition in the north-west region but said the combination would have around 37% of the capacity in the eastern region, which raised concerns. In a communiqué, Lafarge linked the deal to CCI clearance.
The acquisition of Lafarge India's two cement units by Birla Corporation, the flagship of the MP Birla Group, may come unstuck.There are questions being raised on the outcome of the deal, which is the biggest acquisition in the 96-year history of the Kolkata-based cement maker.
The ownership dispute between the Birla family and the Lodhas -who at present manage Birla Corporation -could create obstacles for the deal, people tracking the developments said. They expect a flare-up in the more than a decade-old Priyamvada Birla will controversy .
After the death of Priyam vada Birla in 2004, the widow of M P Birla, her will had named R S Lodha, a chartered accountant and close confidant of the family , as the heir to her entire estate which ran into $1 billion. This was hotly contested by the Birla family on the legal front. Today , the late R S Lodha's son, Harsh Lodha, is the chairman of Birla Corpo ration.
The M P Birla Group has around 63% in Birla Corporation. Lodha also has the support from financial institutions for running the company.
According to Anil Singhvi, chairman, Ican Investments, an advisory firm, and former MD of Ambuja Cements, there are doubts whether the Birla Corporation's deal to acquire assets of Lafarge India may get consummated. He said though the day-to-day affairs of the company are managed by Harsh Lodha, its ownership continues to be under legal dispute between the Lodhas and the Birla family , the original founders.
“I doubt whether Kumar Mangalam Birla (who is the chairman of Aditya Birla Group, which owns UltraTech Cement, the largest cement player in the country) will let pass this big-ticket acquisition as it requires both shareholder and court approval,“ said Singhvi.
Kumar Mangalam Birla reportedly has a minor stake in the company and he was one of the petitioners in the dispute between the Birla family and the Lodhas. An email sent to the Aditya Birla Group spokesperson on this matter did not elicit any response.
Debanjan Mondal, partner, Fox & Mondal, legal counsel of Harsh Lodha, however, said: “If required, appropriate shareholders resolution will be taken for the acquisition. This has nothing to do with the will dispute and it will not come in the way (of the deal).“
The enterprise value of the deal -`5,000 crore -is bigger than the market capitalization of Birla Corporation. Singhvi said the company would have to raise funds to finance the transaction, requiring mortgage of assets, which may be difficult given the ownership dispute.
