Holcim, the world's fourth largest cement producer, is considering restructuring its Indian operations by merging its two subsidiaries, Ambuja Cements and ACC. Holcim owns over 50% of both companies. It has hired an investment bank to evaluate options like merging the two companies or creating a new entity to combine them. A merger could reduce costs through synergies but integrating the older ACC units may be challenging. Any restructuring plan would require approval from minority shareholders and regulators and could face antitrust scrutiny given the companies' large combined market share in India.

1. GLOBAL PLAN TO SAVE ON COSTS
Ambuja, ACC to be Merged in Holcim Rejig
Holcim, the world’s fourthlargest cement producer, plans to carry out a substantial
restructuring of Indian operations that could include a much-anticipated merger between its
two local subsidiaries — Ambuja Cements and ACC. In both these entities, Holcim owns a
little more than 50%.
The Swiss giant has tasked a global investment bank with evaluating various options on
how the two operations could be combined, said multiple sources aware of the
developments. But they added the exercise is at a preliminary stage and cautioned that
there is still no certainty about the shape of the eventual outcome.
One option could be to merge both the firms. Yet another option could be to create a new
company and then issue shares of the new entity to the shareholders of both. The second
option, say the sources quoted earlier, is a more complex and expensive one. It is,
however, almost certain that Holcim will maintain both the existing brands in India, even
post-merger. “The initiative is being spearheaded from Holcim’s headquarters for the past
few months. This is part of a bigger strategy that has been underway to optimise operations
through common synergies, cost controls, etc,” said one of the officials mentioned
above. ACC, Ambuja Account for 20% of Holcim’s Global EBITDA
“But it (the proposal for a merger) is still at an exploratory stage and has not yet been taken
up by the boards of the two subsidiaries,” said one of the officials mentioned above, who is
privy to the ongoing discussions.
Currently, ACC and Ambuja account for almost 20% of Holcim’s global EBITDA. “So, a
decision will be taken only after a detailed analysis and (with) extreme caution. This is a
strategic market for them,” he added.

2. Holcim, however, denied any plans to bring ACC and Ambuja together. “At this point in
time, there are no plans to merge the two Indian companies,” said Peter Stopfer, the global
head of media relations at Holcim, in an email response. But responding to specific queries
on roping in external advisors to suggest a restructuring blueprint, Stopfer said, “We are
constantly exploring opportunities to improve collaboration and efficiencies between the two
companies.”
Board members of ACC and Ambuja said that there had been no discussion on the subject.
However, some are expecting the matter to come up at Ambuja’s upcoming board meeting
scheduled later this month. If merged, ACC and Ambuja will have an annual combined
capacity of 58 million tonnes. It will then be a close second to Aditya Birla Group’s
UltraTech, which is the largest national player with a combined capacity of around 62
million tonnes. The ACC-Ambuja combine will become among the world’s top 15
companies. Both the companies are planning to add 9 million tonnes by October 2015,
which will take their capacity to 69 million tonnes.
In 2006, Holcim acquired management control in Ambuja Cements. A year earlier, it had
teamed up with Gujarat Ambuja to buy a majority stake in ACC. In 2011, the founder-
promoters of Ambuja Cement — Narotam Sekhsaria and his partner Suresh Neotia —
exited the company by selling their residual 0.79% stake to a unit of Holcim. Sekhsaria,
however, remains the chairman of both ACC and Ambuja. Since then, Holcim has
embarked on an initiative to increase synergies between the two companies. For example,
the two firms already have a common procurement centre with representatives from the
two companies, which operate out of ACC’s Thane office. From coal to raw materials,
explosives and packaging, most of the important purchases worth Rs 12,000 crore are
done jointly to save costs. This also dovetails with a global programme initiated in May
2012, called the Holcim Leadership Journey, which aims to battle the slowdown in the EU
by achieving organic growth, reducing costs and improving top line. According to the
company, the target is to increase the return on invested capital to at least 8% after tax
between 2012 and the end of 2014. Increasing operating profit by at least 1.5 billion Swiss

3. Francs by the end of 2014 is also part of the programme. Operational synergies and
shareholding apart, most of the senior Holcim global leadership is already overseeing the
two Indian operations via the boardroom. Bernard Fontana, the global CEO of Holcim, is a
member on the boards of both the Indian entities. So is his colleague Paul Hugentobler,
who is a member of the global executive committee. Onne van der Weijde, the current MD
of Ambuja Cements, has been the former CFO of ACC. His deputy, Ajay Kapur, who is now
the company’s CEO, has been a former executive assistant of Sekhsaria.
Analysts are a divided lot. “There will be significant reduction in fixed and freight costs. And
I would say this would be in sync with what Holcim has always wanted. They have
gradually absorbed the local conditions for all these years. A merger was inevitable as it
makes life so much simpler for them. The question was always ‘when’,” said the cement
analyst of a leading foreign brokerage on the condition of anonymity.
However, Holcim does not have the balance sheet globally to push through a merger, feels
a London based research analyst who tracks the company. “They will have to convince the
minority shareholders of the two companies,” he felt. Some worry about integrating the two
operations with plants of varying vintages. “ACC’s units are older than Ambuja’s. It’s not
exactly a homogenous business,” said a former senior official of the company. The transfer
of assets will also attract a stamp duty that can vary from 5-10% across states. “A merger
can also face regulatory challenges and the Competition Commission may investigate both
the combined market share and its impact on trade practices,” the former executive
warned.
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