merger - samrudhhi cement & ultratech
Post on 20-Feb-2018
297 Views
Preview:
TRANSCRIPT
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
1/27
Merger of Samruddhi Cement with
UltraTech Cement
Date of Announcement of Deal: 15-11-2009
Date of Merger: 01-07-2010
Merger Entities: UltraTech(Acquirer) and Samruddhi(Target)
Deal Value: $826.44 Million
Nature of the Merger: All stock deal, Consolidation
Industry: Cement Industry
Chandan Gupta | PGP28086
Geete Sagar | PGP28083
Rajya Lakshmi | PGP28111Deekshita Bhist | PGP28199
Neeharika Velavarthy | PGP220
Meghana Katiki | PGP28230
Piyush Chowdhary | PGP28337
Section B | Group 5
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
2/27
Contents
Industry Overview
Porters 5 Forces Cement Industry VRIOAnalysis
Value Chain Analysis
Corporate Strategies followed by Target
Merger Motives
Due Diligence
Deal Structuring
Market Reaction
SDC Data Analysis
Unique Aspects
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
3/27
Industry Overview
2nd largest cement
producer and
consumer (world)
Production of cement in India was nearly 250 Mn
tonnes in FY2012, next only to China
Comprises 183 large and 356 mini cement plants
High growth rate
Production CAGR of 10% registered over FY06-FY13
Immense momentum in capacity addition driven by
growth in construction and infrastructure industry
Fragmented industry
with concentration in
geographic regions
Over 100 players present in the cement industry
Players are concentrated share-wise in the regions
that they are present in
C
t
c
a
S
e
F
o
s
C
Location
Consolidation
Distribution
Operating
efficiencies
Cement is a bulky and commodity-like product.
The cement industry is cyclical in nature; growth is
hampered and spurred in turn by the construction an
infrastructure industry
The cement industry is sensitive to legal and public
actions due to the environmentally-unfriendly nature
its processes
34%
53%
13%
Market Sha
Pan-India Regiona
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
4/27
Porters 5 Forces Cement Industry
arriers to Entry HIGH
High investments, significant
economies of scale, immensedistribution requirements
Threat of rivalry MEDIUM
Few firms in each region.
However, commoditized nature ofproduct ensures limited inter-firm
rivalry
argaining power of buyer
Cement firms are major play
their respective regions
High transportation costs le
bargaining power
Supplier argaining Power
MEDIUM
Fuel (coal), electricity & freight
companies are localized andmonopolistic, hence possess
some bargaining power
Threat of substitutes LOW
No major substitute to cement
found as of yet
Plastics, fly ash and bitumen maypose very limited threat
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
5/27
S
m
r
u
C
m
e
Competency Valuable Rare Inimitable Organization
com
Product innovation Yes Yes No Yes
Environment-friendly Yes Yes Yes Yes
Location/Presence Yes Yes No Yes
VRIO - Analysis
U
t
a
h
C
m
e
Competency Valuable Rare Inimitable Organization
com
Product versatility Yes No No Yes
Raw material sourcing Yes Yes Yes Yes
Production Technology Yes Yes Yes Yes
Logistics efficiency Yes Yes No Yes
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
6/27
Cement Production - Process
Quarrying
Raw materials Manufacture Distribution
Limestone
Clay/Shale
Sand/Ash
Fuel Coal,
Gas
Mixing
Grinding
Burning
Milling
Warehousing
Transportation
Sales/Delivery
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
7/27
Value Chain AnalysisUltraTech
Procurement
Greatest strength of
UltraTech lies in its raw
material sourcing
High quality raw
material quarries in
possession
Locked-in resources
through long-term lease
contracts
Technology
Development
Focused on
development of state of
the art tech to improve
efficiencies and seek
advances in products.(UltraTech Annual Report 2011)
Deep pockets and
backing by Aditya-Birla
Group allow investment
in Tech development
Human Resource
Management
New initiatives to
provide growth
opportunities within
organization and stem
attrition
Rollout of Employee
Value Proposition and
Career Portal Platform(UltraTech Annual Report 2011)
Marketi
Immense focus
increasing brand
awareness throu
associations an
sponsorships
Close monitori
usage patterns,
awareness and
draw insights int
consumer beha
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
8/27
Value Chain AnalysisSamruddhi
Human Resource
Management
Culture of high
performance encouraged
Implementation of
PeopleSoft HRMS,
variable pay plan and job
bands (Samruddhi AnnualReport 2009-10)
Technology
Development
Heavily focused on R&D
to develop innovations in
cost optimization and
environment protection(Samruddhi Annual Report 2009-
10)
Sustainable
development and
alternative methods of
production stressed on
Distribution
Pan India presence of
Samruddhi eases
distributional constraints
Significant division of
capacity across all major
regions of India
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
9/27
Corporate Strategies
UltraTech Cements aims to prevail over mutedgrowth by keeping long-term fundamentals and
growth prospects intact (UltraTech Sept. 2013 Business India)
UltraTech has been looking at ramping up capacity
and presence across local markets and regions
through its acquisitions.
Acquisitions have been few and well-paced. The
motives behind these deals are majorly propelled
by intent of gaining market share, access to new
locations and addition of specialty products to the
portfolio.
Export has also been recognized as a thrust area
in the companys strategy for growth. Opportunities
for global acquisitions have also been explored to
this end.
1
2
3
4
UltraTech Cements Ltd.
Aggressive growth and immense flex
stressed. Aim is to grow faster than t
(moneycontrol.com)
Continues to focus on increase in m
share and taking marketing initiatives
create differentiation
De-merged from Grasim Industries t
creation of pure-play cement operatio
turn increased focus
1
2
3
Samruddhi Cemen
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
10/27
Merger MotivesUltraTech Cement Ltd. (Acquirer
Size and scale
The merger would make the new entity the largest cement corporation in Indi
and propel it into the top 10 cement companies in the world (by size)
The move would help UltraTech scale up its operations by virtue of the size of
two merging entities. 48.8 million TPA of grey cement across 22 plants, 504 M
captive thermal power plants and 11.7 million cubic meters of ready mix concr
across 68 plants.
Geographical
Diversification
The merger would result in pan India presence with facilities covering almo
entire country. UltraTech will become a pan-India player with a 20 per cent mar
share.
It will also provide platform to diversify into neighbouring countries
Addition to product
portfolio
UltraTech Cements stresses on possessing a wide portfolio of cement-based
products
Amalgamation with Samruddhi would assure it of new products such as white
cement and wall-care putty
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
11/27
Merger MotivesSamruddhi Cement Ltd. (Target
Cross-selling Synergy expected from cross selling various products - putty/RMC/White cem
alongside mainstream products delivered by UltraTech Cements Ltd.
Enhanced
Shareholder Value
With merger, it will become 'must hold' cement stock in India
Enhanced financial flexibility to help in accelerated growth
Platform for
aggressive growth
Upon effectiveness of the merger, Grasim will retain a strategic and controllin
interest in UltraTech while providing UltraTech flexibility for future fund raising
Availability of raw
materials
Presence of sizeable limestone reserves to fuel future growth
Access to UltraTechs quarries and raw material reserves which form a major
strength of the company
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
12/27
Pre Merger Scenario
Grasim
Separate cement division
Controlling stake in UltraTech cement
De-merger of Grasim Cement
Cement division of Grasim to be de-merged into Samrudhhi
100% subsidiary
Eventual Equity stake in Samrudhhi: 65% Grasim ,35 %
Grasims existing shareholder
Samrudhhi to be listed post demerger
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
13/27
Due Diligence
Economic factors affecting the sector
(20082009) Economic slowdown affecting the industry Drastic fall in demand of cement
Monetary PolicyAggressive monetary expansion by RBI to spurt up demand, cred
available at low rates
Growth in the sector Cement sector forecasted to grow at 10% CAGR till FY13, indus
capacity in 2009 not enough to meet demand in future
Technological risks in target Some of the plants of Samruddhi cement required capital
expenditure (1800 Cr.) to bring them on par with Ultra tech ceme
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
14/27
Post Merger Scenario (1/2)
Capacity UltraTech Samruddhi Combined
Grey CementMillion
TPA23.1 25.7# 48.8
Composite
PlantsNo 5 6 11
Grinding plants No 6 5 11
White CementMillion
TPA- 0.6 0.6
TPPs MW 236 268 504
RMCNo. 32 Plants 36 Plants 68 Plants
MillionCu.M
4.99 6.76 11.76
Key Investments -Subsidiaries
80% Equity inLanka
100% Equity in
Harish Cements
Ltd.
CombinedInvestments
Market Share : Grey
Cement
(Source:CMA)
9% 10% 19%
# Including grinding mills operation in Q3-FY10
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
15/27
Post Merger Scenario (2/2)
Combined Financials
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
16/27
Highlights of the Restructuring
The shareholders of Samruddhi Cement (SCL),Grasim's demerged cement business would receive
four shares of UltraTech (UTC) for every sevenshares of SCL
Post-merger of SCL, UTC would be the largestcement company in India, with 49.4mt capacity(including white cement) and the 10th largest in the
world.
The merger ratio of 0.57x (UTC:SCL) values SCL at
US$107/ton (at UTC's current market price ofRs729) as against UTC's current valuation ofUS$79/ton (pre-merger).
The deal is marginally favourable to Grasim'sminority shareholders, with economic interest incement capacities going up from 29.1mt to 29.4mt.
Post merger, Grasim will own 60.3% stake in UTC.
The appointed date of the merger is 1 July 2010.
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
17/27
Deal Structuring
All stock deal - Consolidation, Non taxable transaction
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
18/27
Term Sheet (1/2)
Consideration
the exchange ratio approved by both boards is 4 (four) equity shares of UltraTech of faceRs.10 each for every 7 (seven) equity shares of Samruddhi of face value Rs.5 each.
Ownership
UltraTech will issue 14.95 crore new shares, thereby increasing its equity capital t274.20 crore
Ownership in merged company: Grasim: 60.33%, Ultratech minority shareho
20.57% & Grasim shareholders: 19.1%
Price
Offer Price per share : Rs 729.40
Total Enterprise Value of Target: Rs 8702.03 Cr (30/09/2009)
Transaction value(not including net debt of target): Rs. 3816.5 Cr
Transaction value (including net debt of Target): Rs 5831.3 Cr
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
19/27
Term Sheet (2/2)
Deal Details Deal Type: Merger
Acquisition Technique: Internal Reorganization
Appointed date for the merger: July 1, 2010
the merger is to be undertaken through a court-approved scheme of amalgamation uSections 391 to 394 of the Companies Act, 1956.
Expected Synergies The combined entity's PAT will stand 140 per cent higher than the standalone PAT o
UltraTech Cement
At the operating level, there has been a significant saving, particularly in fuel costs.
Combined captive power capacity of UltraTech Cement and Samruddhi Cement willstand at 504 MW post-merger
The debt-to-equity ratio of the combined entity will be less than 0.5
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
20/27
Organization Issues
Similar underlying culture because of same Parent
A special Merger Implementation Committeewas constituted at thBoard level, under the Chairmanship of a Non-Executive IndependentDirector for evaluating the consolidation of the cement business asproposed by Samruddhi Cement Limited (Samruddhi)
No layoffs
Name of Member No of Meetings Sitting fees paid(Rs.)
Held Attended
G.M.Dave 3 3 60,000
N.J.Jhaveri 3 2 40,000
D.D Rathi 3 3 60,000
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
21/27
ACQUIRER FIRMS MODES
ACCULTURATION
Post merger integration - Culture
How much does the acquired firm value
preservation of its own culture?
Perception
ofattractivenessof
theacquirer
Very much Not at all
Attractive
Integration Assimilation
Notatt
ractive
Separation De-culturation
TARGET FIRMS MODES OF
ACCULTURATION
Degree of Multi-Culturism
D
iversification
Strategy
D
egreeofrelated-ness
Multi-Cultural Uni-Cul
Related
Integration Assimila
Unrelated
Separation De-cultu
An agreement appears to exist in the mode of acculturation assimilation among both tarand acquirer firms.
A S f l D l
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
22/27
A Successful Deal
The deal made the company 10th largest in the world and largest in India
Company got stronger hold on distributors because of its market size Pricing in cement industry could now be dictated by the company
Pan-India presence enabled faster service, wider distribution and low cost
Source: The Hindu, moneycontrol.com
INVESTORS CONFIDENCE
Share price increased by over 57% in next two years, currently higher by 128% when compared to 15 Nov, 200
The merger will achieve the group's objective of consolidatin
its cement business into a single entity, thereby creating a
platform that will help in pursuing aggressive growth goingforward.
Fi i ll h C T k Hi
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
23/27
Financially the Company Took a Hit
Six Month Later
Profit margins hit due to oversupply in short term
Economic slowdown affected the off take of cement in South India, which accounted for 33% of sal
Raw materials cost rose by over 12%, while price of cement remained flat
Company faced acute shortage of wagons Transportation cost rose by over 10%
Huge capital expenditure to the tune of Rs 10,000 Cr planned between 2009-2012
Company continued on acquisition spreeETA star cement
Source: ultratechceme
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
BSE ret
Ultrate
Market Reactions
A l i f M k R i
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
24/27
Analysis of Market Reaction
Assumptions and Calculations
A clean period -40 day to240 day was chosen to calculate the Alpha and Beta of the stock using regression a
Predicted returns were then calculated for the period of -10 day to +10 day
Predicted return = Alpha + Beta * Market return
Difference between Actual return and Predicted return was calculated
The mean of difference turned out to be zero
Time period P(T0.05
- 3 day to +3 day 0.25882055 0.517641101Cannot reject null hypothesis because
p>0.05
Inference
There was no significant effect on the share price as a result of announcement by the company of acquisition
The results obtained from T test performed on Actual returns vs. Predicted returns yielded the
following:
U i A f h D l (1/2)
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
25/27
Unique Aspect of the Deal (1/2)
Date
Announce
d
Target
Name
Acquirer
Name
% of
Shares
Acq.
%
Owned
After
Trans-action
Value of
Transacti
on
($mil)
Value
inc. Net
Debt
of Target($Mil)
15/11/200
9
Samrudd
hi
Cement
Ltd
UltraTec
h
Cement
Ltd
100.00 100.0 826.443 1,262.71
5
09/11/201
3
Jaypee
Cement-
Cement
Unit(2)
UltraTec
h
Cement
Ltd
100.00 100.0 600.704 600.704
10/06/2010
BinaniCement
Ltd
BinaniIndustrie
s Ltd
25.11 95.0 96.441 96.441
05/09/200
8
Indorama
Cement
Ltd
Mysore
Cements
Ltd
100.00 100.0 41.194 41.194
10/14/200
5
Everest
Industries
Ltd
Everest
Finvest(I
ndia)Pvt
Ltd
50.00 50.0 22.173 22.173
In order of Value of Transaction; Target Industry: Stone, Clay, Glass and
Concrete products; Target Short Business: Cement and related
Largest deal in the sector in terms of value
Date
Announce
d
Target
Name
Acqu
Nam
11/15/20
11
Andhra
Cements
Ltd
Jaype
Deve
ent C
Ltd
01/31/20
07
Vinay
Cements
Ltd
Inves
Grou
10/16/20
05
Everest
Industries
Ltd
Evere
Finve
dia)P
10/14/20
05
Everest
Industries
Ltd
Evere
Finve
dia)P
10/03/20
09
Samruddh
i Cement
Ltd
UltraT
Ceme
Ltd
10/06/20
10
Binani
Cement
Ltd
Binan
Indus
Ltd
Source Database: Special Mergers Sector, SDC
Date
Announced
Target NameAcquiror
Name
Ratio of
Enterprise
Value to
Sales10/14/2005 Everest
Industries
Ltd
Everest
Finvest(India
)Pvt Ltd
.996
01/31/2007 Vinay
Cements Ltd
Investor
Group
1.160
10/06/2010Binani
Cement Ltd
Binani
Industries
Ltd
1.390
10/03/2009 Samruddhi
Cement Ltd
UltraTech
Cement Ltd
2.075
Date
Announced
Target NameAcquiror
Name
Ratio of
Enterprise
Value to
Net
Income
01/31/2007 Vinay
Cements Ltd
Investor
Group
8.145
10/06/2010BinaniCement Ltd BinaniIndustries
Ltd
10.739
10/03/2009Samruddhi
Cement Ltd
UltraTech
Cement Ltd
16.991
Highest ratio of enterprise value to sales Highest ratio of deal va
Highest ratio of enterprise value to Net
Income
U i A f h D l (2/2)
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
26/27
Unique Aspects of the Deal (2/2)
D Muthukumaran, Head Group Corporate Finance of AV Birla Group:
The company did not directly sell the cement business to UltraTech, its wholly-owned subsidiary, a
would have involved huge taxation. Even if we find a solution for the tax issue, the shareholders ofGrasim will not get direct exposure in the eventual cement company
Grasim didnt Merge Cement Biz with UltraTech
Restructuring
Grasim and UltraTech shareholdersto have direct holding in thecement company
Deal gives financial flexibility togrow faster
Post merger will support UltraTechto maintain its credit rating
Operating Efficiency
The merged entity becomes amongthe more efficient cementproducers in the country.
For FY-10, Grasim Industries'standalone numbers showed netprofit margin improve by fourpercentage points to 19 per cent.
The combined entity's PAT stands140 per cent higher than thestandalone PAT of UltraTechCement
All-India presenc
UltraTech Cement, whichpredominant player in theand southern market, gai
access to markets of the Nafter its merger with SamCement.
UltraTech Cement got cloper cent share of the greymarket in India and becomlargest cement manufactucountry with an all-India p
-
7/24/2019 Merger - Samrudhhi Cement & Ultratech
27/27
Thank You
top related