Adani Group is an Indian multinational conglomerate, headquartered in Ahmedabad. It was founded by Gautam Adani in 1988 as a commodity trading business, with the flagship company Adani Enterprises Limited. The Group has diverse businesses like port management, electric power generation, and transmission, renewable energy, mining, airport operations, natural gas, food processing, and infrastructure. Recently Adani group agreed to acquire the two multinational cement companies Ambuja Cement and ACC Cement. So, let’s discuss the recent acquisition of Holcim’s stake in ACC and Ambuja Cement by Adani Group in this article as we move ahead.
Process of acquisition
- Adani group has made the SPV (Special Purpose Vehicle) for this acquisition and this SPV will be offshore.
- Through this SPV and Swiss Multinational Company Holcim Group, Adani group will acquire the Ambuja and ACC cement.
- Holcim group holds two companies Ambuja cement and ACC Ltd. In Ambuja they have a stake of 63.19% and 4.48% in ACC. But Ambuja cement has a 50.05% stake in ACC Ltd. Through Holcim group, Adani group directly holds 4.48% in ACC but through Ambuja cement, Adani group indirectly holds a 50.05% stake in ACC.
Acquisition value and size
- The acquisition is fixed for US $10.5 billion (Rs. 81000 crores approx.).
- It will be used in two parts. Some money will be used to buy the stake and others to take the open offer.
- An open offer is a choice given to the existing shareholder to sell their stake in the company to the new shareholder. When a company acquires more than 25% of assets in another company so during this the acquiring company has to give this open offer choice of a 26% stake to the shareholder of another company at a predetermined rate. It is mandatory to provide for the benefit of investors.
- In the case of this acquisition, rates are fixed at a premium, for ACC Ltd it is fixed at Rs. 2300 share (against the price of May 16 of Rs. 2210) and for Ambuja Cement Rs. 385 per share (against the price of May 16 of Rs. 369) price of the shares.
- Adani group has not disclosed how they were going to finance this huge amount of acquisition but they have said that they will use the good relations which they have with the banks like Barclays, Standard chartered, etc.
Advantage of acquisition
- Adani group will have a production capacity of 70 Million Tonnes Per Annum (MTPA), 23 cement plants, 14 Grinding Stations, 80 ready-mix concrete plants, and 50,000 channel partners.
- Earlier Adani group have nothing in the cement segment but after this acquisition, Adani group will be in the 2nd position, and UltraTech cement is in the 1st position with the capacity of 120 MTPA.
- Adani Group has a different segment of business that uses the cement a lot, so they will also be benefited from backward integration.
- Moreover, urbanization is going on in the country and the middle-class people are also getting an opportunity to have affordable housing, all of these will help the Adani group in their growth.
- Currently, there is 242 kg per capita Indian consumption in the cement segment whereas globally it is 525 kg per capita, there is a huge growth opportunity in this particular sector for the Adani group.
Disadvantage of acquisition
- Total cash with the Adani group is around Rs. 26,988.5 crore. and their long-term borrowing is Rs. 1,68,250.1 crore. And after this acquisition, their borrowing will continue to increase which could prove to be a matter of concern.
What should investors do?
An investor who is highly interested in the Adani group should keep a watch on their cash flow only then you can become wiser and more intelligent investors. Before investing investors should do the proper research and analysis of the group as well as the particular company.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.