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esides, being in constanttouch with the world(especially the US), thelatest generation of theIndian business families

have developed different attitudes.Some of the Dalmias have becomeventure capital/private equityplayers. We don’t know what thenew generation of Neorias andSekhsarias who created the GujaratAmbuja group will do. Butcertainly their exit from ACC hasbeen nothing short of stunning andmay signify the changing mindsetof Indian business. This will haveprofound implications.

It will be worthwhile to recall

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There was a time whengovernment controls werestrong, capacity additionswere scarce, joining thefamily business was theonly thing a businessman’sson could think of. Familycontrol was paramount.Then India opened andmore capacities came in,but many of them had to besold off to stronger players.The Bombay Club raisedthe alarm that India will bebought over by foreignersand it too fell by the wayside. Indian businessmen began to loosen up a bitabout the ownership and control issue.

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that GACL paid a price of Rs 370 ashare to buy Tatas’ stake in ACCand in doing so it bend the rules oftakeover to avoid making an openoffer, convinced the regulatorabout it, went to court to defendthat position while to financialinstitutions it showed ACC as partof the group. After stretching bothits finances and governancenotions, it has just sold off its ACCstake to Holcim of Switzerlandwhile talking of a strategic alliancewith it.

Holcim is bringing in $800million into Ambuja Cement IndiaLtd (ACIL) an investmentcompany, which is holding the

shares of ACC and AmbujaCement Eastern Ltd (ACEL). Ofthis, $200 million will be used tobuy out 40% stake of private equityinvestors. Next, Holcim will pickup further 27% in ACIL, raising itsstake to 67%. Gujarat Ambuja willhold the balance 33%. Then ACILwill make an open offer to raise itsstake in ACC from 13.89% to50.01% and in ACEL to 100%. If theopen offer goes through, Holcimwill end up holding a 33.51% inACC and 67% in ACEL, throughits 67% stake in ACIL.

This is a clear sellout by GujaratAmbuja’s promoters. They havesold off Ambuja Eastern and alsotheir control over ACC for whichthey had overpaid and fought hardto legalise it with the help of abattery of lawyers. But they haveattempted to give a spin to all thisby talking strategic alliance. Whenasked why GACL decided to havethis arrangement with an MNClike Holcim instead ofconsolidating its hold on ACC,Anil Singhvi, the CFO came outwith elaborate arguments. Let ussummarise these and see how validthese were.

Private Equity Exits: GACL hadsold 40% to private equity playerswho needed to exit. GACL hadfour options, according to Singhvi.One, keeping its stake at 13.8%would have meant that GujaratAmbuja would have had to shellout around $170 million (about 2.5times its free cash flow in FY04) tobuy out the private equityinvestors. It claims that it did nothave the money. Two, cede controlto private equity investors, whichwas not desirable. Three, get newprivate equity investors buteventually that was not really a

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solution. The fourth and the “bestoption was to bring in a strategicinvestor who had the capital aswell as the expertise, which is whatwe did.” Thanks to the Holcimdeal, not only has the need to payout $170 million been averted, butGACL has actually ended up witha higher stake in ACC. There wereother options such as making anADR a domestic debt issue or anECB issue. GACL is a blue chipcompany, cement is doing verywell and its paper worth $170million would have been snappedup easily. Also, we wonder whatif the boards of GACL and ACChad decided to merge the twocompanies?

Strategic Alliance: According toSinghvi, GACL and Holcim haveentered into a strategic alliance forbusiness co-operation, not justfinancial collaboration. Thefundamental thing is thispartnership. The financialcollaboration is a fallout… blahblah. GACL is India’s youngestand best cement company. It is aremarkable story of enterprise,strategy and vision. Does it needbusiness cooperation? And that too

for a business in India that itdominates in by ceding control ina company it has gone to greatlengths to acquire control of?Cement technology is basic.Holcim brings nothing to the table.Bajaj Auto has acquired Kawasakitechnology without getting intoany financial stakes. Will MukeshAmbani invite Formosa Plasticsinto IPCL? Singhvi also talks of notgetting just capital. “We want theirexpertise too. GACL will now haveaccess to their entire businesspractices and processes, the use ofinformation technology, the use ofwaste material, the use ofalternative fuels, sourcing of fuel(Holcim has access to coalmines inIndonesia through a subsidiary),various new applications ofcement, and so on.” Sure, Relianceneeds access to Shell’s research onfuel cells. Why not give them amajority stake in RIL?

Higher stake: Analysts alsocheered it saying that this will giveGujarat Ambuja an effective stakeof 16.5% in ACC, up from itscurrent effective holding of 8%. ButGACL is not exactly a privateequity player. What would it dowith a larger stake if the control isgone?

Finally, if it is all aboutcollaboration, why does Holcimhave a call option and GACL havea put option in ACIL? What wehave noticed is that all the talkingfor GACL was being done by aprofessional manager of thecompany. GACL’s sellout of ACCwhen India is “about to take off”for decades of prosperity issignificant. Expect manyinteresting moves by Indianfamilies on the issue of ownershipand control in future.